815600B7FD80E48C18962021-01-012021-12-31815600B7FD80E48C18962021-12-31815600B7FD80E48C18962020-12-31815600B7FD80E48C18962020-01-012020-12-31815600B7FD80E48C18962019-12-31815600B7FD80E48C18962019-12-31ifrs-full:IssuedCapitalMember815600B7FD80E48C18962019-12-31ifrs-full:TreasurySharesMember815600B7FD80E48C18962019-12-31ifrs-full:ReserveOfCashFlowHedgesMember815600B7FD80E48C18962019-12-31ext:OtherReservesAndRetainedEarningsMember815600B7FD80E48C18962019-12-31ext:ProfitLossAttributableToOwnersOfParent815600B7FD80E48C18962019-12-31ifrs-full:EquityAttributableToOwnersOfParentMember815600B7FD80E48C18962019-12-31ifrs-full:NoncontrollingInterestsMember815600B7FD80E48C18962020-01-012020-12-31ext:OtherReservesAndRetainedEarningsMember815600B7FD80E48C18962020-01-012020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember815600B7FD80E48C18962020-01-012020-12-31ifrs-full:NoncontrollingInterestsMember815600B7FD80E48C18962020-01-012020-12-31ext:ProfitLossAttributableToOwnersOfParent815600B7FD80E48C18962020-12-31ifrs-full:IssuedCapitalMember815600B7FD80E48C18962020-12-31ifrs-full:TreasurySharesMember815600B7FD80E48C18962020-12-31ifrs-full:ReserveOfCashFlowHedgesMember815600B7FD80E48C18962020-12-31ext:OtherReservesAndRetainedEarningsMember815600B7FD80E48C18962020-12-31ext:ProfitLossAttributableToOwnersOfParent815600B7FD80E48C18962020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember815600B7FD80E48C18962020-12-31ifrs-full:NoncontrollingInterestsMember815600B7FD80E48C18962021-01-012021-12-31ext:OtherReservesAndRetainedEarningsMember815600B7FD80E48C18962021-01-012021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember815600B7FD80E48C18962021-01-012021-12-31ifrs-full:NoncontrollingInterestsMember815600B7FD80E48C18962021-01-012021-12-31ifrs-full:TreasurySharesMember815600B7FD80E48C18962021-01-012021-12-31ext:ProfitLossAttributableToOwnersOfParent815600B7FD80E48C18962021-12-31ifrs-full:IssuedCapitalMember815600B7FD80E48C18962021-12-31ifrs-full:TreasurySharesMember815600B7FD80E48C18962021-12-31ifrs-full:ReserveOfCashFlowHedgesMember815600B7FD80E48C18962021-12-31ext:OtherReservesAndRetainedEarningsMember815600B7FD80E48C18962021-12-31ext:ProfitLossAttributableToOwnersOfParent815600B7FD80E48C18962021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember815600B7FD80E48C18962021-12-31ifrs-full:NoncontrollingInterestsMember815600B7FD80E48C18962020-01-012020-12-31ifrs-full:ReserveOfCashFlowHedgesMember815600B7FD80E48C18962021-01-012021-12-31ifrs-full:ReserveOfCashFlowHedgesMemberiso4217:EURiso4217:EURxbrli:shares 2021 Report on Operation Report on Operations 2021 these Financial Statements are available at the website 2 Letter to Shareholders and Stakeholders 20214 Corporate boards 7 1 Key figures of the A2A Group 1.1 Business Units 10 1.2 Geographical areas of activity 12 1.3 Group structure 14 1.4 Financial highlights at December 31, 2021 15 1.5 Shareholdings 18 1.6 A2A S.p.A. on the Stock Exchange 19 1.7 Alternative Performance Indicators (APM) 22 2 Sustainability responsible management 2.1 Sustainability responsible management 30 3 Scenario and Market 3.1 Macroeconomic scenario 36 3.2 Energy market trends 39 4 Evolution of the regulation and impacts on the Business Units of the A2A Group 4.1 Generation and Trading Business Unit 45 4.2 Market Business Unit 49 4.3 Waste Business Unit 55 4.4 Smart Infrastructures Business Unit 62 5 Consolidated results and report on operations 5.1 Summary of results, assets and liabilities and financial position 82 5.2 Significant events during the year 91 5.3 Significant events after December 31, 2021 99 5.4 Outlook for operations 100 5.5 Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend 101 Contents A2A Report on Operations 2021 3 6 Analysis of main sectors of activities 6.1 Summary of results sector by sector 104 6.2 Results sector by sector 108 6.3 Generation and Trading Business Unit 110 6.4 Market Business Unit 113 6.5 Waste Business Unit 116 6.6 Smart Infrastructures Business Unit 119 6.7 Corporate 123 7 Risks and uncertainties 7.1 Risks and uncertainties 126 8 Other information 8.1 Other information 138 This is a translation of the Italian original “Relazione sulla Gestione 2021” and has been prepared solely for the convenience of international readers. In the event of any ambiguity the Italian text will prevail. The Italian original is available at the website . 4 Shareholders, Stakeholders, The year 2021 was characterized by repeated pandemic waves that, however, thanks to an extensive and effective vaccination campaign, did not prevent the return to a situation of almost normality. In a context of economic recovery and turbulence in the commodities market, A2A created value for all its stakeholders and confirmed its capacity for industrial and economic growth, as witnessed by the excellent results achieved in terms of operating margins, the record number of investments made during the year and the strengthening of its presence in Italy. The activities carried out during 2021 fully fit into the two growth pillars outlined in the recently updated 2021-2030 Strategic Plan: circular economy and energy transition. In fact, 2021 saw us engaged in important agreements and acquisitions related to the bioenergy field (acquisition of Agripower, a company managing and developing biogas power generation plants), industrial waste treatment (acquisition of TecnoA, leading company in central-southern Italy in this sector) and the increase in installed power from renewable sources (acquisition of 17 photovoltaic plants from Octopus for installed capacity of 173 MW). These developments have been accompanied by major investments to increase the resilience of the electricity grid and make it more reliable even in the event of extreme weather events and to contribute to the increasing electrification of consumption. A strong push was also given to investments aimed at recovering energy and materials, upgrading the water and sewage networks and digitalizing the Group. In total, acquisitions and new investments amounted to around 1.8 billion euro, around double the amount budgeted for 2020\. The economic results for 2021 were satisfactory and up compared to both 2020 and 2019, a year characterized by the absence of the effects of the Pandemic: EBITDA stood at 1,428 million euro (+19% compared to 2020), thanks to both solid industrial growth of the Business Units and the contribution of new acquisitions, and Net Income reached 504 million euro (+38% compared to the previous year). The economic-financial performance is solid: the Consolidated Net Financial Position at December 31, 2021 amounted to 4,113 million euro (3,472 million euro as at December 31, 2020). Excluding changes in scope that took place throughout 2021, NFP came to 3,366 million euro, recording cash generation of 106 million euro, after total investments for 1,074 million euro and dividends for 248 million euro. The international tensions of these days have re-proposed the need for the country to obtain strategic assets to enable us to better defend ourselves from market turbulence and the consequent increase in the cost of energy, to the benefit of all citizens. A2A, in continuing along the path outlined in the 2021-2030 Strategic Plan updated in January 2022, proves to be a necessary player in these processes of national transformation, developing infrastructures that can contribute to making our country energy independent and achieving the sustainability objectives set by Europe. 2021 was the year in which the Group accelerated on sustainable finance: in May 2021, we adopted a new Sustainable Finance Framework which, for the first time in Italy, combines two different approaches \- Green/Use of Proceeds and KPI-Linked \- and we issued financial instruments thanks to which the A2A sustainable debt quota Letter to Shareholders and Stakeholders 2021 Letter to Shareholders and Stakeholders 2021 5 A2A Report on Operations 2021 General Manager Renato Mazzoncini Chairman of the Board of Directors Marco Patuano reached 44% of total debt. We have improved our positioning in all sustainability rankings and have been included in the new MIB ESG Index launched by Euronext and Borsa Italiana. On environmental performance, 2021 was characterized by a recovery in energy demand compared to 2020 and by a particular situation in the European electricity market, which saw prolonged shutdowns for maintenance of nuclear plants in France, with the consequent demand for more production by the Italian thermoelectric sector. This has led to an increase in the Group’s direct emissions and CO2emission factor to 330 g/kWh (up 6% from 2020 but down 22% when compared to 2017, the Science Based Target year). The average rate of separate waste collection remains constant at 71% for all the territories served, as does the rate of urban waste recovered: of this only 0.5% ends up in disposal or, marginally, in landfills. In 2021, we strengthened the digital transformation process by leveraging smart working that involved more than 5,000 thousand people and created a digital identity for more than 4,000 resources in operating departments. We have continued to support the communities in which we operate not only with initiatives, which in 2021, amounted to about 6 million euro, but also by involving about 44 thousand students and teachers in environmental education initiatives. Lastly, our role as a Life Company has also taken concrete form in our relations with customers: 5 TWh of green energy have been sold (an increase of 29% compared to 2020) and A2A Energia has acquired 49% of the capital of a company specializing in the provision of installation and maintenance services for energy efficiency, distributed generation and electric mobility products for the consumer segment. The results reported are the outcome of concrete actions and joint efforts which make sense because they are guided by a single common awareness: the identity of A2A as a Life Company. Closeness to people and knowledge of the local area, commitment to guaranteeing essential services, long-term sustainability, transparency and innovation are the founding values of A2A, which frame and support the company’s strategy aimed at the objectives of circular economy and energy transition. Letter to Shareholders and Stakeholders 2021 7 A2A Report on Operations 2021 Corporate Boards Board of Directors CHAIRMAN Marco Emilio Angelo Patuano DEPUTY CHAIRMAN Giovanni Comboni CEO AND GENERAL MANAGER Renato Mazzoncini DIRECTORS Stefania Bariatti Vincenzo Cariello Federico Maurizio d’Andrea Luigi De Paoli Gaudiana Giusti Fabio Lavini Christine Perrotti Secondina Giulia Ravera Maria Grazia Speranza Board of Statutory Auditors CHAIRMAN Giacinto Gaetano Sarubbi STANDING AUDITORS Maurizio Leonardo Lombardi Chiara Segala ALTERNATE AUDITORS Antonio Passantino Patrizia Tettamanzi Independent Auditors EY S.p.A. Corporate boards 1 Key figures of the A2A Group 10 10 1 Key figures of the A2A Group * The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 1.1 Business Units The A2A Group operates in the production, sale and distribution of gas and electricity, district heating, environmental services and the integrated water cycle. These sectors are in turn attributable to the “Business Units” specified in the following scheme identified following the reorganization made by management: This breakdown into Business Units reflects the organization of financial reports regularly analyzed by management and the Board of Directors in order to manage and plan the Group’s business. Generation and Trading • Thermoelectric, hydroelectric and other renewable plants • Energy Management Market • Sale of Electricity and Gas • Energy efficiency • Electric mobility Waste • Waste collection and street sweeping • Treatment • Disposal and energy recovery Smart Infrastructures* • Electricity networks • Gas networks • Integrated water cycle • District Heating services • Heat management services • Development and management of technological infrastructures for integrated digital services • Public lighting Corporate • Corporate services 1 Key figures of the A2A Group Business Units Geographical areas of activity Group structure Financial highlights at December 31, 2021 Shareholdings A2A S.p.A. on the Stock Exchange Alternative Performance Indicators (APM) 11 A2A Report on Operations 2021 12 12 1 Key figures of the A2A Group 1.2 Geographical areas of activity Hydroelectric plants Thermoelectric plants Cogeneration plants Biomass plants Photovoltaic plants Wind plants Waste treatment plants Technological partnerships Updated to December 31, 2021 1 Key figures of the A2A Group Business Units Geographical areas of activity Group structure Financial highlights at December 31, 2021 Shareholdings A2A S.p.A. on the Stock Exchange Alternative Performance Indicators (APM) 13 A2A Report on Operations 2021 14 14 1 Key figures of the A2A Group 1.3 Group structure Generation and Trading Market Waste Smart Infrastructures* Other Companies This chart shows the most significant shareholdings of the A2A Group. Reference is made to annexes 3, 4 and 5 of the file of the Consolidated Financial Statements for a complete detail of shareholdings. 135.70% held through Linea Ambiente S.r.l.. 230% held throughA2A Integrambiente S.r.l.. *The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 1 Key figures of the A2A Group Business Units Geographical areas of activity Group structure Financial highlights at December 31, 2021 Shareholdings A2A S.p.A. on the Stock Exchange Alternative Performance Indicators (APM) 15 A2A Report on Operations 2021 1.4 Financial highlights at December 31, 2021 (**) Income statement figures millions of euro 01 01 2021 12 31 2021 01 01 2020 12 31 2020 Restated Revenues 11,549 6,848 Operating expenses (9,400) (4,945) Labour costs (721) (703) Gross operating income \- EBITDA 1,428 1,200 Depreciation, amortization, provisions and write-downs (768) (646) Net operating income \- EBIT 660 554 Result from non-recurring transactions \- \- Financial balance (70) (81) Result before taxes 590 473 Income taxes (36) (99) Net result from discontinued operations (4) (6) Minorities (46) (4) Group result of the year 504 364 Gross operating income/Revenues 12.4% 17.5% (**) The figures serve as performance indicators as required by CESRN/05/178/B. 11,549 mln € REVENUES 1,428 mln€ GROSS OPERATING INCOME 0.0904 € per share DIVIDEND 504 mln € RESULT OF THE YEAR 16 16 1 Key figures of the A2A Group Balance sheet figures millions of euro 12 31 2021 12 31 2020 Net capital employed 8,416 7,588 Equity attributable to the Group and minorities 4,303 4,116 Consolidated net financial position (4,113) (3,472) Consolidated net financial position/Equity attributable to the Group and minorities 0.96 0.84 Consolidated net financial position/EBITDA 2.9 2.9 Financial data millions of euro 01 01 2021 12 31 2021 01 01 2020 12 31 2020 Net cash flows from operating activities 1,135 597 Net cash used in investing activities (1,595) (802) Free cash flow (Cash Flow Statement figure) (460) (205) Energy scenario 12 31 2021 12 31 2020 Average of the PUN (Single Nationwide Price) Base load (Euro/MWh) 125.0 38.9 Average of the PUN (Single Nationwide Price) Peak load (Euro/MWh) 139.8 44.6 Average price of gas to the PSV (*) (Euro/MWh) 45.8 10.4 Average price of emission certificates EU ETS (**) (Euro/tonne) 53.4 24.8 (*) Price of gas of reference for the Italian market (**) EU Emissions Trading System 1 Key figures of the A2A Group Business Units Geographical areas of activity Group structure Financial highlights at December 31, 2021 Shareholdings A2A S.p.A. on the Stock Exchange Alternative Performance Indicators (APM) 17 A2A Report on Operations 2021 Group’s key operational indicators 12 31 2021 12 31 2020 Generation and Trading Thermoelectric production (GWh) 14,078 12,233 Hydroelectric production (GWh) 4,231 4,408 Electricity sold to wholesale customers (GWh) 14,043 14,116 Electricity sold on the Power Exchange (GWh) 18,909 15,306 Market Electricity sold to retail customers (GWh) 18,426 15,012 POD Electricity (#/1000) 1,383 1,270 of which POD Electricity Free Market 938 823 Gas sold to retail customers (Mcm) 2,711 2,365 PDR Gas (#/1000) 1,573 1,614 of which PDR Gas Free Market 935 868 Waste Waste collected (Kton) 1,893 1,660 Residents served (#/1000) 4,065 4,117 Waste disposed of (Kton) 3,423 3,348 Electricity sold by waste-to-energy (GWh) 2,082 1,954 Smart Infrastructures Electricity distributed (GWh) 11,423 10,673 Gas distributed (Mcm) 3,448 2,996 Water distributed (Mcm) 76 77 RAB Electricity (M€) 753 692 RAB Gas (M€) 1,578 1,538 RAB Water (M€) 411 379 Heat sales (GWht) 3,178 2,836 Cogeneration production (GWh) 297 298 18 18 1 Key figures of the A2A Group 1.5 Shareholdings (*) (*) Source CONSOB for stakes higher than 3% (update at December 31, 2021). Key figures of A2A S.p.A. 12 31 2021 12 31 2020 Share Capital (euro) 1,629,110,744 1,629,110,744 Number of ordinary shares (par value 0.52 euro) 3,132,905,277 3,132,905,277 Number of treasury shares (par value 0.52 euro) - 23,721,421 1 Key figures of the A2A Group Business Units Geographical areas of activity Group structure Financial highlights at December 31, 2021 Shareholdings A2A S.p.A. on the Stock Exchange Alternative Performance Indicators (APM) 19 A2A Report on Operations 2021 1.6 A2A S.p.A. on the Stock Exchange A2A stock is also traded on the following platforms: Aquis, BlockMatch, CBOE, Chi-X, ITG Posit, Tradegate, Turquoise, UBS MTF. On May 26, 2021 A2A distributed a dividend equal to 0.08 euro per share. In 2021 A2A obtained the following ESG ratings: Assessment Rating MSCI BBB CDP Climate Change A- CDP Water B- Refinitiv A- Standard Ethics EE Vigeo 63/100 Sustainalytics 21/40 Moreover, A2A has been included in the Ethibel Excellence Investment Register, in the Ethibel Pioneer Investment Register and in the CDP Supplier Engagement Leaderboard. A2A S.p.A. in figures (Italian Stock Exchange) Market capitalisation at December 30, 2021 (millions of euro) 5,389 Share capital at December 30, 2021 (shares) 3,132,905,277 2021 Average market cap (millions of euro) 5,259 Average daily volumes (shares) 10,371,909 Average price (€/share) 1.68 Maximum price (€/share) 1.95 Minimum price (€/share) 1.31 Source: Bloomberg A2A forms part of the following indices FTSE MIB STOXX Europe 600 STOXX Europe 600 Utilities EURO STOXX EURO STOXX Utilities MSCI Europe Small Cap WisdomTree International Equity S&P Global Mid Small Cap Ethical Indices MIB ESG FTSE4Good ECPI Indices Ethibel Sustainability Index Excellence Europe EURO STOXX Sustainability Index Euronext Vigeo Index: Eurozone 120 Standard Ethics Italian Index Bloomberg Gender Equality Index Source: Bloomberg and company information 20 20 1 Key figures of the A2A Group Rating Current Standard & Poor’s M/L Term Rating BBB Short Term Rating A–2 Outlook Stable Moody’s M/L Term Rating Baa2 Outlook Stable Source: Rating agencies 1 Key figures of the A2A Group Business Units Geographical areas of activity Group structure Financial highlights at December 31, 2021 Shareholdings A2A S.p.A. on the Stock Exchange Alternative Performance Indicators (APM) 21 A2A Report on Operations 2021 Dividend/average share price for the year (dividend yield) 22 22 1 Key figures of the A2A Group Net Investments millions of euro Gross Operating Income millions of euro 1.7 Alternative Performance Indicators (APM) 1 Key figures of the A2A Group Business Units Geographical areas of activity Group structure Financial highlights at December 31, 2021 Shareholdings A2A S.p.A. on the Stock Exchange Alternative Performance Indicators (APM) 23 A2A Report on Operations 2021 Net Financial Position millions of euro Net Financial Position/EBITDA Dividend euro per share 24 24 1 Key figures of the A2A Group Alternative Performance Measures (APM) In this Report on Operations, a number of Alternative Performance Measures (APM) have been used that are different from the financial indicators expressly provided for by the international accounting standards IFRS-EU adopted by the Group. These alternative measures are used by the A2A Group in order to more effectively submit information on the profitability of the business in which it operates as well as on the financial situation, useful to improve the overall capacity to assess financial and equity performance. These indicators are shown in the “Summary of results and financial position of the A2A Group”. For the Income Statement and the Balance Sheet, the comparative values refer to December 31, 2020. With reference to alternative indicators, on December 3, 2015, Consob issued Communication no. 92543/15, which transposes the Guidelines on the use and presentation of Alternative Performance Measures as part of regulated financial information, issued on October 3, 2015 by the European Securities and Markets Authority (ESMA). These Guidelines \- which have updated the CESR Recommendation on Alternative Performance Measures (CESR/05 \- 178b) \- are intended to promote the usefulness and transparency of alternative indicators to improve their comparability, reliability and understanding. On July 15, 2020, ESMA also published a new version of its Guidelines on disclosure requirements pursuant to the prospectus regulation (ESMA/31-62-1426), applicable from May 5, 2021 and updating the previous CESR Recommendations (ESMA/2013/319), with the aim of providing issuers with indications relating to the assessment of relevant information to be included in the financial disclosure. In accordance with the Guidelines, the descriptions, content and bases of calculation used for the construction of the Alternative Performance Measures adopted by the Group are described below. Gross operating margin Gross operating margin is an alternative indicator of operating performance, calculated as the sum of “Net operating income” plus “Depreciation, amortization, provisions and write-downs”. This APM is used by the A2A Group as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors) and represents a useful measure to assess the operating performance of the Group (both as a whole and in terms of individual Business Unit), also through a comparison between the operating results of the reporting period with those relating to previous periods or years. This indicator also allows conducting analyses on operational trends and measure performance in terms of operational efficiency over time. Result from non-recurring transactions The Result from non-recurring transactionsis an alternative performance measure designed to highlight the capital gains/losses arising from the valuation at fair value of non-current assets sold and the results from the sale of equity investments in unconsolidated subsidiaries and associated companies and other non-operating income/expenses. This measure is positioned between net operating income and the financial balance. In this way net operating income is not affected by non-recurring operations, making it easier to measure the effective performance of the Group’s ordinary operating activities. Net fixed assets Net fixed assetsis determined as the algebraic sum of: tangible assets; intangible assets; capex accounted for using the equity method and other non-current financial assets; other non-current assets and liabilities; deferred tax assets and deferred tax liabilities; provisions for risks, charges and liabilities for landfills; employee benefits. This APM is used by the A2A Group as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors) and represents a useful measure of the net fixed assets of the Group as a whole, also through the comparison between the reporting period with those relating to previous periods or years. This indicator also allows conducting analyses on operational trends and measure performance in terms of operational efficiency over time. 1 Key figures of the A2A Group Business Units Geographical areas of activity Group structure Financial highlights at December 31, 2021 Shareholdings A2A S.p.A. on the Stock Exchange Alternative Performance Indicators (APM) 25 A2A Report on Operations 2021 Net Working capital Net Working capital is determined as the algebraic sum of: inventories; trade receivables and other current assets; trade payables and other current liabilities; current tax assets/tax liabilities. This APM is used by the A2A Group as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors); it represents a useful measure of the ability to generate cash flow from operations within a period of twelve months, also through the comparison between the reporting period with those relating to previous periods or years. This indicator also allows conducting analyses on operational trends and measure performance in terms of operational efficiency over time. Invested capital/Net invested capital Invested capital/Net invested capital is calculated as the sum of Net fixed capital, Net Working capital and Assets/Liabilities held for sale. This APM is used by the A2A Group as the financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors); it represents a useful measure for the evaluation of total net assets, both current and fixed. Sources of funds Sources of fundsare calculated by adding “Shareholders’ Equity” and “Total Net Financial Position”. This APM is used by the A2A Group as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors) and represents the various sources by means of which the A2A Group is financed and the degree of autonomy that the A2A Group has in comparison with third party capital. This indicator also allows measuring the financial strength of the A2A Group. Net financial position/Net debt Net financial position/Net financial debtis an indicator of the financial structure, calculated as the sum of net financial position beyond one year and net financial position within one year. Specifically, total net financial position beyond one year is obtained from the algebraic sum of: Total medium and long-term debt: the item includes the non-current portion of Bonds, Bank loans, Financial leases and Other non-current liabilities. Pursuant to the new ESMA recommendations, this item should also include the non-current portion of trade payables and other non-interest-bearing payables with a significant implicit financing component (payables with maturities of over 12 months); Total medium and long-term financial receivables: this item includes Non-current financial assets (including those with related parties) and Other non-current assets. The net financial position within one year is derived from the algebraic sum of: Total short-term debt: this item includes the portion due within twelve months of bonds, bank loans, financial leasing, current financial liabilities to related parties and other current liabilities; Total short-term financial receivables: this item includes Other current financial assets (including to related parties) and Other current assets; Cash and cash equivalents and Cash and cash equivalents included in assets held for sale. This APM is used by the A2A Group as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors) and is useful for the purposes of measuring the Group’s financial debt, also through the comparison between the reporting period with those relating to previous periods or years. The net financial position of the A2A Group is calculated in accordance with Consob communication no. DEM/6064293 of July 28, 2006 and in accordance with Recommendation ESMA/2013/319. 26 26 1 Key figures of the A2A Group Investments in tangible and intangible assets Investments in tangible and intangible assetsare extrapolated from the information contained in the Notes of the Balance Sheet. This APM is used by the A2A Group as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors) and is a useful measure of the resources used in the maintenance and development of the investments of the A2A Group (as a whole and in terms of individual Business Unit), also through the comparison between the reporting period with those relating to previous periods or years. This allows the A2A Group to conduct analyses on investment trends and measure performance in terms of operational efficiency over time. Investors should not place undue reliance on these APM and should not consider all APM as: (i) an alternative to operating or net profit as calculated in accordance with IFRS; (ii) an assessment of the Group’s ability to meet cash needs alternative to as deduced from the cash flow from operating, investing or financing activities (as determined in accordance with IFRS); or (iii) an alternative to any other performance measure provided by IFRS. These Alternative Performance Measures derive from the historical financial information of the A2A Group and are not intended to provide indications relating to future financial performance, financial position or cash flow of the Group. Moreover, these APM were calculated uniformly for all periods. 2 Sustainability responsible management 30 30 2 Sustainability responsible management 2.1 Sustainability responsible management In 2021, sustainability \- in addition to remaining at the center of international policies and of common feeling as a crucial factor for a “happy” growth, made of respect for the environment, social equality and inclusive development, which leaves no one behind \- represented the only possible answer to satisfy the desire and the need to return to a more or less “normal” life, without dispersing the good things that the emergency phase of the COVID-19 pandemic taught us. The European Union, for its part, with the Long-Term Budget and the Next Generation EU \- the largest package of stimulus measures it has ever financed \- has made available to member countries over 2,000 billion euro1to repair the damage caused by the COVID-19 pandemic, over 8002of these (the Next Generation EU) have been allocated to make Europe green \- translated in the language of the Life Company, blue \- digital and resilient, in the full knowledge that sustainable development is now the only possible model. A2A’s new Strategic Plan, presented on January 20, 2021, has fully embraced the EU’s ambitions, making them its own. A long-term plan \- to 2030 \- which envisages development based on two crucial elements for everyone’s future: the energy transition, or rather the production and use of clean energy, accelerating decarbonization and encouraging the electrification of consumption; and the circular economy. For A2A, this means generating new resources in the form of matter and energy, reducing waste to protect the environment and preserve the Planet’s resources. This Plan represents our “decade of action”, an ambitious plan characterized by 90% investment in line with the objectives of the UN’s 2030 Agenda, with the aim of making a concrete contribution to the country’s sustainable development. On April 29, 2021, the fifth Group Integrated Report was presented to the A2A Shareholders’ Meeting, which for the fourth year, is also the Non-Financial Statement pursuant to Legislative Decree 254/16. This document continues to be drawn up according to rigorous and internationally shared standards and methodologies, in particular the Integrated Reporting Framework (IR Framework) and the international standards of the Global Reporting Initiative (GRI). In this edition, in line with the new Strategy, a new and challenging long-term Sustainability Plan \- 2021-2030 \- was published, which, in addition to incorporating the sustainability objectives contained in the new Strategic Plan, includes more specific objectives linked to its “enabling levers”, i.e.: Digital, People and Governance. In addition, for the first time a new section has been included dedicated to the management of financial risks connected with climate change, in line with the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD), with the aim of providing the world of finance with all the information it needs to properly assess A2A’s strategy for managing climate-related risks and opportunities. The alignment has also been positively evaluated by the CDSB (Climate Disclosure Standard Board) \- the international organization that brings together leading business and environmental organizations and works to promote the integration of TCFD disclosure within corporate reporting. Thanks to the new long-term strategy and A2A’s continuous effort to align its reporting to the highest international standards, in the early months of 2021, Standard Ethics confirmed its positive rating of EE (Strong) in the short term for the third year running and confirmed its medium-term rating of EE+ (Very Strong). In addition, in March, A2A’s outlook was raised from “Stable” to “Positive”. The company has been confirmed in the six ethical indices in which it is included (FTSE4Good Index, ECPI Indices, Ethibel Sustainability Index Excellence Europe, EURO STOXX Sustainability Index, Euronext Vigeo Index, Eurozone 120, Standard Ethics Italian Index). A2A also underwent the CDP (formerly the Carbon Disclosure Project) assessment this year, which confirmed its “A-” rating in Climate Change, placing A2A in a leadership band, compared with a sector average of “B”. In October, A2A was included in the new MIB ESG index launched by Euronext and Borsa Italiana, the first dedicated to blue-chip listed companies in Italy. It aims to identify best practices at ESG (Environmental, Social, and Governance) level. Finally, in the early months of the year, it was also included for the first time in Bloomberg’s Gender Equality Index. These confirmations are due to both the A2A Group’s new emissions policy, which has made the decarbonisation targets even more ambitious, aligning them with the Paris Climate Agreement of 2015, and to the attention given by the Group to other fundamental issues such as Diversity. Furthermore, in 2021, the Group approved and adopted three new policies: the Policy on Human Rights, which defines the set of ethical principles, values and rules of conduct that must inspire the activities of all those who operate, internally or externally, in the sphere of action of the Group; the Policy on Responsible 1 This amount is expressed in current prices. Equivalent to 1,800 billion euro in 2018 prices. Source https://ec.europa.eu/info/strategy/recovery-plan-europe_it 2 This amount is expressed in current prices. Equivalent to 750 billion euro in 2018 prices. Source https://ec.europa.eu/info/strategy/recovery-plan-europe_it 31 A2A Report on Operations 2021 Procurement, which reaffirms the Group’s commitment to promoting and supporting all the values and principles affirmed by international institutions and conventions on the subject of sustainability throughout the supply chain (from the adoption of supplier selection policies, to the use of fair and transparent processes that provide for the integration of sustainability criteria, to the promotion of social and environmental responsibility practices among suppliers); the Policy on Stakeholder Engagement, which defines the guidelines through which A2A involves its stakeholders. The year 2021 then saw A2A accelerate the development of Sustainable Finance products. In May 2021, the new Sustainable Finance Framework was published. It is a set of guidelines to reinforce the link between the Group’s financial and sustainable strategy. With this update \- compared to the previous 2019 Green Financing Framework \- A2A is among the first issuers of the sector, and the first in Italy, to adopt a Framework that combines two approaches: the Green Use of Proceeds, which allows maximum transparency about the use of proceeds for specific projects, and the new Sustainability-Linked component, which allows a comprehensive reading of the Group’s strategy. A set of Key Performance Indicators (KPIs) has in fact been identified and included in the Framework. It reflects the two pillars of A2A’s strategic plan, energy transition and the circular economy, and confirms the Group’s commitment to the achievement of the Sustainable Development Goals of the UN 2030 Agenda. Selected KPIs: Scope 1 CO2emission factor increased installed capacity from renewable sources treated waste intended for material recovery in fact concern ESG targets that contribute to the achievement of UN SDGs 7, 11, 12 and 13. The Sustainable Finance Framework, which covers any type of financial instrument, has been prepared in compliance with the Green Bond Principles (2018) and Sustainability-Linked Bond Principles (2020) published by the International Capital Market Association (ICMA), and the Green Loan Principles (2021) and Sustainability-Linked Loan Principles (2019) published by the Loan Market Association (LMA). Vigeo Eiris, one of the leading international ESG rating agencies, issued a Second Party Opinion confirming the robustness of the Sustainable Finance Framework and attesting its alignment with ICMA and LMA principles. The agency also highlighted A2A’s commitment to the development of sustainable finance and its “Advance” position as an issuer. As part of the new Sustainable Finance Framework, three important funding transactions were concluded for the Group: a Sustainability-Linked credit line linked to the achievement of two sustainable targets (installed capacity and material recovery) and with a mechanism for donating the savings (or higher cost) to the non-profit organisation Banco dell’Energia Onlus, the first Sustainability-Linked Bond, related to the achievement of the Scope 1 CO2emission factor target in 2025, consistent with the Science Base Target commitment approved in March 2020; and a new Green Bond the net proceeds of which will go to finance strategic circular economy and energy transition projects aligned with the European Taxonomy (in particular the “climate change mitigation” objective). The Sustainable Finance Framework was updated in February 2022 (with Second Party Opinion issued by Vigeo Eris), aligning with Green Bond Principles (2021) and Sustainability-Linked Bond Principles (2020) published by the International Capital Market Association (ICMA), and the Green Loan Principles (2021) and Sustainability-Linked Loan Principles (2021) published by the Loan Market Association (LMA). Following the update of the Framework, the second Sustainability-Linked Bond, linked to achievement of the target for installed capacity from renewable sources, was placed on the market. A2A, in line with the update of the Group’s Strategic Plan presented in January 2022, aims to reach a share of 3.0 GWh or more by 2024\. This important goal also contributes to the achievement of UN SDGs 7 and 13. As far as territorial sustainability is concerned, 2021 was characterized by a renewed approach for A2A. A new way of sharing the story of the Group’s commitment in its territories has been defined, based on three key words: People (social sustainability), Planet (environmental sustainability), Prosperity (economic sustainability). Areas identified by the World Economic Forum with the document “Towards Common metrics and consistent Reporting of Sustainable Value Creation”. However, that is not all. The opportunity was also taken to renew the events for the presentation of the territorial budgets, transformed into meetings \- digi/phygital \- structured in two distinct moments: the first of dialogue with local stakeholders (forumAscolto), i.e. a moment of discussion on 10 topics dedicated to ecological transition. The so-called 2 Sustainability responsible management Sustainability responsible management 32 32 2 Sustainability responsible management 10 “right turns” to be implemented locally, identifying the enabling levers most suitable for supporting change; the second is a presentation \- open to the public \- in which A2A’s top management illustrated the Territorial Sustainability Report, A2A’s new Strategic Plan and the results of the forumAscolto. This new cycle of meetings opened on June 22 with Friuli Venezia Giulia and continued with meetings dedicated to Piedmont, Valtellina and Valchiavenna, Bergamo, Brescia and Milan, followed by a final workshop held on October 6 in the Lombard capital, during which the results of the territorial forums were compared and commented on by experts of international standing, starting with the American economist Jeffrey Sachs, Director of the Center for Sustainability Development at Columbia University. The Reports and results of the forumAscolto are published, from time to time, in the dedicated section of the Group’s website “A2A for its territories”. As part of the stakeholder listening program, the activity continued with a path of listening and involvement that concerned the Sicilian territory, the forumAscolto Sicilia, created to make people understand the strategic value of the project for reconversion of the power plant of San Filippo del Mela (ME) as an energy hub for the sustainable transition of the Sicily Region. The initiative, which was held on July 13, 2021, was preceded by activities of analysis and listening to stakeholders to understand the perception and expectations of the territory towards the conversion project. The results of this first phase were analyzed in the study, prepared by The European House \- Ambrosetti, which supported A2A in this process, “The redevelopment of the San Filippo del Mela Center as a lever for the sustainable transition of Sicily”, focused on the economic, social and environmental implications deriving from the reconversion projects planned for the San Filippo del Mela site. During the forumAscolto, some local stakeholders also contributed to the discussion, offering their point of view to enrich the moment of comparison as much as possible, and the two projects were presented, selected as part of the Challenge for Sicily, the initiative launched by A2A in June 2021 to identify innovative ideas capable of favouring the sustainable evolution of the territory and, potentially, finding application in the Group’s activities and in the relative supply chains. The issue of stakeholder inclusion and engagement is increasingly central to supporting various business processes: updating materiality analysis, drafting non-financial statements, assessing performance, identifying ESG trends, supporting sustainability planning and sustainable governance, and managing risk and reputation. In mid-2021, a new Stakeholder Management process was launched, aimed at managing stakeholder relations in a more continuous and integrated manner across the different areas of the Group. The objectives were to: update stakeholder mapping by transforming it into a tool to easily identify the most influential categories that require the most care, develop an Annual Engagement Plan in line with the goals of the Strategic Plan, and map engagement activities, verifying their correspondence to corporate objectives and stakeholder interests. In order to ensure stronger focus on sustainability issues within the Business and Staff Departments, Focal Points (around 25) have been identified which, interfacing with the Sustainability Development structure, have the task of integrating sustainability into business processes, enhancing new projects associated with these issues, promoting communication and the exchange of information for activities related to sustainability and gathering the needs and expectations of the stakeholders with whom they interface. As far as the Banco dell’Energia is concerned \- the social responsibility project that emerged from the Brescia forum in 2015 \- promoted by A2A with Fondazione AEM and Fondazione ASM, the phase has been concluded of selecting the winners from the third edition of the “Doniamo Energia” call for tenders promoted in collaboration with Fondazione Cariplo and reserved for the networks supported under the two previous editions. These associations have already promoted projects capable of intercepting fragile families at an early stage and are able to give a rapid and immediate response to that segment of the population that has found itself in need due to the economic and social repercussions of the COVID-19 health emergency. 17 projects have been awarded resources and are currently being implemented. In December 2021, Banco dell’energia Onlus also launched the manifesto “Together to fight energy poverty”, to make actions in support of energy poverty more widespread and effective, involving a wide network of signatories, among which Acquedotto Pugliese, Adiconsum, Adoc, AISFOR, Comunità di Sant’Egidio, Croce Rossa Italiana, ENEA, Federconsumatori, Fondazione Utilitatis, Fratello Sole, Gruppo Hera, Iren, Lega Consumatori, Legambiente, Leroy Merlin, Metropolitana Milanese S.p.A., NextEnergy Foundation, Italian Observatory on Energy Poverty OIPE, (RI)GENERIAMO, RSE, Signify-Philips, Utilitalia. As far as educational activities are concerned, A2A proposes various educational activities for schools on the themes of the circular economy and the energy transition. Among the novelties of this year, a series of webinars in collaboration with DeA Scuola that has already actively involved more than 1,800 teachers, a social campaign with ScuolaZoo composed of 5 podcasts and 5 vidcasts with 170,000 total views at the 33 A2A Report on Operations 2021 end of the year on channels close to young people such as Instagram and YouTube and a training project in Bergamo on district heating and its advantages, with the support of eco-designers for the development of students’ creativity. The national Ecogame A2A competition was also launched, thanks to which primary and first-grade secondary schools will be able to take part in a digital challenge that enables them to put themselves to the test by acquiring transversal skills on energy transition. The “Sustainability Olympics” also continue, created with the aim of involving and developing greater awareness of the so-called “Generation Z” on the meaning of sustainability, which involve over 670 classes of more than 200 second-grade secondary schools throughout Italy for the 2021-2022 school year. The project is developed in collaboration with Elis, a consortium that promotes quality vocational training. In April, the three winning classes will participate in the Creathon (creative marathon), which will be organized as part of Earth Day 2022\. 2 Sustainability responsible management Sustainability responsible management 3 Scenario and Market 36 36 3 Scenario and Market 3.1 Macroeconomic scenario Overview Global economic activity slowed in the first half of 2021 due to an increase in COVID-19 infections, uneven progress in vaccination campaigns, and the imposition of restrictive measures. In late spring, the rapid progression of vaccination campaigns and the gradual restart of many economic activities spurred growth in the world economy. According to the World Bank's preliminary estimate, global GDP is expected to increase by 5.5% on average in 2021\. The advanced economies have been more resilient than expected, showing greater diligence to lock-downs, faster vaccination campaigns and a good response to the additional economic stimulus measures introduced. In contrast, the slowdown in emerging economies was more pronounced due to deteriorating epidemiological conditions and the slow pace of the vaccination campaign. As for advanced economies, the Federal Reserve estimates US GDP to grow by +5.5% in 2021 with a recovery from the previous year, however still characterized by supply-side halts. China's GDP increased +8.1% in 2021 accelerating from +2.2% in 2020, a year in which growth was sharply affected by the first wave of the pandemic (source: National Bureau of Statistics in Beijing). Of note, momentum slowed significantly in the last quarter of the year due to several Coronavirus outbreaks in the country, the housing crisis and supply chain bottlenecks. In the fourth quarter of 2021, China's GDP grew only +4.0% while economic growth in the first, second and third quarters was +18.3%, +7.9% and +4.9%, respectively. According to the preliminary estimate drawn up in December by the experts of the Eurosystem, the GDP of the Eurozone will rise by 5.2% in 2021 thanks to the recovery of economic activity and the easing of restrictions on companies. The main national and global assessment bodies such as ISTAT, Bank of Italy and OECD agree on the boom of the Italian economy in the year 2021\. After the unprecedented fall observed in 2020, the Italian economy is rebounding strongly with a forecast of GDP growth at a rate of +6.3% in 2021\. The recovery in GDP was driven by an increase in industrial production and the recovery of the services sector, all flanked by a very sustained increase in consumption. According to the preliminary estimate released by Eurostat, inflation in the Eurozone rose to +5.0% in December after +4.9% in the previous month: in the same month of the previous year, the value registered -0.3%. The energy component was the fastest growing component (up 25.9% from December 2020 and up 0.4% from November 2021). On average in 2021, the inflation target is +2.6%, the highest value since the start of the monetary union: the main reasons are to be found in the exceptional increases in the energy component and in particular gas, which is also affected in Europe by geopolitical factors. In Italy, according to preliminary estimates by Istat, in December 2021, the national consumer price index (NIC) recorded a change of +3.9%. On average for the year, consumer prices grew by +1.9% from -0.2% in the previous year. This is the largest increase since 2012 (+3%). The upturn in inflation was essentially driven by the increase in the price of energy carriers, which stood at +14.1%. Since the outbreak of the COVID-19 emergency, rapid and significant interventions by several central banks have been crucial to prevent an even greater decline in confidence and asset prices. In all major countries, monetary and fiscal authorities have put in place significant expansionary measures to support household and corporate income, credit to the economy and liquidity in the markets. Of particular importance was the activation and creation of swap lines between the major central banks to provide liquidity at international level. At its meeting on March 10, the European Central Bank (ECB) left the reference rate at an all-time low of zero, reaffirming its commitment to maintain it at its current levels at least until inflation converges to values close to 2%. The European Central Bank (ECB) has signalled that during the first quarter of 2022, the amount of the Pandemic Emergency Purchase Program (PEPP) will be reduced, terminating by the end of March 2022; the proceeds will be reinvested until at least the end of 2024\. In line with a gradual reduction in asset purchases, the Governing Council of the ECB changed the timing of the Asset Purchase Programme (APP). Specifically, purchases will be at a monthly pace of 40 billion euro in April, 30 billion euro in May and 20 billion euro in June. In the third quarter, purchases will be recalibrated based on macroeconomic data trends. In particular, if new data confirm the expectation that the medium-term inflation outlook will not weaken even after the conclusion of net asset purchases, the Governing Council will end net purchases under the APP in the third quarter. Conversely, if the medium-term inflation outlook changes and financing conditions become inconsistent with further progress toward the 2% target, the Governing Council stands ready to revise the timing of net asset purchases in terms of size and/or duration. At its December meeting, the Federal Reserve (FED) decided to leave interest rates unchanged in the 0.00-0.25% range, and announced its intention to 37 A2A Report on Operations 2021 hold them steady until labour market conditions reach levels consistent with its assessment of maximum employment. At the January 26 meeting, the decision to leave rates unchanged was confirmed: Federal Reserve Chairman Jerome Powell expects a rate increase at the March meeting if current conditions remain unchanged. The tapering, i.e. the reduction of monetary stimuli, has accelerated: purchases of government bonds have been reduced, from January, by 20 billion dollars per month. The year 2021 began with a EUR/USD exchange rate above 1.21 dollars, which remained around 1.20 dollars throughout the first half of the year. Starting in July, the single currency began to weaken against the dollar due to the energy crisis in Europe, rising inflation and the divergence of monetary policy between the European Central Bank and the Federal Reserve, settling below 1.14 dollars in December. On average for the year 2021, the EUR/USD exchange rate was 1.18 dollars, up 3.7% from the previous year. Outlook The forecasts from leading research institutes and government agencies below may be subject to further revision due to the ongoing conflict between Russia and Ukraine. Given the uncertainty regarding the outcome of the crisis, it is currently very difficult to quantify the potential impact of the conflict on the global economy: much will depend on its intensity and duration. The only certainty at the moment seems to be that the Eurozone will pay the heaviest bill due to its dependence on Russian energy supplies, while lesser repercussions are expected in the United States and Asia. The World Bank cuts economic growth estimates: global GDP is expected to grow by +4.1% in 2022 (compared to +4.3% assumed last June) and then settle at +3.2% in 2023\. After a strong rebound in 2021 with GDP estimated at +5.5%, the global economy is entering a pronounced slowdown caused by, in addition to the Ukraine crisis, the emergence of new variants of COVID-19, rising inflation, rising debt, persistent supply bottlenecks, and reduced support from both governments and central banks. The outlook for the global economy shows an uneven trend across countries. In advanced economies, the acceleration of the vaccination campaign has allowed a gradual reopening of activities with higher contact rates, and fiscal stimulus measures have helped increase demand by reducing spare capacity and lowering the risks of serious long-term repercussions from the pandemic. Growth in advanced economies is expected to increase from +5.0% in 2021 to +3.8% in 2022 and +2.3% in 2023. The Federal Reserve has projected that the US economy will grow +2.6% in 2022 and then slow to +2.3% in 2023\. Japan's GDP, after +1.8% in 2021, is expected to rise to +3.4% in 2022 (upward revision of 1.3%) and +1.1% in 2023\. China is expected to post +5.1% both this year and next (source: OCSE). In emerging and developing economies, a significant reduction in GDP is expected: from an estimated +6.3% in 2021 to +4.6% in 2022 and +4.4% in 2023\. Indeed, many emerging economies are of concern, whose growth will continue to be affected by slow vaccination campaigns, greater exposure to the risk of new variants, and the resulting containment measures. Growth forecasts for India for the current year are down from the +9.9% predicted in September to +8.1%, while the estimate for 2023 improves with expected growth of +5.5%. Estimates are worse for Brazil, which is expected to grow by +1.4% in 2022 (from +2.3% forecast in May) and then settle at +2.1% in 2023\. Russia is expected to grow by +2.7% this year and +1.3% next. The economic risks for the Eurozone have risen considerably following Russia's invasion of Ukraine. The European Central Bank has revised down its growth estimate for the Eurozone to +3.7% for this year (from +4.2% in December), to +2.8% for 2023 (from +2.9%) and confirmed +1.6% for 2023. Estimating the impact of the crisis on the Italian economy is extremely difficult. The evolution of the conflict and the effects of financial and economic sanctions decided by Western countries are characterized by high uncertainty. According to ISTAT, Vladimir Putin's assault on Kiev will cost 0.7% less in GDP in 2022, which will fall from +3.8% estimated in January to +3.1%. On average for the year, GDP is expected to increase by +2.5% in 2023 and +1.7% in 2024\. The upward revision mainly reflects the stimulus effects of the support and recovery measures financed by the national budget and European funds, including those outlined in the National Recovery and Resilience Plan (NRP). The unemployment rate is expected to decline gradually from 9.4% on average in 2021 to 8.7% in 2024. The ongoing conflict between Russia and Ukraine is further increasing the volatility of energy commodity prices, which were already at record levels before the outbreak of the war and leading to a generalized increase in inflation. Global consumer prices are expected to rise in the first part of 2022, whilethey are expected to moderate from the end of 2022. 3 Scenario and Market Macroeconomic scenario Energy market trends 38 38 3 Scenario and Market According to the March forecasts formulated by ECB experts, inflation in the Eurozone is estimated at +5.1% this year, +2.1% next year and +1.9% in 2024\. Three months ago, before the outbreak of war in Ukraine, forecasts were talking about +3.2% on 2022 and +1.8% on 2023 and 2024. Inflation prospects in Italy have also been revised upwards, and are estimated at +3.5% this year, +1.6% in 2023 and +1.7% in 2024 (source: Bank of Italy). With regard to the level of interest rates, the European Central Bank (ECB) and the Federal Reserve (FED) have taken different monetary policy paths. The European Central Bank reiterated its intention not to raise rates in 2022 and confirmed that it will remain ready to adjust all its instruments, where appropriate, to ensure that inflation stabilizes at the 2% target in the medium term. There remains a greater inclination in the ECB to support the economy, rather than to combat the rise in inflation, which is considered temporary. In contrast, the Federal Reserve expects three increases in the target range for the federal funds rate in 2022, and a further three in 2023. Macroeconomic projections, formulated by leading analysts, indicate an exchange rate of EUR/USD fluctuating in a range between 1.14-1.20 in the two-year period 2022-23, with expectations of an appreciation trend for the dollar due to the announced start of tapering (progressive reduction of monetary stimuli) by the Federal Reserve and galloping inflation in both Europe and the United States. 39 A2A Report on Operations 2021 3.2 Energy market trends Electricity As far as the national electricity market is concerned, in Italy in 2021 there was a net requirement of 318,075 GWh (source: Terna), up 5.6% compared to 2020; in seasonally adjusted terms, and corrected for calendar and temperature, the change is equal to +4.4%. The above requirements were met 51% from non-renewable sources, 36% from renewable sources and the remainder from imports. In 2021, there was a significant decrease in exports (-50.3%) compared to 2020. Net energy production in 2021 was 278,109 GWh, up 2.4% compared to the previous year. Specifically, as regards renewable production sources, both photovoltaic (+2.1%) and wind power (+10.8%) show an increase; on the other hand, the geothermal source (-2.1%) and the hydroelectric source (-5.4%) show a decrease. Thermoelectric production is up, +3.8% compared with the previous year to 180,579 GWh. National production, excluding pumping, accounted for 87.4% of the demand for electricity, while net imports satisfied the remainder. Energy production from renewable sources was 113.8 TWh and substantially stable compared to 2020 (-0.2%). The average value of the PUN Base Load in 2021 shows an increase of +221.3% compared to 2020, reaching 125.0 €/MWh. The dynamic is primarily driven by a return of electricity consumption to pre-pandemic levels and a significant rise in gas costs and CO2 allowances. The PUN, which in January 2021 stood at 60.7 €/MWh, showed an upward trend culminating in December with a value of 281.2 €/MWh. Average prices on the rise also for the price in the hours of high load (PUN Peak Load) with a value that stood at 139.8 €/MWh (+213.6% compared to 2020). The average price during off-peak hours (PUN Off-Peak) increased to 116.7 €/MWh, an increase of 226.8% compared with the previous year. For all of 2022, forward curves indicate Base Load PUN prices with average values above 200.0 €/MWh. Natural Gas In 2021, natural gas consumption rose to 76,233 million cubic meters (+7.8%), the highest level in the last ten years; the increase over 2020 appears to be distributed throughout the year, with the exception of July and August, and more intense in the spring months that last year, were characterized by the national lockdown induced by the health emergency (source: Snam Rete Gas). Growth was observed in all sectors: consumption in the thermoelectric and civil sectors increased by 6.1% and 8.0%, respectively, over 2020; consumption in the industrial sector returned to pre-pandemic levels at 14,057 million cubic meters (+6.4% over 2020). On the supply side, the recovery in consumption led to an increase in natural gas imports during the period under review, which stood at 71,647 million cubic meters (+8.6%) and represented 95.8% of domestic demand, net of storage trends. Domestic production, which met the remainder, continued its downward trend and hit an all-time low of 3,125 million cubic meters, down 18.8% compared with the previous year. As far as prices are concerned, there was a marked upward trend in the price of gas at the Virtual Exchange Facility which, after a slight fall in February and substantial stagnation in the following months, reached an average of 46.6 €/MWh in the third quarter of the year, before continuing to rise and reaching a price of 113.4 €/MWh in December. Specifically, the average price of gas to the PSV for 2021 amounted to 45.8 €/MWh, up 342.8% compared to 2020\. For 2022, forward curves indicate prices with average values close to 84.0 €/MWh. The price dynamics on the main European hubs were similar: the average price of gas at the TTF in 2021 was 45.7 €/MWh, up 389.5% compared to 2020. The trend in the respective prices resulted in a PSV-TTF differential of 0.1 €/MWh for the reporting period, significantly down compared to the differential of 2020 (1.0 €/MWh). In 2022, gas prices on the main European markets show a reversal of the downward trend with an expected price of gas at the PSV higher than the TTF: the forward curves indicate a PSV-TTF differential of around 1.6 €/MWh. Oil and coal In the year 2021, oil products returned to levels near or above pre-pandemic levels. Oil prices continued their upward trend, with an average value of 70.8 $/barrel, up 63.7% compared with the previous year. In October 2021, Brent prices reached their highest level since May 2019 and stood at 83.7 $/bbl. In 2021, the upward trend in prices stated in €/bbl was slightly dampened (+58.3%) by the appreciation of the euro versus the dollar, up 3.7% compared to 2020 (1.14 USD/EUR). For 2022, the most recent oil forward curves indicate prices with average values close to 83.4 $/bbl. 3 Scenario and Market Macroeconomic scenario Energy market trends 40 40 3 Scenario and Market The Energy Information Administration (EIA) reported that global oil demand in 2021 averaged 96.9 million barrels per day, up 5.6 million barrels per day from 2020 when consumption decreased significantly due to the pandemic. The EIA predicts that beginning in 2022, global oil demand will surpass pre-pandemic levels by increasing by 3.6 million barrels per day and an additional 1.8 million barrels per day in 2023\. Estimates of trends in oil consumption may undergo significant variations in relation to developments in the Ukrainian crisis. OPEC crude production of member countries averaged 26.3 million barrels per day in 2021, compared to 25.6 million barrels per day the previous year. The EIA predicts that OPEC crude production will average 28.8 million barrels per day in 2022 and will rise to 28.9 million barrels per day in 2023\. US crude production averaged 11.2 million barrels per day in 2021\. The EIA forecast is for an increase that will average 11.8 million barrels per day in 2022 and rise to 12.4 million barrels per day in 2023: the highest average annual US crude production on record. Given Russia's role in global crude oil production, forecasts regarding production volumes and the possible use of strategic reserves could undergo significant variations in relation to the evolution the crisis in Ukraine. Coal prices in 2021 showed an increasing trend, registering the maximum level in October with a price of 244.2 $/tonne, and then reversing, reaching a value of 143.1 $/tonne in December. On average in 2021, the price stood at 123.3 $/tonne, showing a decrease of 146.7% compared to the figure of the previous year (50.0 $/tonne). The appreciation of the euro against the dollar mitigates the upward trend in prices expressed in euro (+140.3%). For 2022, the most recent forward curves indicate prices with average values close to 139.5 $/tonne. 4 Evolution of the regulation and impacts on the Business Units of the A2A Group 44 44 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Legislative Decree no. 210/2021: transposition of EU Directive 2019/944 on the internal electricity market On December 26, 2021 was the entry into force of Legislative Decree no. 210 of November 8, 2021, which implements EU Directive 2019/944 on the internal electricity market. This decree, which provides for a number of important additions to the regulatory framework for the electricity supply chain (wholesale, distribution and retail markets), will be followed in the coming months by specific acts on the part of MiTE, ARERA and Terna S.p.A., including: introduction of a mechanism for the long-term procurement of newly built storage capacity via auctions organized by Terna S.p.A.; with reference to the public service obligations of generating companies, the provision of criteria for the compensation of fixed costs in the event of refusal, for reasons connected with the security of the electricity system, of the request to take production units out of service; rationalization of the discipline of Simple Production and Consumption Systems (SSPC), providing for the simplification of the requirements necessary for their implementation; definition of criteria for the removal of the Single National Price (PUN) on the demand side; possibility for distribution companies to procure local services to operate their networks in a reliable and secure manner; introduction of electricity sub-concessions, subject to authorization from MiTE and for technical reasons; specific measures (mainly contractual and regarding greater transparency of communications) aimed at protecting end customers and enabling comparability of offers on the market; definition of the rules for the introduction of 24-hour switching in 2026; definition of the price protection regime for so-called "vulnerable customers" after the end of the protection regime; introduction of provisions on the installation and commissioning of advanced (2G) meters; introduction of provisions for public consultation on electricity grid development plans prepared by distributors; provisions for storage and electric mobility. 45 A2A Report on Operations 2021 4.1 Generation and Trading Business Unit Remuneration of the availability of production capacity: capacity payment and capacity market The mechanism for remunerating the availability of production capacity in force until 2021 is the Capacity Payment defined in 2003 by Legislative Decree no. 379 as an administered, transitional system aimed at ensuring adequacy during critical days, identified by Terna S.p.A. with reference to which the difference between electricity supply and demand could be at minimum levels. This mechanism has been operating since 2004 as a result of Resolution 48/04, which provides that the Authority determines ex ante a specific revenue (about 180-200 million euro/year) collected thanks to electricity bills and paid in the form of two payments (CAP1 and S) to plants authorized for the provision of dispatching services and that are available on critical days. Regarding the 2021 capacity payment, 32.8 million euro were paid to the A2A Group. Legislative Decree no. 379 of 2003 had required that, under regime, the availability remuneration was to be based on a market mechanism (capacity market), which was subsequently envisaged by Resolution ARG/elt 98/11 and approved with MiSE Ministerial Decree of June 28, 2019, after the endorsement of the EU Commission. This mechanism consists of a one-way contract for differences entered into with Terna S.p.A. and awarded following an auction in which producers acquire the right to receive a bonus (in €/MW/year) with respect to the obligation to offer all the capacity committed in the MGP and the capacity not accepted as a result of the energy markets on MSD, returning to Terna S.p.A. the difference \- if positive \- between the market benchmark prices and a strike price (in €/MWh). In the auctions for the two-year period 2022 and 2023 held in November 2019, A2A S.p.A. was awarded all the capacity offered, namely around 5 GW/year for approximately 340 million euro in total premium (gross value net of possible penalties for unavailability). Approximately 0.12 GW for 2022 and 0.24 GW for 2023 are related to new capacity. The award price in both auctions was 33,000 €/MW/year for existing capacity and 75,000 €/MW/year for 15 years for new capacity (i.e. awards were at cap). Some operators and Associazione Italia Solare filed an appeal for the annulment of the Ministry of Economic Development Decree of June 28, 2019 and related acts of ARERA and Terna S.p.A., also proposing an appeal to the EU Court of Justice. The hearing on the merits of the Regional Administrative Court has been postponed pending the decision of the EU Tribunal, which is expected in 2022\. A2A S.p.A. has appeared as a counterparty to defend the legitimacy of the awards. With reference to the 2022 and 2023 deliveries, Terna S.p.A., jointly with the MiTE (Ministry of Ecological Transition), intervened granting extensions to the deadlines for submitting authorization certificates in the case of new non-authorized capacity and for the deadlines for the start of the delivery period for new capacity. In the latter case, the final term of the contract was also extended by a period equal to the extension granted for the start of the delivery period. The new deadlines have been set as follows: presentation of the authorization certificates for the new non-authorized capacity: by December 31, 2020 (for delivery 2022) and by October 31, 2021 (for delivery 2023); start of delivery for new capacity (subject to reasoned request): July 1, 2022 (for delivery 2022) and July 1, 2023 (for delivery 2023). A2A S.p.A. has obtained the authorizations for all the new unauthorized capacity awarded: 2022 delivery: repowering of the combined-cycle plants of Cassano and Chivasso; 2023 delivery: repowering of the combined-cycle plants of Piacenza and Sermide and for the Cassano engines. The MiTE Decreee of October 28, 2021 approved the Discipline of the capacity market for the years 2024-2025, subject to positive verification by ARERA (Resolution 378/2021/R/eel). The auction date for the 2024 delivery is set for February 21, 2022 while, with reference to subsequent years, further use of the capacity remuneration system will be determined on the basis of adequacy assessments for the three consecutive years. Compared to the auctions held in 2019, the mechanism has some changes: the most significant ones concern the possibility of bidding in relation to non-relevant new units, the introduction of more details for the participation of storage systems, the possibility for successful bidders of new unauthorized capacity to obtain authorization titles up to 6 months before the delivery date, the possibility for new or repowered capacity to extend the start of the delivery period until December of the first year of delivery, 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 46 46 4 Evolution of the regulation and impacts on the Business Units of the A2A Group with a corresponding postponement of the final term of the contract (and application of a penalty for each month of delay), as well as the right to fully assign the contract subject to Terna S.p.A. consent. With Resolution 399/2021/R/eel, ARERA defined the new economic parameters of the capacity market: cap on the premium: 70,000 €/MW/year for new capacity (down from 75,000 €/MW/year planned for 2022-2023 delivery) and 33,000 €/MW/year for existing capacity (confirmed and coincident with as planned for foreign capacity); criteria for defining the strike price confirmed: for the purposes of calculating said price, equal to the variable cost of an open cycle gas turbine fuelled by natural gas (with yield defined by ARERA), the element covering the cost of gas supply is defined for each month using the forward prices recorded at the TTF hub in the previous month. Moreover, a price risk mitigation mechanism is envisaged in the event that the gas system is in a state of emergency, as declared by MiTE. Remuneration of plants essential for the safety of the electricity system By way of Resolution 803/2016/R/eel, the 220 kV plant of the San Filippo del Mela plant (groups 2, 5 and 6) was contractualized by Terna S.p.A. under the must-run regime with reintegration of costs for the five-year period 2017-2021. A2A Energiefuture S.p.A. undertook to contain the requests reinstatement of costs below a certain cap that ensures the coverage of fixed costs, variable costs of management and equitable remuneration, as well as a saving for the system as said level of reinstatement is lower with respect to the calculation provided by the standard must-run regime (pursuant to Resolution 111/06). Resolution no. 269/2020/R/eel declared the power plant "essential" also for 2022 without the provision of commitments on the amounts recognized for reinstatement. In 2021, ARERA provided: with Resolution 481/2021/R/eel, the payment of 14 million euro corresponding to the balance of the reinstatement fee for 2018; with Resolution 500/2021/R/eel, the payment of 16.1 million euro as the second advance payment for 2020; with Resolution 565/2021/R/eel, the payment of 26 million euro as the first advance payment for 2021. In 2021, ARERA also accepted two requests concerning the variable cost recognized: Resolution 434/2021/R/eel defined the modification of the fuel index as of August 18, 2021, in view of the new emission constraints in force as of that date; with Resolution 563/2021/R/eel, the request was accepted to provide for a percentage of 2.5% on both sides from 2022 for the purposes of calculating the component covering the imbalance fee (as an exception to the previous values of 1.3% for positive imbalances and 1.4% for negative imbalances). With reference to the year 2021, the value of the reinstatement is estimated at around 51 million euro. This value takes into account the commitment envisaged for 2021 as well as the value recognized for the investments relating to the continuation of the essentiality regime in 2022; this amount does not, however, account for the economic effect \- still uncertain \- of the combined effect of Resolution 434/2021/R/eel on the modification of the fuel index and the application recently submitted to Terna and the Authority for the modification of the reference yield. Forward procurement of resources for voltage regulation in the Brindisi area Resolution 675/2018/R/eel approved the Regulations and the Draft Contract proposed by Terna S.p.A. for the forward procurement of resources for voltage regulation in the Brindisi area. The supply of reactive energy is necessary not only to maintain the stability of voltage in the area, compromised by the presence of intermittent renewable sources, but also to reduce dispatching costs in the shortest possible time. Following the auction on February 20, 2019, A2A Energiefuture S.p.A. was awarded 286 MVAr of reactive energy at a weighted average price of 28,098 €/MVAr/year. The first device came into operation on March 1, 2020 and the second on June 1, 2020, one month ahead of the auction. The contract provides for the supply of continuous and automatic voltage regulation, without active energy input, for a value no lower than the contracted power (net of scheduled maintenance and periods of accidental unavailability subject to deductibles). The remuneration is composed of a fixed part (to cover the investment and equal to the product between the capacity committed and the price offered) and a variable part (to cover the costs related to the withdrawal of electricity necessary for the operation of the device). The economic adjustment is made on a monthly basis. 47 A2A Report on Operations 2021 Programmed and accidental unavailability up to a certain threshold is not subject to a penalty, while beyond this threshold there are penalties, which can reach, for each calendar year, up to 120% of the remuneration for each unavailable device. Finally, the guarantee requested by Terna S.p.A. is equal to 120% of the remuneration covered by the contract. The total 2021 amount is approximately 8 million euro. Incentives for production from renewable sources: implementation of the EU RED II Directive With the approval of Legislative Decree no. 199 of 2021, which implements EU Directive 2018/2001 (so-called RED II), Italy has redefined the framework of incentive schemes for the production of energy from renewable sources necessary to achieve the decarbonization targets by 2030\. This new measure modifies the previous regulatory framework regarding incentives for renewable sources (Legislative Decree March 3, 2011, no. 28) and requires that by 2030, at least 30% of gross final consumption be supplied by renewable sources, outlining the characteristics of the new support mechanisms. In particular, with regard to the production of electricity, the new Legislative Decree provides for: pending definition of the new incentives, the extension of the current mechanism (RES MD 2019) until the unallocated quotas are exhausted. In this regard, the GSE has already defined the eighth competitive procedure (starting on January 31, 2022) and a possible ninth procedure, which will open on May 31, 2022; for plants close to economic competitiveness (firstly, photovoltaic and wind power), a new incentive MD will be defined in the second half of 2022, characterized by a five-year planning horizon. Plants with a capacity of over 1 MW will continue to have access to incentives through competitive procedures (auctions), with quotas divided by geographical areas and bonuses for the use of storage systems, while those of a smaller size will have direct access to the support mechanism (abolition of registers); in order to facilitate the authorization procedures, in the second half of 2022, it is foreseen that a special MiTE Decree will identify the criteria for the definition of the areas suitable (and not suitable) for the installation of renewable source plants: the Regions will have 180 days from the date of publication of the Ministerial Decree to proceed with the identification of these areas to the extent of reaching at least the installation targets foreseen by the PNIEC to 2030\. In eligible areas, the landscape opinion will not be binding for the purposes of obtaining authorization and the time limit for obtaining authorization will be reduced by one-third; again the MiTE, in the first part of 2022, is called upon to define the modalities of disbursement of the resources allocated by the PNRR and intended, among others, for agri-voltaic systems, biomethane, hydrogen, recharging columns and the development of new efficient district heating networks. In 2021, the Government intervened with a new Simplification Decree (LD 77/2021) aimed at encouraging the development of new renewable source plants. The main interventions include the setting up of the new EIA Commission for PNIEC-PNRR projects (including photovoltaic and wind power), the introduction of the national EIA procedure for photovoltaic plants over 10 MW, the extension of the simplified authorization procedure for photovoltaic plants in industrial areas up to 20 MW connected to medium voltage (with exemption of the EIA up to 10 MW) and some interventions aimed at further encouraging repowering interventions on existing plants. At December 31, 2021 the incentives paid by the GSE to the A2A Group's plants powered by renewable sources amounted to 73.8 million euro. GSE incentive type millions of euro Feed in tariff 39.2 TO and RID 10.0 Energy account (FV) 24.6 Total 73.8 Large hydroelectric derivation concessions Article 11-quater of Law no. 12/2019 partly amended the rules on large derivation hydroelectric concessions (plants with nominal power greater than or equal to 3 MW). The new rules provide that the Regions shall regulate with their own laws by March 31, 2020 (deadline extended to October 31, 2020 by the Cura Italia Decree Law, and to date not respected by many Regions) methods, procedures and criteria for the allocation of concessions, which may be entrusted to economic operators identified through a tender, or 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 48 48 4 Evolution of the regulation and impacts on the Business Units of the A2A Group to public/private joint ventures with selection of the private partner through a tender, or through forms of partnership under Legislative Decree 50/2016. The procedure for awarding the contract must be started within 2 years of the entry into force of the Regional Laws and, in any case, no later than October 31, 2022 (L.D. 18/2020). The Regions may also require concession holders to provide 220 kWh a year free of charge for each kW of average nominal power of the concession and may require the payment of an additional fee for expired concessions operated on a temporary basis. In terms of compensation to outgoing operators, the new rule prescribes: for wet works: the transfer without compensation of ownership to the Regions, except for the compensation only of investments not yet amortized; for dry works: the recognition of a residual value derived from accounting records or certified appraisal. In the event of non-inclusion in the project of the incoming concessionaire, removal and disposal of movable property is envisaged at the expense of the proposer, while immovable property remains the property of the entitled parties. On April 8, 2020, Lombardy enacted Regional Law no. 5/2020 (amended with Regional Law no. 19/2021), which governs the methods and procedures for awarding concessions for large-scale hydroelectric derivations and determines the related state fee. The new state fee has a fixed part related to the concession power and a variable part as a percentage of the revenues from the sale of energy fed into the grid by the plant, net of energy supplied free of charge to the Region. Lombardy Regional Law no. 23/2019 also imposed on concessionaires, starting in 2020, the obligation to provide free electricity to the Region (220 kWh for each kW of concession power), providing for the possibility of monetizing the fulfillment. For concessions under the so-called temporary continuation, there is an additional annual fee determined on a reconnaissance basis at 20 euro/kW. Most of A2A S.p.A. large-scale derivation concessions in Valtellina (for a nominal concession power of around 200 MW) have expired and exercised under temporary continuation, most recently in accordance with Lombardy Regional Council Resolution no. XI/5823 of December 29, 20211. The Linea Green S.p.A. concession of Resio also expired on December 31, 2010, and the temporary continuation of operations was also established for this concession. Other A2A S.p.A. hydroelectric concessions (plants in Mese, Udine and Calabria with total nominal power of about 345 MW) expire in 2029\. Also added are the large-scale derivations not yet expired of Linea Green S.p.A. (Mazzuno and Darfo ), as well as the concession of Gravedona of ACSM-AGAM S.p.A. expiring in 2029. Closing of the dispute concerning Resolution ARG/gas 89/10 and settlement of amounts Following the appeal lodged by the A2A Group's sales companies against Resolutions ARG/gas 89/10 and 77/11, by which ARERA introduced an equal reduction coefficient k applied to the indexed component to cover procurement costs (QE) for thermal years 2010/11 and 2011/12, the Council of State, with Sentence no. 4825 of November 18, 2016, confirmed the reasons of the claimants and annulled the measures. By means of Resolution 737/2017/R/gas, the Authority redetermined the above coefficient k, while by means of Resolutions 32/2019/R/gas and 247/2020/R/gas, it introduced a mechanism for recognising the amounts due to sellers by establishing a socialization component on the distribution tariff and gas metering paid by customers with reference to the first 200,000 Scm consumed (sub-component of UG2called UG2k). On May 31, 2019, A2A Energia S.p.A., Lumenergia S.p.A., ACEL Energie S.r.l. and Enerxenia S.p.A. (now ACEL Energie S.r.l.) and Gelsia S.p.A. applied to the CSEA for access for a total of 24.7 million euro, which were settled in three sessions between April 1, 2020 and December 31, 2021\. The amount attributable to the Generation and Trading Business Unit of 12.2 million euro, of which 75% was paid in 2020, while the remaining 25%, equal to about 1.5 million euro, was paid in December 2021. 1 The concessions of Grosotto, Lovero and Stazzona expired December 31, 2010 while the one of Premadio 1 at July 28, 2013 (Premadio 2 has validity until December 31, 2043). The Grosio concession expired on 15 November 2016. 49 A2A Report on Operations 2021 4.2 Market Business Unit 2017 Competition Law and removal of price protections for electricity and gas Law August 4, 2017, no. 124, as amended. (Competition Law 2017) contains provisions aimed at removing regulatory barriers to the opening of markets, promoting the development of competition and guaranteeing the protection of consumers. Article 1, paragraphs 59 to 85, introduces relevant provisions relating to the energy market, providing, inter alia, for the end of price protection schemes from January 1, 2021, for small electricity businesses and from January 1, 2023, for electricity and gas household customers and micro electricity businesses2, according to the methods and criteria defined by the MiTE aimed at guaranteeing the aware transition thereof in the free market. LD no. 152 of November 6, 2021 (so-called Recovery LD), established that for domestic electricity customers, the transition will take place gradually through the introduction of a transitional regime until January 1, 2024\. In this period, the auctions aimed at assigning the above-mentioned customers still supplied in the service of greater protection must take place. The Recovery LD also provides that the protection service will continue to be applied to so-called vulnerable and energy poverty customers until adoption of the measures provided for in art. 11.2 of Legislative Decree no. 210/2021 according to which all sellers are required to offer such customers a price that reflects the cost of energy in the wholesale markets. Resolution 491/2020/R/eel defined the Gradual Protection Service (STG) to be activated as from January 1, 2021 for small businesses, other than micro-businesses, without a supplier on the free market3. For the period from January 1 to June 30, 2021 (provisional regime), the STG was provided by the current operators of the greater protection at economic and contractual conditions almost unchanged while, from July 1, 2021 (definitive regime), for a period of 3 years, the STG will be provided by operators selected by auction organized by Acquirente Unico S.p.A.. The auction, which took place on April 26, 2021, awarded 9 customer lots, with a maximum limit of areas that can be per individual operator equal to 35% of total volumes. The lots were allocated on the basis of the lower value offered for the β parameter, expressed in €/MWh, to cover marketing and unbalancing costs not already recognized by ARERA, for which a floor was set at zero. The contractual terms and conditions applied are the same as those for the PLACET Offer, while the economic conditions defined by ARERA provide for the introduction of a "single national fee" (determined by weighting the β parameters offered at auction in the various areas). A2A Energia S.p.A. was awarded 3 lots (Lazio; Lombardy excluding Milan; Veneto, Liguria and Trentino-Alto Adige), for a total of approximately 80,000 PODs and around 1.8 TWh/year. We are still waiting for the MiTE MD regarding the Electricity Vendor List. Prescription of electricity and natural gas consumption dating back more than two years The Budget Law 2018, in article 1, paragraphs 4-10, introduced the statute of limitations in electricity and gas supply contracts with reference to consumption dating back more than two years, with significant impacts in the relationships between customers and sellers, between distributors and sellers and in those with the transmission operator and with the other subjects of the supply chain. The effective date of this provision has been differentiated: from March 1, 2018 for the electricity sector and from January 1, 2019 for the gas sector. The Law initially provided that the prescription not be recognized to the customer in the event that the missed or erroneous collection of consumption data was attributable to the customer; however, paragraph 295 of article 1 of the Budget Law 2020 removed this case, providing for the recognition of the prescription period even in cases of ascertained liability of the customer, and in fact, introducing an objective responsibility for operators of the supply chain, especially those responsible for metering, even in the absence of a specific assessment of faults or inefficiencies in their operations4. 2 According to the EU definition, micro-electrical enterprises have fewer than 10 employees and an annual turnover not exceeding 2 million euro. 3 The perimeter of this first batch covered about 230,000 subjects between small businesses (number of employees between 10 and 50 and/or annual turnover between 2 and 10 million euro) owners of LV withdrawal points and micro-businesses owners of at least one point of withdrawal with contractually committed power greater than 15 kW that, at December 31, 2020, had not yet chosen supply in the free market. 4 In this regard, mention should be made of the closure in January 2021 of the investigative proceedings initiated by the AGCM against certain sales companies with the imposition of a total fine of 12.5 million euro. The Antitrust Authority has, in fact, ascertained the unjustified rejection of the two-year statute of prescription requests submitted by users, due to the late billing of electricity and gas consumption, in the absence of evidence that the delay was due to the responsibility of consumers. 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 50 50 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Starting in 2018, ARERA intervened with numerous measures in order to implement the legislative provision, and most recently with Resolutions 603/2021/R/com and 604/2021/R/com, which will come into force from 2022\. On the one hand, in compliance with the Sentences of June 14, 2021, no. 1441, 1444 and 1449 of the Lombardy Regional Administrative Court, it amended Resolution 569/2018/R/com, and, on the other hand, defined the methods of compensation of settlement items arising from exceptions to the two-year statute of limitations raised by the end customer and the seller, giving the CSEA the role of compensating party vis-à-vis the seller and, with specific reference to the electricity sector, promoting the quality of the metering service of distribution companies, through greater responsibility on their part, in order to reduce the adjustments made available with delays of more than two years. Components to cover marketing costs on the electricity protected market, on the free electricity market and on gas protection Resolutions 604/2020/R/eel and 603/2020/R/gas updated for 2021 the RCV and PCV components (covering the cost of marketing electricity in the greater protection and deregulated markets, respectively) and QVD (covering the cost of marketing gas in the retail market). Compared to the 2020 values, the intervention saw a reduction in recognized costs, (in particular, in both resolutions, ARERA stated that “at the moment, there are no prerequisites for different or additional recognition interventions with respect to the ordinary ones provided by the regulations in force”with reference to delinquency rates, which remain in line with those of previous years despite the fact that 2020 was affected by the COVID-19 pandemic). PCV €/POD/year 2020 2021 Single national Single national Domestic POD 65.12 65.44 Various use POD 125.64 124.71 RCV €/POD/year 2020 2021 C-North C-South C-North C-South Domestic POD 26.94 29.91 24.42 26.67 Various use POD 49.44 71.17 47.42 65.83 C-North C-South C-North C-South Domestic POD (RCVsm)* 41.55 44.10 41.19 42.66 Various use POD (RCVsm)* 69.67 101.78 72.00 107.73 C-North C-South C-North C-South Domestic POD 21.55 23.92 19.54 21.34 Various use POD 39.55 56.94 37.93 52.67 QVD €/PDR/year 2020 2021 €/PDR/year c€/mc €/PDR/year c€/mc Domestic PDR 63.61 0.7946 62.74 0.7946 PDR condominium home use <200,000 83.55 0.7946 82.39 0.7946 (*) Remuneration for marketing the sale of minor separate companies (≤ 10 MIO POD) Resolutions 401/2021/R/gas and 402/2021/R/eel postponed the 2022 update of the RCV, PCV and QVD components to the second quarter of 2022, in light of the need to carry out in-depth studies linked to the evolution of the structure of the retail markets and to align the remuneration methods of the various regulated parties. 51 A2A Report on Operations 2021 Further mechanisms to cover the efficient costs of the greater protection of electricity and incentives for the dissemination of bills in dematerialized format With reference to the additional cost compensation mechanisms for the electricity greater protection service as per the TIV, the following is noted: in May 2021, A2A Energia S.p.A. submitted a request for access to the mechanism regarding the exit of customers from the greater protection service, aimed at recognising the additional fixed cost connected to a customer exit rate towards the free market greater than that implicitly recognized in the definition of the RCV component, for an amount equal to 30,000 euro, which was paid in the 2nd half of 2021 (PUC 2020); in April 2021, A2A Energia S.p.A. submitted a request for access to the mechanism to compensate for arrears of end customers, aimed at recognizing any charges related to arrears exceeding the unpaid ratio already considered within the RCV component (COMP 2020), for an amount equal to about 900,000 euro, which will be paid in the 1st quarter of 2021. Resolution 477/2021/R/com revised, starting from 2022, the incentive mechanism for the dissemination of bills in dematerialized format for operators of the service of greater protection for electricity and gas, reducing the minimum threshold of customers who access the electronic bill to obtain full reinstatement of the discount recognized in the bill. The new mechanism is retroactive in nature and will make it possible, upon first application (2022), to request compensation with reference to the years between 2016 and 2021\. Compensation mechanism for general system charges not collected from final customers Resolution 32/2021/R/eel introduced a mechanism for the recognition of General System Overheads (GSO) not collected from defaulting end customers, however already paid to the distributors by the selling companies. The mechanism starts in 2016 (entry into force of the Standard Network Code) and will apply until the adoption of specific interventions, including legislative ones, aimed at a different management of the GSO collection chain and the related guarantee system. Transport users may participate, including on behalf of their commercial counterparts, choosing annually between: an ordinary regime: in which there is granting of uncollected GSO for which invoices have been due for more than 12 months and the appropriate credit protection procedures have been activated, and GSO waived as a result of settlement, assignment or credit restructuring agreements; a simplified regime: in which 75% of the estimated amount of Uncollected Declared GSO is recognized, compared to the values found in the company’s accounting situation indicated in the compulsory communications required by the unbundling (TIUC) and in the approved financial statements. In this first session (previous), the amount recognized was reduced by the “rec.Pricing” because it was assumed that a seller operating in the electricity market also recovered, in its pricing activity, the costs of the expected default related to the GSO until May 24, 2016, the date of publication of CdS sentence 2182/2016 establishing the principle that the entities obliged to pay the GSO are the end customers. In this first session of the mechanism, CSEA paid the A2A Group’s selling companies an amount of approximately 4 million euro. Prescriptive and sanctioning measures for non-diligent scheduling strategies within the electricity dispatching service (i.e. electricity imbalances) Resolution no. 111/06 defines the rules for the calculation of imbalance prices to be applied to the differences between the feed-in and consumption plans and the actual production and withdrawals. Proper scheduling is desirable because it allows for more effective system safety management and promotes cost reduction. For these reasons, the discipline of these imbalances has been the subject of several amendments by the Authority in order to align the regulation to the need for an efficient market configuration, pushing operators to make increasingly better production and consumption forecasts, and avoiding arbitrage between prices on different markets5. In 2016, given the significant increase in dispatching costs, ARERA launched a fact-finding investigation from which numerous prescriptive and/or asymmetric regulation and sanctioning measures were derived 5 Lastly, ARERA intervened with Resolution 523/2021/R/eel, which implements the reform of the regulation of imbalances, in implementation of the European regulatory framework. The main additions include the extension, as of April 1, 2022, of the single price mechanism for the valuation of the imbalances of all units, without distinctions based on characteristics, and the introduction of additional fees for the failure to comply with dispatching orders for qualified units. 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 52 52 4 Evolution of the regulation and impacts on the Business Units of the A2A Group towards some operators for their “non-diligent” scheduling strategies. These proceedings have not yet been concluded due to the litigation they have generated. As regards the A2A Group, the adoption of prescriptive measures concerned: Linea Più S.p.A. (now A2A Energia S.p.A.): the measure imposed returning approximately 3.9 million euro to Terna S.p.A.; Enercity S.r.l. (then Suncity Energy S.r.l. and now A2A S.p.A.): the measure imposer returning approximately 737 thousand euro to Terna S.p.A.. The same companies were also subject to sanctions for violation of article 14.6 of ARERA Resolution 111/06 (“diligent planning”). In particular: Linea Più S.p.A. (now A2A Energia S.p.A.) was imposed a fine of approximately 1.5 million euro (Resolution 164/2018/S/eel); for Enercity S.r.l. (then Suncity Energy S.r.l. and now A2A S.p.A.), the proceedings (initiated by Determination DSAI/81/2017/eel) have not yet been concluded. Linea Più S.p.A. (now A2A Energia S.p.A.) appealed against both the prescriptive measure and the penalty measure. Enercity S.r.l. (then Suncity Energy S.r.l. and now A2A S.p.A.) also appealed against the prescription. A2A Energia S.p.A. and Suncity Energy S.r.l. (now A2A S.p.A.) settled in 2019, the amounts of the prescriptive measure to Terna S.p.A. and A2A Energia S.p.A. also the amounts of the fine to ARERA. On September 24, 2020 for A2A Energia S.p.A. and on May 26, 2021 for Suncity Energy S.r.l. (now A2A S.p.A.), the Council of State upheld their respective appeals against the prescriptive measures and Terna S.p.A. compensated respectively, in November 2020 for an amount of approximately 3.9 million euro, A2A Energia S.p.A. and in June 2021, for an amount of approximately 737 thousand euro, Suncity Energy S.r.l. (now A2A S.p.A.). In light of the Authority’s power of review, A2A Energia S.p.A. has set aside a provision of the same amount and Suncity Energy S.r.l. (now A2A S.p.A.) a provision of approximately 500 thousand euro. Resolution 217/2021/E/eel, in compliance with the rulings of the Council of State, has in fact initiated new proceedings aimed at revising or, possibly, confirming the aforementioned prescriptive measures. With reference to A2A Energia S.p.A.’s dispute against the sanction, on September 27, 2021, the Council of State annulled Resolution no. 164/2018/S/eel and, as a result of this sentence, the company was paid approximately 456 thousand euro in December 2021\. The remaining amount, including accrued statutory interest, will be paid in 2022. Introduction of a new fee to cover net capacity supply charges Resolution 365/2019/R/eel introduced a new fee to be collected through the electricity bill aimed at covering the costs related to the operation of the capacity market. As of January 1, 2022, the new fee will be applied to users of withdrawal dispatching and will be divided into two unit fees: the first to be applied during the peak hours of the electricity system and the second to be applied during the remaining off-peak hours. The fees are appropriate to cover 70% and 30%, respectively, of the net charges arising from the capacity market. These values are established, together with the indication of the peak and off-peak hours, by Terna S.p.A. and when first defined were set at 39.799 €/MWh for peak hours (annual update) and 1.296 €/MWh for off-peak hours (quarterly update). Resolution 566/2021/R/eel also defined the methods for transferring the charge to end customers, establishing that for customers in the free market, in compliance with the principle of price negotiation between the parties, sellers may independently define the methods of application. On the other hand, with regard to services of last resort and PLACET offers, ARERA has established that for customers: in the higher protection service: the fee is included in the PD element (dispatching price) that makes up the tariff; in the STG: a one-off fee published by ARERA before the start of each quarter and for each month of the quarter is applied. This fee will be included in the Cdisp (dispatching fee) that forms the price charged to customers; for the safeguard service: a one-rate fee is applied, differentiated for each month of application, defined by Terna S.p.A. on a quarterly basis; with PLACET offers: the one-rate fee defined for customers served in the STG is applied. 53 A2A Report on Operations 2021 Updating of the provisions of the Integrated Settlement Text (TIS) regarding conventional load profiling Following the notifications made by some operators and the publication of DCO 435/2021/R/eel, Resolution 570/2021/R/eel has updated the provisions contained in the Integrated Settlement Text (TIS) concerning the conventional profiling of withdrawals in order to take into account the impacts on the settlement process caused by the significant discontinuities that are affecting the electricity system consisting, first and foremost, of the installation and subsequent implementation of 2G Smart Meters, which enable, among other things, hourly metering of energy withdrawn, as well as the gradual increase in the efficiency of public lighting systems, which draw less energy than in the past. In particular, said phenomena ensure that the current settlement mechanism, which uses estimates based on annual withdrawal data and is designed on a system that is in a “static” phase and not subject to sudden changes such as those described, is no longer able to allocate monthly to individual dispatching users, a share of Area Residual Withdrawal (so-called PRA, i.e., unmetered energy on an hourly basis withdrawn in a particular reference area and allocated parametrically to all dispatch users active in that area) consistent with withdrawals subsequently determined based on actual metering data, with potentially adverse consequences. In order to minimize these impacts, the Authority has modified the PRA allocation mechanism by providing for the use of data and parameters updated on a four-monthly basis from the first quarter of 2022 on a simplified basis and from the second quarter on a definitive basis, considering for this purpose: only the PODs that will not be processed on an hourly basis under the TIS in said four months; the latest metering data. Henceforth, the settlement mechanism, using more granular estimation data, will be able to provide a more consistent estimate of the PRA share attributed to the individual dispatching user. Award of the safeguard service for the two-year period 2021-2022 The Law August 3, 2007, no. 125/07 established a safeguard service for all companies and public bodies without an electricity supplier and that have at least one medium or high voltage supply point or only low voltage points with more than 50 employees or an annual turnover of more than 10 million euro. A2A Energia S.p.A. was selected, through a public tender procedure, for the period January 1, 2021 \- December 31, 2022, as the electricity supplier for the safeguard service in batch 2 (Lombardy) and batch 4 (Marche, Tuscany and Sardinia), for about 650 GWh. The prices charged are determined in accordance with the Authority’s rules and the calculation methods laid down by the MiSE and include wholesale electricity costs, dispatching and commercialization costs. In particular, A2A Energia S.p.A. applies to the energy supplied and the related grid losses a consideration equal to the average monthly purchase prices on the GME market, differentiated by time slot and increased by the omega parameter (Ω) equal to 10.17 €/MWh for batch 2 and equal to 13.57 €/MWh for batch 4. Finally, pursuant to the provisions of article 44 of Resolution no. 491/2020/R/eel (TIV), A2A Energia S.p.A. has submitted a specific request to CSEA for access to the mechanism relating to uncollected receivables from customers who cannot be disconnected for an amount of approximately 330,000 euro, which was settled in December 2021. Closing of the dispute concerning Resolution ARG/gas 89/10 and settlement of amounts Information about litigation is provided in the corresponding section that deals with the Generation and Trading Business Unit. With regard to the amounts pertaining to the Market Business Unit, in relation to the requests submitted on May 31, 2019 by A2A Energia S.p.A., Lumenergia S.p.A., ACEL Energie S.r.l., Enerxenia S.p.A. (now ACEL Energie S.r.l.) and Gelsia S.p.A., of 12.5 million euro, 75% of the amount owed was paid in 2020, while the remaining 25%, equal to about 3.1 million euro, will be paid in December 2021 (with the exception of Lumenergia S.p.A., for which a payment of 50,000 euro is still pending). 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 54 54 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Closing of the AGCM PS10728 investigation against A2A Energia S.p.A. for the application of online payment service costs by credit card With measure dated September 20, 2017, the AGCM imposed a fine of 220,000 euro to A2A Energia S.p.A. for violation of the provisions of art. 62 of the Consumer Code on the application of surcharges for the use of the credit card for the payment of bills via the website. The company filed an appeal before the Lazio Regional Administrative Court stating that the surcharge requested was not due to the use of the payment instrument, but to the provision of a service that brings with it an objective added value (considering that since January 1, 2017, the company has discontinued the function of collection at the physical counters). In addition, in order to protect the opposing needs for the protection of users and the creation of a competitive market, in which the economic and financial equilibrium of operators is safeguarded, article 19 of Directive 2011/83/EU (Consumer Rights Directive), implemented by the rule in article 62 of the Consumer Code, provides that Member States prohibit professionals to impose on consumers, in relation to the use of certain payment instruments, fees that exceed those incurred by the professional for the use of such instruments thus legitimizing, in our opinion, the conduct of A2A Energia S.p.A.. The Council of State subsequently accepted the appeal filed by Automobile Club d’Italia against the decision of the Lazio Regional Administrative Court, which had confirmed the validity of the measure by means of which AGCM had sanctioned the operator for violation of the aforementioned provision of the Consumer Code. Filing of AGCM Proceeding PS11615L against A2A Energia S.p.A. for the removal of possible unfairness in commercial offers to customers With a provision of June 15, 2021, the AGCM invited A2A Energia S.p.A. (so-called moral suasion) to remove the profiles of possible unfairness in relation to the commercial offers called A2A Click, Extra2A and Prezzo Chiaro A2A, requesting that, within the scope of any advertising communication, all the price components and other charges be indicated, in particular where said components are fixed at the discretion of the supplier. At the same time, for similar (and in some cases additional) reasons, AGCM initiated 13 investigative procedures against the same number of suppliers operating in the free market, who in 11 cases closed the procedures with the adoption of commitments, whilst another 2 sellers were fined. In particular, AGCM considered that in the communications of the offers the existence of marketing costs was not made sufficiently clear, even though they were indicated in the contractual documentation. According to the preliminary assessments of the AGCM, in fact, the lack of transparency of these elements could have misled the consumer who must have, from the very first promotional presentation, all the information needed to reliably predict the amount of the overall monthly and/or annual expense to be incurred. In order to achieve a prompt closure of the procedure, A2A Energia S.p.A. has deemed it appropriate to make certain changes to the promotional communications relating to its supply offers, such as to make the amount of the price components discretionally defined by the seller and, in particular, the marketing charges, relating to each offer more evident. A2A Energia S.p.A. has also undertaken to apply the same changes on the new website, which is scheduled to be launched in March 2022. In view of the commitments proposed, the AGCM found that the possible unfairness of the commercial practice had ceased to exist and therefore, on November 26, 2021, it decided to close the proceedings. 55 A2A Report on Operations 2021 4.3 Waste Business Unit Waste Pricing Method for the first regulatory period 2018-2021 (MTR) ARERA Resolution 443/2019/R/rif approved the Tariff Method for the Integrated Waste Management Service (MTR), defining “the criteria for the recognition of efficient operating and investment costs for the period 2018-2021”. The measure applies to the tariff revenues for 2020/2021, compatibly with the time frame envisaged for the approval of the TARI by the Municipal Councils, the deadline of which, with reference to TARI 2021, has been extended to July 31, 2021 as a result of Decree Law no. 99/2021 (Enterprise and Works Decree). MTR requires costs recognized to Operators of the municipal sanitation service to be determined starting from the actual costs recognized in the reference year (a-2) resulting from obligatory accounting sources6and those relating to integrated waste management, which includes the following activities: sweeping and street cleaning, collection and transport, treatment and recovery of urban waste, treatment and disposal of urban waste, tariff management and relations with users. Other activities, such as deratization, snow clearance, mosquito pest control, garden or graffiti cleaning, etc., are considered external to the integrated urban waste cycle and not subject to regulation. The costs of treatment and disposal were defined on a transitional basis as is pending the setting of criteria for the determination of tariffs for access to facilities with effect from January 1, 2022 (ref. MTR-2 for the period 2022-2025). MTR is based on the principle of full cost recovery and establishes that tariff revenues can grow year on year through the application of the price cap within a certain maximum limit of increase. The entities territorially competent (ETC \- in Lombardy the Municipalities) may submit to the ARERA a request for the exceeding of this limit, if they deem it necessary to ensure the achievement of expected quality improvements or to support the integration process of the activities managed. Below are the main features of the new method: RAB-based with recognition of operating costs, amortization and return on invested capital (WACC at 6.3%, plus 1% for investments after December 31, 2017 related to the regulatory lag); it is permitted to include in the tariff forecast costs not yet finalized, without prejudice to subsequent verification mechanisms (COI component); sharing of revenues from the sale of materials and energy in a range between 40%-70%, which allows Operators to retain a portion of the income, also depending on the quality of differentiation conferred. The percentage of sharing must be established by the entity territorially competent (ETC); adjustments over the years 2018 and 2019, calculated on the basis of the difference between the costs provided for in the 2018 and 2019 PEF and the actual costs in 2017 inflated, to be applied according to gradual mechanisms on the basis of management efficiency indicators taking into account the evaluations of the entity territorially competent (ETC). The approval procedure provides for the transmission of the PEF (so-called raw PEF) by the Manager to the entity territorially competent (ETC) which, after checking the correctness, completeness and congruity of the data, sends it, together with the tariff fees, to ARERA for approval. In the first half of 2021, the municipal sanitation companies of the A2A Group prepared their “raw” 2021 PEFs for each individual concession in accordance with the new ARERA methodology. The final 2021 PEFs, integrated by the municipalities with the costs for which they are responsible (i.e. billing activities and management of relations with users) were subsequently verified and validated by the ETCs. All the Group companies, which manage around 300 municipalities in Lombardy, have sent the relevant documentation to the respective ETC for approval of the 2021 TARI and the underlying PEF. In most cases, in continuity with 2020 and in the presence of assignments obtained after competitive tendering procedures, ETC availed itself of article 4.5 of the MTR, preserving any efficiencies and thus applying the value envisaged by the previous contracts \- if lower than the maximum value of the MTR \- subject to compliance with the economic-financial balance of operations. 6 The method is in continuity with Presidential Decree no. 158/99 of April 27, but provides for the use of obligatory accounting sources for the preparation of the PEF and not forecast costs. 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 56 56 4 Evolution of the regulation and impacts on the Business Units of the A2A Group With regard to the Municipality of Varese, the ETC approved the 2020 and 2021 PEFs at lower values than the raw PEFs submitted by ACSM-AGAM Ambiente S.r.l.. Both board resolutions were challenged by the Company before the Lombardy Regional Administrative Court, requesting payment of the higher amounts due as consideration for the municipal sanitation service provided to the Municipality of Varese in the two years in question (approximately 541,000 euro and 355,000 euro, respectively). Both PEFs as reformulated by the ETC would not guarantee economic financial balance for the Manager. The Regional Administrative Court, in the precautionary session of January 13, 2021, found the potential existence of pecuniary damages, the amount of which will be determined during the proceedings. The date of the hearing on the merits of the two joined proceedings has not yet been set. At December 31, 2021, ARERA published the following resolutions approving the 2020 PEF for the municipalities managed by the Group companies, confirming overall the maximum economic values of the tariff revenues proposed by the ETC in their respective municipal resolutions and with no significant deviations from the amounts provided for in the previous contracts, with the exception of the Municipality of Bergamo, managed by Aprica S.p.A., for which an increase of approximately 300,000 euro was recorded when applying MTR. Municipality ARERA Resolution Operator Tariff revenue value 2020 Paderno Dugnano 369/2020/R/rif RTI made up of AMSA S.p.A. and ECONORD S.r.l. € 5,963,484 Municipality of Paderno Dugnano Cremona 397/2020/R/rif Linea Gestioni S.r.l. € 10,333,852 Municipality of Cremona Milano 476/2020/R/rif Amsa S.p.A. € 298,617,329 Municipality of Milan Lodi 6/2021/R/rif Linea Gestioni S.r.l. € 7,617,815 Municipality of Lodi Brescia 34/2021/R/rif Aprica S.p.A. € 34,340,730 Municipality of Brescia Bergamo 56/2021/R/rif Aprica S.p.A. € 19,198,125 Municipality of Bergamo Waste Pricing Method for the second regulatory period 2022-2025 (MTR-2) Resolution 363/2021/R/rif defined the criteria for recognition of the efficient operating costs for the regulatory period 2022-2025 (MTR-2), confirming the general approach that distinguished the first method and establishing the criteria for defining the access tariffs to the undifferentiated and OFMSW treatment plants. With reference to municipal sanitation, ARERA introduces some new elements mainly attributable to the need to: envisage a multi-year economic and financial plan with the possibility of spreading the extra cap costs over the regulatory period and, for balances, even beyond 2025; strengthen incentives for the development of activities for the valorization of recovered materials and/or energy; configure appropriate corrective mechanisms in light of the regulatory changes introduced by Legislative Decree no. 116/2020; take into account the objectives of compliance with the obligations and quality standards that will be introduced by the Authority as from 2023, and the simultaneous need to guarantee coverage of the additional costs attributable to them. With regard to treatment, ARERA introduces an asymmetric tariff regulation, to be determined taking into account regional governance, the degree of integration of the operator and the location of the plant with respect to the waste hierarchy. In particular, the Authority has established, as a prerequisite for the identification of regulated tariff plants \- so-called “minimum” plants \- the presence of a rigid market with a strong and stable excess of demand, in addition to the following alternative conditions: i) having committed capacity for flows guaranteed by sector scheduling; ii) having been identified as “minimum” during scheduling by the competent parties. 57 A2A Report on Operations 2021 The identification of regulated plants must be carried out as part of the ETC scheduling activities (in Lombardy by the Regional Government) “in time for the determination of tariff revenues”, the transmission of which to ARERA is expected by April 30, 2022\. For plants that are not subject to tariff regulation, so-called “additional”, on the other hand, publication of the “main criteria on which the fees are based” is envisaged on the Manager’s website. The Lombardy Region, with Council Resolution no. 5777/2021 of December 21, 2021 complied with the provisions of article 6 of Resolution 363/2021/R/rif, declaring all the undifferentiated and OFMSW treatment plants as “additional”, taking into account that Lombardy is not in market conditions with structural rigidity either for the entire municipal waste chain or for OFMSW and is, on the contrary, characterized by plant self-sufficiency and competitive gate prices. The Region has, therefore, strengthened the monitoring obligations of plant operators, reserving the possibility of revising this provision during the biennial updating of tariffs following any changes in market conditions and the adoption of the National Waste Management Plan. With reference to the treatment plants located in Piedmont, we are waiting for the Regional Council Resolution implementing the provisions of article 6 of Resolution 363/2021/R/ref. Quality regulation of the municipal waste management service (2023-2025) Resolution 15/2022/R/rif approved the “Consolidated text for the regulation of the quality of the urban waste management service” (TQRIF), with the introduction from January 1, 2023 of a set of minimum and homogeneous contractual and technical quality obligations for all managements (regardless of how the service is entrusted), alongside quality indicators and related general standards differentiated by regulatory schemes, identified in relation to the actual starting quality level guaranteed to users, determined by the ETC on the basis of the services provided for in the Service Contract(s) and/or in the Quality Charter(s) in force. The set of obligations and quality standards introduced by Resolution 15/2022/R/rif is broken down as follows: contractual quality: a) Management of requests for activation, change and termination of service; b) Management of complaints, requests for information and correction of amounts charged; c) Points of contact with the user; d) Methods and frequency of payment, installments and refunds of amounts not due; e) Collection of waste on call; f) Disruption and repair of equipment for home collection; technical quality: a) Continuity and regularity of service; b) Security service. By March 31, 2022, ETCs are required to identify the positioning of the individual management in the “Matrix of reference schemes”, determining the regulatory scheme and the related obligations applicable to the management, to be valued in the definition of the forecast costs associated with compliance with the quality obligations provided by the TQRIF in the PEF 2022-2025. Furthermore, ETCs may, on the basis of a justified proposal by the Managers, define any qualitative standards that improve or go beyond those laid down in the TQRIF. Provision of obligations and control instruments for technical quality (continuity, regularity and security of the service) Technical quality = NO Technical quality = YES Provision of contract quality obligations Quality contractual = NO SCHEME 1 Minimum quality level SCHEME 3 Intermediate quality level Quality contractual = YES SCHEME 2 Intermediate quality level SCHEME 4 Advanced quality level The Resolution also introduces the obligation to adopt a single “Quality Charter for the integrated municipal waste management service” in accordance with the provisions of the TQRIF for each award, indicating the reference regulatory scheme, the service obligations, the indicators and related contractual and technical quality standards provided for by the Authority, as well as the additional or improved standards provided for by the ETC. 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 58 58 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Finally, the Managers are required to report \- through the preparation of an electronic performance register \- and communicate the data relating to the quality indicators to the Authority and the ETC, as well as publishing the following information on their website: the positioning of management within the matrix of regulatory schemes, the quality standards for which they are responsible and the results achieved in terms of compliance with these standards (from 2024), the average tariff applied to households for the integrated municipal waste management service, the breakdown of the fees applied to households and non-household users. The Authority may also proceed to publish the aforementioned information with a view to said regulation. EU Circular Economy Package On June 14, 2018, the EU Circular Economy Package was published consisting of: 4 Waste Directives (Directive 2018/849 on end-of-life vehicles/waste batteries/WEEE, Directive 2018/850 on landfills, Directive 2018/851 on waste, Directive 2018/852 on packaging); 1 Regulation on the approval and market surveillance of vehicles. The measures are aimed at promoting the application of the waste hierarchy (prevention, reuse, recycling, energy recovery, landfill) also through appropriate legislative and financial instruments, and in this context, some common objectives are set for the European Union: recycling of at least 55% of municipal waste by 2025\. This portion is destined to rise to 60% by 2030 and to 65% by 2035; recycling of 65% of packaging waste by 2025 (70% by 2030) with material-specific targets. The Directives also introduced the obligation to collect organic waste separately or ensure recycling from the end of 2023 and set a binding target of reducing landfill disposal: Member States will have to ensure that recyclable waste is no longer transferred to landfills in 2030 and that as of 2035, the total portion of municipal waste destined for landfills does not exceed 10%. Central to the application of the waste hierarchy is the strengthening of Extended Producer Responsibility (EPR), by means of which producers are called upon to participate in the organizational and financial management of the life cycle phase in which the product becomes waste, contributing at least to 80% of the costs of collection, recovery and disposal of packaging placed on the market. Among the main acts transposing the Directives, particular mention should be made of the following: Legislative Decree September 3, 2020, no. 116, on “Implementation of Directive (EU) 2018/851 amending Directive 2008/98/EC on waste and implementation of Directive (EU) 2018/852 amending Directive 1994/62/EC on packaging and packaging waste”; Legislative Decree September 3, 2020, no. 121, on “Implementation of Directive (EU) 2018/850, amending Directive 1999/31/EC on waste landfills”. Biomethane production incentive framework The current biomethane incentive framework is regulated by the MiSE MD March 2, 2018 (so-called MD 2018) that provides for the recognition of a premium in the form of Consumption Input Certificates (CICs) for producers who feed biomethane into the grid exclusively for the transportation sector. For producers of biomethane and advanced biofuels (including those derived from OFMSW) there is a mechanism for withdrawal by the GSE of both the CICs due (with a fixed value of 375 €/CIC for 10 years) and the production of biomethane. As provided for in Legislative Decree 199/2021, expected in the first half of 2022 is a MiTE MD regarding the incentive of biomethane that will extend its use not only to the transport sector but also to other sectors (industrial, residential, tertiary and agriculture). From the draft MD circulated in November 2021, it emerged that the new support mechanism will be characterized by incentivizable quotas and competitive procedures referenced from the MDs of incentives for renewable electricity sources: the subject of the auctions will be a contract for two-way differences that will consider the difference between the tariff as a result of competitive procedures and the average monthly price of methane (including the value of the guarantee of origin). The projects that win the competitive procedures will also receive a capital contribution which, depending on the technology, may reach up to 40% of the eligible costs (relating to the expenses for the construction of the plants), thus also allocating the resources earmarked by the PNRR for the development of biomethane plants. This new tool aims, firstly, to encourage the conversion of existing agricultural biogas plants and, secondly, the creation of new capacity always from agricultural matrix. On the other hand, new plants fuelled by OFMSW appear to be heavily penalized, for which the incentive tariff has been significantly reduced compared to that provided for in the previous MD 2018\. 59 A2A Report on Operations 2021 At the end of 2021, for the A2A Group, two plants for the production of biomethane from OFMSW are in the pre-qualification phase at the GSE, which will come into operation in 2022 and will be able to access the CIC incentive mechanism provided for by the 2018 Ministerial Decree (which will be valid until the end of 2022). Legislative Decree September 3, 2020, no. 116, implementing Directive (EU) 2018/851 amending Directive 2008/98/EC on waste and implementing Directive (EU) 2018/852 amending Directive 1994/62/EC on packaging and packaging waste In Italy, Legislative Decree 116/2020 implements two Directives of the EU Circular Economy Package, substantially amending part IV of Legislative Decree 152/2006 (TUA), in particular: Title I Waste management \- Chapter I General provisions Title I Waste management \- Chapter III Integrated waste management service Title II \- Packaging management Title VI Penalty system and final provisions \- Chapter I Penalties The measure brought forward to December 31, 2021 the obligation to separately collect organic waste or ensure its recycling. The amendments made effectively eliminate the category of “assimilated waste”, referring to the domestic perimeter both the flows in the municipal waste categories (specified in article 183, paragraph 1, letter b-ter of the TUA) and the “waste similar in nature and composition” based on the type (Annex L-quater of the TUA) and the activities (Annex L-quinquies of the TUA) that generate them. The achievement of the recovery obligations introduced by the Directive is calculated on the basis of these flows. This intervention, which could contribute to overcoming the lack of homogeneity in the definition of urban flows among the various territorial areas, seems however to require further operational clarification regarding categories that cannot be univocally classified (e.g. waste from construction and demolition, from canteens and offices located in industrial buildings) and a possible integration of the current perimeter of municipal privatisations. Special waste is instead listed in article 184, paragraph 3, of the TUA and, in continuity with the past, also include waste from recovery and disposal activities. A number of definitions relevant to the activities carried out by the company have also changed, including “waste management”, “recovery of material”, “temporary storage prior to collection”, and the legal provisions relating to temporary storage, classification, and criteria for admissibility of waste in landfills have been amended. A revision of the regulations on waste traceability is also planned, with the advent of the RENTRI. The new traceability system will be integrated into the National Electronic Register established following the conversion of Law Decree no. 135/2018 and will be managed by the National Register of Environmental Managers. Furthermore, the extended producer responsibility (EPR) is carefully regulated, reinforcing the institution (one of the cardinal principles of the reform) and with a view to progressively opening up consortium systems to competition. Under the new provisions, the EPR systems will have to cover at least 80% of the total cost of managing the waste released for consumption, without prejudice to the definition, after consulting ARERA and therefore in line with the MTR, of the permissible “efficient cost” level. At last, Legislative Decree 116/2020 entrusted the Ministry of Environment, aided by the technical support of ISPRA, with the definition of a “National Waste Management Programme” that defines the criteria and strategic guidelines to be followed by the Regions and Autonomous Provinces in drawing up regional waste management plans. The programme should indicate the recovery and disposal requirements to be met. A measure that will reduce the power of local authorities, with the regions that for their part will be able to define agreements for “the identification of macro areas” that allow “the rationalization of plants in terms of localization, environment and economic, based on the principle of proximity”. 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 60 60 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Legislative Decree September 3, 2020, no. 121, implementing Directive (EU) 2018/850, amending Directive 1999/31/EC on waste landfills Legislative Decree 121/2020 implements another of the Directives of the EU Circular Economy Package and introduces new organic regulations on the landfilling of waste, making amendments to Legislative Decree January 13, 2003, no. 36 on topics such as: landfill acceptance criteria for certain classes of waste; basic characterisation and acceptance procedures, including arrangements for on-site verification and waste sampling and analysis; construction and management criteria for landfill facilities. The decree provides for a gradual reduction in the amount of waste sent to landfills (no more than 10% by weight of municipal waste by 2035) and introduces a ban on the landfilling of separately collected waste intended for recycling or preparation for reuse. The landfilling of all waste suitable for recycling or other recovery, in particular municipal waste, will also be banned from 2030, except for waste for which landfilling produces the best environmental outcome. Law April 22, 2021, no. 53 Delegation to the Government for the transposition of European directives and the implementation of other acts of the European Union, European Delegation Law 2019-2020. The law provides the delegations to the Government in order to implement the directives issued by the EU Parliament and the EU Commission. With regard to the environment sector, of potential interest is the delegation to the Government for the implementation of EU Directive 2018/2001, on the promotion of the use of energy from renewable sources. Certain guidelines will have to be followed in the implementation, among which: update, enhance and introduce support mechanisms for the production of biomethane, advanced biofuels, fuels derived from recycled carbon and hydrogen, in order to effectively contribute to the decarbonization of all forms of transport, depending on the life-cycle emissions of energy carriers and the vehicles that use them; provide for measures to facilitate the maximum use of energy that can be produced from renewable sources, including by encouraging the spread and use of energy storage systems, including electric vehicles, also through a simplified authorization process, and the related research and development requirements, taking into account the principle of technological neutrality. Decree Law May 31, 2021, no. 77 Governance of the National Recovery and Resilience Plan and initial measures to strengthen administrative structures and speed up and streamline procedures. The Decree Law under analysis is an act that aims to speed up the implementation of the works envisaged in the National Recovery and Resilience Plan (PNRR) by strengthening administrative structures and streamlining procedures. This regulatory act has a potential effect on the activities of the entire Waste Business Unit, in the areas of environmental impact assessment (EIA) and environmental permits, renewable energy plants, waste management and reclamation of contaminated sites. Given its nature as Decree Law, it needs to be converted into law by July 31, 2021. 61 A2A Report on Operations 2021 Law no. 108 of July 29, 2021 Conversion into law, with amendments, of Decree Law no. 77 of May 31, 2021, on the governance of the National Recovery and Resilience Plan and initial measures to strengthen administrative structures and accelerate and streamline procedures. The act converts Decree Law no. 77 of May 31, 2021, into law, definitively introducing regulatory simplifications in favor of economic recovery. The main topics of interest for the Waste Business Unit facilities include: authorizations of renewable energy plants, including those for the production of biomethane; simplification of procedures regarding waste disposal and recovery facilities and end-of-waste; clarifications and simplifications with regard to the responsibility of the waste producer, eliminating the need for a certificate of disposal for waste sent to intermediate operations. Legislative Decree Government no. 199 of November 8, 2021 Implementation of Directive (EU) 2018/2001 of the European Parliament and of the Council of December 11, 2018 on the promotion of the use of energy from renewable sources. The aim of this decree is to accelerate Italy’s sustainable growth path, laying down provisions on energy from renewable sources, in line with the European objectives of decarbonization of the energy system by 2030 and complete decarbonization by 2050\. In addition, regulations are introduced with respect to energy efficiency. 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 62 62 4 Evolution of the regulation and impacts on the Business Units of the A2A Group 4.4 Smart Infrastructures Business Unit Starting in 2022, update WACC for infrastructure services in the electricity and gas sectors Resolution 614/2021/R/com defined the criteria for updating the WACC for infrastructure services in the electricity and gas sectors during the period 2022-2027 (TIWACC 2022-2027). This measure follows an intense consultation phase (DCO 308/2021/R/com and 488/2021/R/com), specific data collection by ARERA to assess the cost of business debt and discussions with operators and trade associations. The main characteristics of the regulatory mechanisms in place are confirmed (real pre-tax WACC, regulatory period of 6 years divided into two three-year sub-periods, calculation formula based on the Capital Asset Pricing Model). However, significant innovations are introduced in the methods for both updating and definition of the individual elements that make it up: i. trigger mechanism in the first three years: annual update, should there be a change in the WACC, for at least one service, equal to or greater than 50 bps compared with the value in force, considering certain specific market parameters (ref. nominal Risk Free parameters, isr inflation incorporated in the Risk Free, SPREAD and iBoxx BBB index). In this case, the WACC value would be updated for all services; ii. ke (cost of equity): elimination of the currently existing floor (0.5%) for risk-free assets and the introduction of corrective measures aimed at intercepting actual market conditions (CP \- Convenience Premium; FP \- Forward Premium and UP \- Uncertainty Premium) with a forward-looking and financial approach; iii. kd (cost of debt capital): a shift was made from industry benchmarks (i.e., collection and analysis of the actual cost of debt of Italian operators) to market benchmarks (i.e., iBoxx indices representing the yield of bonds issued by BBB-rated companies), including a weighting between the cost of existing debt (85%) and that of new debt (15%). A gradual mechanism was also introduced, whereby the new method of calculating Kd is given a weight of 33.3% in the first three-year period 2022-2024 and 66.6% in the second three-year period 2025-2027. iv. decrease in the cost recognized to cover taxation, by reducing the tax parameter T from the current 31% to 29.5%. The Authority confirmed the gearing values while for the βasset (parameter that measures the riskiness of the specific sector), it introduced an extraordinary update in force in the three-year period 2022-2024 for services that currently have a value lower than 0.4. In conclusion, the reduction in the WACC for the electricity and gas infrastructure sectors of interest to the A2A Group was -0.7% with a negative impact of around -16 million euro. WACC 2022 WACC 2021 βasset coefficient Weight of equity and debt capital (Gearing) Rate of return on equity (Ke) Rate of return on debt capital (Kd) Correction factor (F) Rate of return on invested capital (WACC) Rate of return on invested capital (WACC) Electricity transmission 0.370 0.50 5.08% 1.86% 0.41% 5.0% 5.6% Electricity distribution and metering 0.400 0.50 5.39% 0.41% 5.2% 5.9% Storage 0.506 0.50 6.49% 0.41% 6.0% 6.7% Regasification 0.524 0.50 6.67% 0.41% 6.1% 6.8% Gas transport 0.384 0.50 5.23% 0.41% 5.1% 5.7% Gas distribution and metering 0.439 0.44 5.40% 0.45% 5.6% 6.3% 63 A2A Report on Operations 2021 New tariff regulation criteria based on total expenditure (ROSS base) Resolution no. 271/2021/R/com initiated a procedure aimed at defining a new method for calculating recognized costs that goes beyond the current hybrid approach of rate of return for capital costs and price cap for operating costs, adopting one based on total expenditure, i.e. considering both operating and capital costs together. The process for adopting the new approach (defined as Regulation by Expenditure and Service Objectives \- ROSS) must be completed by December 31, 2022 and has the following main objectives: realignment of efficiency incentives so that they extend to total efficiency and are no longer limited to operating costs; use of capitalization rates set by the regulator, differentiated for each service, to be applied to the total recognized expenditure so as to determine both the recognized capital expenditure (which increases the invested capital) and the recognized operating costs; provision of mechanisms to monitor returns on investment in order to assess the extent to which actual returns achieved deviate from those determined by the regulator; homogenize the criteria for regulating various infrastructure services, avoiding misalignments in returns on invested capital caused by differences in the treatment of specific operating and capital cost items. In this context, the profiles relating to the definition of the length of the regulatory period will be assessed, taking into account the overlaps between the specific periods of each service and the WACC regulatory periods. ARERA, as part of the procedure initiated with the above Resolution, at the end of December published DCO 615/2021/R/com. 2020 final and 2021 provisional reference tariffs for the distribution and metering of natural gas Resolution 122/2021/R/gas approved the 2021 provisional reference tariffs for natural gas distribution and metering activities, while Resolution 117/2021/R/gas approved the 2020 final reference tariffs. Resolution 559/2021/R/gas which, among other things, has determined the Amounts for the Recovery of the Lost Depreciation of the mechanical meters decommissioned and replaced with electronic meters (IRMA, see below), redetermined the reference tariffs from 2015 to 2020. RAB GAS value underlying 2021 provisional reference tariffs millions of euro Unareti (*) ASVT LD Reti RetiPiù ACSM-AGAM Group (**) Total Cap. Centralized 47 1 11 12 11 82 RAB Distribution 791 11 166 126 166 1,260 RAB Metering 137 1 27 36 27 228 Total 975 13 204 174 204 1,570 (*) The RAB of Unareti S.p.A. is net of the locations transferred to RetiPiù S.r.l. from November 1, 2020 (56, falling within the Bergamo 1, 2, 3, 5 and Milan 4 ATEMs) and of those transferred to Italgas S.p.A. from February 1, 2020 (7, falling within the Alessandria 4 ATEM). (**) Includes Lereti S.p.A., Serenissima Gas S.p.A. and Reti Valtellina Valchiavenna S.r.l.. The RAB values of Lereti S.p.A. are expressed net of the 4 locations (Varese, Brizio, Casciago and Lozza) where the assets are owned by the municipalities. As of 2018, the DCVER component to cover the operating costs related to metrological testing has been zeroed, as these costs will be recognized on the basis of a methodology that will consider the net costs actually incurred as reported in the separate annual accounts and calculated according to criteria defined by the Authority. As of 2020, the Authority provided for a specific advance payment mechanism with a subsequent balance to cover these costs. Similarly, operating and capital costs not already covered by tariffs relating to remote management/remote metering and concentrators of electronic gas meters will continue to be recognized on an ex post basis until 2022, within a decreasing annual limit (2020: 4.24 euro/PdRsmart; 2021: 3.74 euro/PdRsmart; 2022: 3.24 euro/PdRsmart) and net of a flat-rate deduction for the portion of remote metering/remote management operating costs already included in the reference tariff of metering (as of 2020 0.53 €/PdR). With Resolution 413/2021/R/gas, the amounts relating to 2019 were recognized, amounting to a total of approximately 3.6 million euro. In December 2021, the collection of requests for cost recognition for the year 2020 began. 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 64 64 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Resolution 596/2020/R/gas determined the mandatory tariffs for end customers of gas distribution and metering services for 2021, valuing for the first time the VR and ST tariff components linked to the competitive procedures for the assignment of the natural gas distribution service, as well as the CE component applicable only in the new “Sardinia” tariff macro-area and intended to align the costs of the service for users there with those on the mainland. Regarding mandatory tariffs, the Authority, in light of the sharp increase in energy costs that characterized the second half of 2021 and government indications, has taken steps to significantly reduce the General System Charges borne by domestic and non-domestic customers, using funds made available by the government itself. Determination of the Amounts for the Recovery of the Lost Depreciations of the mechanical meters decommissioned and replaced with electronic meters (so-called IRMA) Resolution 559/2021/R/gas closed a lengthy procedure aimed at identifying the method of valuing IRMA, generated by a discrepancy in the useful lives used to calculate the residual depreciation of mechanical G4/G6 gauge meters decommissioned as they were replaced with electronic meters in compliance with the provisions dictated by the Authority. Following DCO 545/2020/R/gas, ARERA adopted Resolution 287/2021/R/gas and subsequently, Determination 3/2021 DIEU was issued establishing: that the disposals of traditional meters replaced by electronic ones should be represented in the RAB GAS tariff collections using the FIFO method applied to gross historical values and that, as a result, it would be necessary to re-acquire the 2014-2019 disposals data previously reported so as to ensure the uniformity of application of this criterion among operators; the technical modalities, the re-acquisition of data and the formulas for calculating IRMA on the entire fleet of G4/G6 mechanical meters existing as of December 31, 2019 and for meters decommissioned in the period 2014-2019. As a result of the specific data collection for the re-acquisition of the 2014-2019 disposals, the IRMA recognized to the A2A Group’s distributors amounted to approximately 6 million euro and will be paid in 5 installments included in the final allowed revenues for the years 2020 to 2024. Tariff regulation for the natural gas distribution and metering service 2020-2025 Resolution 570/2019/R/gas approved the RTDG 2020-2025, which defines the regulatory framework for gas distribution and metering service tariffs for the years 2020-2025 (5th regulatory period). Although the characteristics of the previous regulation are confirmed, the main amendments can be summarized as follows: operating costs recognized: update of operating costs recognized from 2020 using the average (50:50) between the actual costs of 2018 and the costs recognized in the same year as the basis of calculation. The update was carried out using the price cap method taking into account, in addition to the inflation, also an X-Factor differentiated by activity (distribution, marketing and metering) and, limited to distribution, operator size (large, medium, small). Compared to the previous period, there has been a considerable decrease in recognized operating costs and an increase in X-Factors relating to distribution and marketing, while the previous level is confirmed for metering; capital costs: revision of the β parameter in the calculation of the WACC of metering in order to align the recognized return with that in force for distribution (6.3% for 2020 and 2021). For calculating the invested capital subject to remuneration, as well as the related amortization, a specific mechanism is defined for the gradual release, over a long period of time that goes beyond the individual regulatory period, of the amount of contributions existing at December 31, 2011, which was not considered in defining tariffs. Unareti S.p.A. challenged Resolution 570/2019/R/gas with the Regional Administrative Court highlighting the lack of investigation and the significant impact, unforeseen and not adequately justified, on the company’s economic-financial balance. As part of the aforesaid appeal, on February 5, 2021, Unareti S.p.A. filed a request for verification, which was subsequently accepted by the Regional Administrative Court, which subsequently set March 30, 2022 as the deadline for verification activities. 65 A2A Report on Operations 2021 Quality regulation for the natural gas distribution and metering service 2020-2025 Resolution 569/2019/R/gas approved the RQDG 2020-2025, which defines the regulatory framework regarding technical and commercial quality, of the gas distribution and metering service for the years 2020-2025 (5th regulatory period). In general, the characteristics of the regulation in force were confirmed, including the bonus mechanisms for the incentive of security recoveries, for which the Authority, with Resolution no. 463/2020/R/gas, fixed the new levels and introduced some further refinements aimed at monitoring and stimulating the improvement of some specific aspects, such as the pressure and cathodic protection of the networks, the average residual life of the network (an element that has not yet been fully developed) and the timely elimination of dispersions within the timing established by the technical standards in force. As far as commercial quality is concerned, the only significant difference concerns the way in which the supply pressure check is carried out at the request of the user. Resolution 596/2021/R/gas defined the premiums and penalties for security recoveries of the gas distribution service relating to 2018, recognizing a total of approximately 2.6 million euro to the distributors of the A2A Group (2.7 million euro in premiums and approximately 0.1 million euro in penalties). Start of management of natural gas distribution service in the Milan 1 area On December 16, 2021, Unareti S.p.A. signed the service contract for the management of the natural gas distribution and metering service in the Milan 1 \- City and Plant area of Milan, following the award of the tender issued by the competent Contracting Authority (Municipality of Milan). The management of the area, also for tariff purposes, will start from March 2022: starting from this date, the improved conditions offered by the Company during the tender will be applicable. Tariff regulation for the natural gas transport and metering service 2020-2023 Resolution 114/2019/R/gas approved the rules applicable to natural gas transport tariffs for the period 2020-2023 (5th regulatory period \- new RTTG). The main introductions are: definition of eligible revenues: the method adopted, similar to the previous one, provides for the calculation of eligible revenues as the sum of the (i) return on net invested capital (WACC 2021: 5.7%), (ii) portion of amortization (useful lives substantially unchanged) and (iii) operating costs (calculated from the individual operator’s actual costs as presented in the 2017 separate annual accounts). For admission to the tariff recognition of investments relating to specific interventions on the transport network, the provisions of Annex A to Resolution 468/2018/R/gas and subsequent amendments and integrations are valid, as well as compliance with criteria of cost-effectiveness and efficiency in their implementation. Incentive mechanisms for infrastructure development are also foreseen; recognition of costs relating to network losses, self-consumption and gas not accounted for (GNC): the current method of recognition in kind of these items is exceeded, moving to monetary recognition based on the weighted average price of forward products with delivery to the PSV in the reference tariff year. In addition, Resolution 569/2020/R/gas introduced a mechanism for the partial adjustment of discrepancies between the quantities of GNC recognized and the actual quantities recorded in a given year; equalization mechanisms: in addition to the pre-existing mechanisms relating to the equalization of revenues relating to the regional network (between TSO and CSEA) and the variable unit fee (between TSO), a new monthly flow from transport companies other than Snam Rete Gas S.p.A. is introduced for the latter for the equalization of national network revenues relating to the revenues associated with the exit fees, aimed at transferring the share of revenues pertaining to the national network from the transport companies that collect the revenues deriving from the CPu. The new RTTG has provided for a new way of managing the Corrective Factors (FC) of the eligible revenues, i.e. elements that ensure, annually and for each operator, equality between the eligible revenues and the revenues actually obtained from the application of the tariffs. Until 2019, these amounts were accrued in 4 annual installments where the amount for a single year was then subtracted directly from the allowable revenues for that year. Beginning in the Fifth Regulatory Period, accrual is eliminated and the management of these differences is assigned to CSEA in the year following the reporting year where allowable revenues are not netted by that amount. 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 66 66 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Resolution 230/2021/R/gas approved the revenues recognised and the tariff fees for the activity of natural gas transport and metering for 2022, while those for 2021 had been approved by Resolution 180/2020/R/gas. RAB value of Retragas S.r.l. underlying 2021 final tariffs and 2022 provisional tariffs millions of euro 2021 Final tariffs 2022 Provisional tariffs RAB Transport 42.5 45.9 RAB Metering 0.8 1.6 Total RAB 43.3 47.5 Resolution 539/2020/R/gas, among other things, assessed the ten-year development plans for the natural gas transport network prepared by the operators for 2019 and 2020\. With reference to the plan of Retragas S.r.l. aimed at the new methanization in the Autonomous Province of Trento, the Authority, in light of a number of critical points, considered it appropriate to continue evaluating it in future plans. Finally, in view of the end of the current regulatory period and taking into account the timing required by European legislation, Resolution no. 617/2021/R/gas initiated the procedure for the formation of measures regarding rates and quality of the natural gas transport and metering service for the Sixth Regulatory Period (6PRT), starting from 2024, and which will have to take into account, among other things, the guidelines regarding “Regulation by Expenditure and Service Objectives \- ROSS” (see specific paragraph). Reorganization of gas metering activities at entry and exit points of the transport network Resolution 512/2021/R/gas concludes the procedure aimed at reorganizing the activity of gas metering at the entry and exit points of the transport network, approving the new text containing the “Regulation of the metering service on the natural gas transport network (RMTG)”, which defines the responsibilities and scope of metering and meter reading activities, minimum and optimal requirements of a plant, performance and maintenance nature, and quality levels. The new regulation is aimed at increasing the responsibility of the various parties involved in the supply chain, defining their roles and introducing \- as already provided for in many other cases \- an articulated system of penalties and compensation imposed, against specific monitoring by the TSOs, on those responsible for metering activities (i.e. owners of the metering plant) and/or meter reading (TSOs to which the metering plant is connected) in order to provide them with an adequate price signal for non-compliance with certain service quality levels (in some cases, distinguished between minimum and optimal) and thus stimulating interventions aimed at adapting the metering plants, with consequent improvement of their performance, to guarantee higher quality metering data. In the first part of 2022, a coordination activity between carriers will be started in order to proceed with the census of the measurement plants by mid-2022 and then start, from 2023, with the performance monitoring phase (and related reporting, also towards the Authority) and, from 2024, with the incentive system. 2020 final and 2021 provisional reference tariffs for the distribution and metering of electricity Resolution 159/2021/R/eel approved the 2021 provisional reference tariffs for electricity distribution and metering service for companies serving more than 25,000 PODs, while Resolution 131/2021/R/eel approved the 2020 final reference tariffs for operators serving at least 25,000 PODs. Following the publication by ARERA of the detailed elements relating to the definitive 2020 reference tariffs for distribution and metering services, as envisaged by Determination DIEU 12/2020, the values of the electricity RAB are reported. 67 A2A Report on Operations 2021 RAB ELECTRICITY value underlying 2021 provisional tariffs millions of euro Unareti (*) LD Reti RetiPiù Reti Valtellina Valchiavenna Total RAB Distribution 604 53 22 14 693 RAB Metering 68 3 1 2 74 Total 672 56 23 16 767 (*) Unareti S.p.A.’s Measure RAB contains approximately 21 million euro of investments in 2G meters relating to 2020 pre-balance, which will be managed using the fixed installment method (i.e. Amortization and Remuneration Portion together and fixed for the entire useful life of the 2G assets and equal to 15 years), which, compared to the normal method of tariff recognition of investments, results in a different allocation of the recognition over time. With regard to distributors up to 25,000 POD, Resolution 237/2018/R/eel defined the criteria for the recognition of operating and capital costs. In particular, tariffs for distribution activities are calculated using a parametric method, effective from 2018, which provides for the application of a graduation mechanism7. According to this methodology, the recognized opex and capex are set taking into account certain relevant quantities such as distributed energy and user density (opex) and, together with the above, the age of the networks (capex), while those for metering activities take into account a conventional profile for the installation of LV electronic meters, an average unit cost of 126 €/meter (2014 values) and an investment turnover factor set at 2% (to be applied from 2015). It should also be noted that Resolutions 104/2021/R/eel and 187/2021/R/eel approved, respectively, the reference tariffs for 2016 and 2017 for distributors serving fewer than 25,000 PODs. Resolutions 564/2020/R/eel and 566/2020/R/eel set the obligation tariffs for the year 2021 for electricity distribution and metering services related to non-domestic and domestic customers respectively. With regard to obligatory tariffs, the Authority, in application of the DL Sostegni and in full consistency with what was already done in 2020, with Resolution 124/2021/R/eel and subsequently with Resolution 279/2021/R/eel, modified, respectively, for the months of April \- June and July 2021, for non-domestic customers connected to LV, the network tariffs and general system overheads acting on the fixed quotas and power quotas so as to determine savings. Subsequently, due to the sharp increase in energy costs that characterized the second part of 2021, the Authority, following the indications of the Government and using the funds made available by it to support consumers (in particular, low voltage users up to 16.5 kW), acted mainly on the general system charges borne by these end customers, in the first phase (July-September) reducing them significantly and, subsequently (October-December) reducing them to zero. As of July 1, 2021, in order to remove obstacles to the dissemination of electric mobility, residential users with an installed capacity of up to 4.5 kW and wallboxes with certain characteristics may participate in the tariff experimentation mentioned in Resolution 541/2020/R/eel, which will enable them to withdraw up to 6 kW at night, without any additional cost to their bills. Infra-period updating of tariff regulation of electricity transmission, distribution and metering services 2020-2023 Resolution 568/2019/R/eel approved the tariff regulation for electricity transmission, distribution and metering services for the 2020-2023 (NPR2) half-period and the related TIT, TIME and TIC8integrated texts. The measure, substantially in line with the criteria adopted in the first half-period 2016-2019 (NPR1), defines in particular: the initial levels, referring to 2020, of the cost recognized to cover operating costs, a profit sharing with symmetric distribution (50:50) between distribution companies and end users of any increased efficiencies achieved in the previous NPR1 and the productivity recovery rate (X-Factor) for the annual update. The new X-Factor applicable to electricity distribution activities is 1.3% (1.9% in the previous half-period), while the X-Factor applicable to metering activities is 0.7% (1% in the previous half-period); a mechanism for distributing net revenues from the joint use of electricity infrastructures for purposes other than those subject to tariff recognition (i.e., use by TELCO), which may be activated only if the amount is greater than 0.5% of the revenue allowed to cover the costs of the distribution service and managed under the equalization mechanisms already provided for by the regulation; incentives for aggregations between distribution companies, giving priority to smaller ones, with the possibility of using the instrument of the “Network Contract”; 7 The graduation mechanism is based on the weighted average (weight of the parametric method equal to 10% in 2018; 20% in 2019; 30% in 2020; yet to be defined for the period 2021-2023) between the individual tariff scheme and the parametric one. 8 TIT (Provisions for transmission and distribution services), TIME (Provisions for the metering service), TIC (Economic Conditions for the connection service). 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 68 68 4 Evolution of the regulation and impacts on the Business Units of the A2A Group a mechanism for the recovery of bad debts not otherwise recoverable relating to network tariffs access to which by distributors is subject to the fulfilment of specific conditions (refer to the specific paragraph); a revision of the tariff regulation for withdrawals and injections of reactive energy (refer to the specific paragraph). Infra-period updating of quality regulation of electricity distribution and metering services (i.e. TIQE): 2020-2023 Resolution 566/2019/R/eel updated the TIQE for the regulatory half-period 2020-2023, introducing specific measures aimed at reducing service continuity gaps between the various areas of the country, through ad hoc regulatory instruments. In particular, a special voluntary regulation has been defined for the areas with the highest number of interruptions which envisages: the payment of a premium at the end of the period (2023), if the target level set by ARERA is reached and a penalty (equal to 1/3 of the premium) if it is not reached; the possibility of requesting to postpone the target year from 2023 to 2025, upon presentation by the distributor of a specific Technical Report proving the reasons in consideration of the presence of structural criticalities; if the request is accepted, the trends would be recalculated at the same time. Resolution 431/2020/R/eel approved Unareti S.p.A.’s application to participate in the special regulation for the Milan area, with the recalculation of trends. Moreover, with particular reference to the number and duration of interruptions, the Authority has also ordered the start of a regulation for experiments (regulatory sandbox), mutually exclusive with the special regulation, in areas identified by distributors. Without prejudice to the achievement of the target level set for 2023, the distributor has the opportunity to propose an improvement path different from that defined by the ordinary regulation, presenting innovative solutions from a technological point of view for the improvement of service quality. Also in this case it is foreseen to recalculate the trends, deactivated in the years of experimentation. TIQE: Resilience Plans for the electrical network Title 10 of the TIQE defines the scope of the electricity grid resilience obligations, the content and timing of the implementation of the action plan, and appropriate incentive mechanisms. Determination 2/2017 DIEU approved the “Guidelines for the submission of Work Plans for the increase of the resilience of the electricity system \- part one”, while MiTE intervened with its own guidance document that required the concessionary distributors to integrate the development plans with a special section, analytical and subject to monitoring, dedicated to interventions for the increase of the resilience and robustness of the network. Following this, Resolution 31/2018/R/eel: i) introduced the obligation for all the main distribution companies9to draw up, and periodically communicate to the Authority, resilience plans for at least three years and coordinated with Terna S.p.A. or with the reference distributor; ii) provided for a single reputational incentive mechanism consisting of the obligation to publish the resilience plan on the website by June 30 of each year. In addition, Resolution 668/2018/R/eel defined a bonus/penalty type economic incentive for resilience enhancement interventions based on: specific criteria aimed at identifying which interventions can be considered eligible for the incentive mechanism; a method of calculating bonuses and penalties, respectively at a percentage share of the net benefit of the individual intervention carried out within the established time frame and of the net present value of the actual costs based on the extent of the delay. In addition to the ceiling already in force for the total net premiums of each distributor, equal to 25% of the net present value of the sum of the expected costs of all interventions, Resolution 534/2019/R/eel established a maximum limit to the premium of a single intervention, making it equal to the cost of the same in order to avoid the recognition of over-remuneration higher than the cost of the intervention already covered in RAB. Finally, with reference to the methods and timing of payment of the premiums10and penalties, the TIQE (art. 79 quinquies.3) provides that, by December 31 of each year from 2020 to 2025, the Authority shall determine the premiums and penalties to be paid into the CSEA account 9 The “main distribution companies” are those with: i) more than 300,000 users; ii) more than 100,000 users; iii) less than 100,000 users directly connected to the National Transmission Grid. 10Resolution 566/2019/R/eel subsequently established that premiums for increasing the resilience of distribution networks will be financed by the MV Users Fund. 69 A2A Report on Operations 2021 “Quality of electrical services” relating to eligible interventions, with date of actual completion in the previous year. In this regard, it should be noted that Resolution 432/2020/R/com, following the COVID-19 epidemiological emergency, defined the postponement of one semester for the conclusion of only the interventions included in the 2019-21 Plan. At the moment, the obligations to develop the resilience plans refer only to the aspect of the validity of distribution networks to mechanical stress (i.e. to specific critical risk factors such as floods, fall of out-of-band trees, ice sleeves and heat waves), while for that relating to the timeliness of the restoration of the supply, please refer to subsequent measures. By June 30, 2021, Unareti S.p.A. sent ARERA the 2021 Development Plan within which the section dedicated to the 2021-2023 Resilience Plan has been prepared, which contains 21 new interventions for total investments of about 10 million euro. As a result of the examination of the above Plan, Resolution 537/2021/R/eel established for Unareti S.p.A. the payment of a net bonus of 1.23 million euro in light of the 14 interventions completed in 2020. Pursuant to art. 79 septies.2 of the TIQE, LD Reti S.r.l. and RetiPiù S.r.l., although obliged from 2020 to publish the section dedicated to the Resilience Plan on their website, have opted for deferred participation in the rewards/penalties mechanism, which will therefore take effect from 2022. Remediation of the old riser columns of the electricity distribution network in condominiums Resolution 467/2019/R/eel defined an experimental three-year regulation, postponed by one semester following Resolution 432/2020/R/com (January 1, 2020 \- June 30, 2023) on the modernization \- with or without centralizing the meters \- of the old riser columns of the electricity distribution network in condominiums, required of all distributors, regardless of their size in terms of POD served. In order to overcome any reluctance on the part of condominiums to carry out such interventions, in addition to the definition of a “Model Contract”, the Authority has provided an incentive mechanism whereby the distributor: will have to pay the condominium an amount to cover the costs incurred by the latter in relation to the demolition/restoration works (and possibly electrical works in the case of centralization) in an amount equal to the lesser of the amount actually spent and a parametric amount calculated on the basis of the number of users and the level of value of the building; this amount will be recognised under the tariff mechanisms11, subject to completion by March 31, 202312of the obligatory census of its old riser columns. The COVID-19 pandemic and related restrictive measures have forced a postponement of the start of the inspection campaign due to the lack of safe access to private areas. Activities, therefore, kicked off in a massive way in early 2021\. Unareti S.p.A. will carry out most of the interventions in the Milan area, the most critical due to the higher number of “single users” connected to the network through a riser owned by the distributor: the following are estimated, in particular, 9,500 condominium buildings with pre-1970 risers, most of which are composed of a large number of buildings that leads to quantify the presence of about 23,500 buildings with old risers in service. In Brescia, however, approximately 1,900 condominiums are estimated for approximately 2,100 buildings concerned. In terms of inspections, the company has also defined a general schedule that envisages approximately 550 inspections per month in Milan, and about 200 in Brescia, taking into account that the deadline set by ARERA for the conclusion of the census is March 31, 2023. Regarding the modernizations, in 2021 contracts, were stipulated with 10 condominiums (all with centralized meters), of which 2 modernizations were completed and reported with total contributions paid equal to 90,800 euro, while there were 6 for which Unareti S.p.A. completed the works but is waiting for the finishing activities to be finalized by the condominium and the subsequent reporting. The latter will involve the disbursement of total contributions of 82,500 euro. 11Resolution 566/2019/R/eel subsequently established that premiums for increasing the resilience of distribution networks will be financed by the MV Users Fund. 12Resolution 566/2019/R/eel subsequently established that premiums for increasing the resilience of distribution networks will be financed by the MV Users Fund. 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 70 70 4 Evolution of the regulation and impacts on the Business Units of the A2A Group 2G Smart Metering Systems for the metering of low voltage electrical energy and approval of PMS2 by Unareti S.p.A. In view of the replacement of first-generation (1G) electricity meters that will have completed their regulatory useful life (15 years), Resolution 87/2016/R/eel established the functional requirements and specifications of LV electricity meters \- version 2.0, as well as the performance levels of the related second-generation smart metering systems. Resolution 646/2016/R/eel defines, for distributors > 100,000 PODs, the cost recognition methods, subsequently updated for the period 2020-2022 by Resolution 306/2019/R/eel. The main applicable provisions can be summarized as follows: the presence of obligations relating to the start/conclusion of the massive phase of the replacement plan. In particular, for distributors >100,000 PODs, it is assumed that the massive phase will start by 2022 with the objective of replacing at least 90% of the existing meters by 2025\. The obligations for distributors < 100,000 PODs were defined by the subsequent Resolution 106/2021/R/eel; obligation to prepare detailed plans for the commissioning and public consultation of a 2G smart metering system (PMS2), in the manner defined by the Authority; determination of a single threshold of 130 €/meter for the calculation of the maximum capital expenditure condition for admission of the plan to a fast track valuation; specific methods for recognizing investments in 2G smart meters, with the possibility of obtaining premiums or penalties based on the degree of consistency between the unit costs actually incurred and those agreed with the Authority. In addition, a maximum number of 2G meters of first installation is provided, recognizable in tariff for each year of the plan (Conventional Plan \- PCO, defined according to the tariff profile for the installation of 1G meters). In this context, a corrective mechanism for the PCO has been introduced, which is modulated so as to anticipate from the end to the beginning of the period the tariff recognition of part of the total quantity of meters to be replaced; presence, starting from the 4th year of the plan, of a penalty mechanism in case of non-compliance with the performance levels set by Annex B to Resolution 87/2016/R/eel (% of readings collected within 24 hours and % of success of remote management operations within 4 hours). The annual penalty is based on the capital expenditure allowed for tariff recognition and the level of non-compliance. There is also provision for a penalizing mechanism in the event of non-compliance with the progress of the PMS2. There are, however, annual and multi-year ceilings on the penalties that may be imposed on the operator. Finally, there are specific provisions for reporting both the capital and operating costs actually incurred in each year and the physical quantities of meters actually installed. Pending the start of the replacement plans, the Authority has established the modalities for the recognition of investments in 1G meters for the years 2017-2020 (2018-2021 tariffs), limiting the recognized unit cost to 105% of the unit cost of 1G meters for the year 2015\. Similarly, the method for the recognition of investments in 2G meters made outside the replacement plan and relating to “ordinary user management” (see TIME 2020-2023) was defined. The maximum recognizable gross investment value per 2G meter installed in the years 2018-2020 (2019-2021 tariffs) is equal to the sum of: 125% of the average unit cost incurred by the distribution company in 2015 for the supply of 1G meters of first installation; 105% of the gross investment per 1G meter, net of the average cost for the supply of installed meters, incurred in the same year 2015 (therefore equivalent to the cost of installation). Following extensive discussions with the Authority’s Offices, Resolution no. 278/2020/R/eel approved the 2G Plan proposed by Unareti S.p.A., which contains the replacement of around 1.3 million meters with a massive phase planned for the period 2020-2024 currently underway (the Brescia area was completed in 2021 and installation is now concerning the Milan area). Resolution No. 106/2021/R/eel defines, for distributors serving fewer than 100,000 POD, the methods for recognizing the costs of 2G smart meters: mandatory installation from January 1, 2022 and mandatory commissioning by 2025 of at least 90% of the meters installed on LV active points at December 31, 2020; recognition of 2G investments based on an all-inclusive standard unit cost (fixed for the entire plan and equal to 145 euro) to be applied to the physical quantity of 2G meters put into service in the reference year, calculated considering a maximum limit to 2G meters put into service to replace 2G meters already installed. Existing invested capital at December 31, 2021 related to 1G systems will be recognized in the tariff until the end of its remaining life, while new 1G investments will not be recognized; 71 A2A Report on Operations 2021 penalty mechanisms similar to those defined for larger operators are envisaged (i.e., one-off penalties for failure to make progress with the massive roll-out and penalties for under-performance of the 2G smart metering system), albeit with much more simplified application systems. Tariff regulation of withdrawals and injections of reactive energy Resolution 568/2019/R/eel, as amended by the subsequent Resolution 395/2020/R/eel13, intervened on the regulation of reactive energy flows on the networks, making significant changes. In particular, ARERA has defined minimum levels of the power factor for both withdrawals and reactive inputs, in excess of which penalties defined on the basis of specific unit fees must be paid, to be applied respectively to HV and HHV end customers and to distribution companies directly connected to the National Transmission Grid, as well as to MV end customers and LV non-domestic customers with available power greater than 16.5 KW, and to exchange points between MV and LV distribution networks. In particular, the most novel element concerns the prohibition to feed reactive energy into the grid (imposed by the unit power factor constraint) in all periods of the day and the consequent application of penalties. ARERA has, however, provided for the right, on the part of Terna S.p.A. and the distribution companies, to sign exceptions to the application of fees for excessive withdrawals and injections of reactive energy if such application determines criticalities in grid management. Determination 02/2021 DIEU approved a program of preparatory actions for the implementation of the aforementioned regulation in order to acquire the elements necessary to define the subsequent measures, defining a precise timetable and assigning specific “tasks” to each party involved (Terna S.p.A. and the distribution companies directly connected to the NTG in high or very high voltage) specific reporting obligations towards ARERA. In light of this and with a view to optimizing the investment plan to be implemented, Unareti S.p.A. started a technical discussion with Terna S.p.A. aimed at identifying the grid nodes on which to compensate the reactive energy injected/withdrawn for the areas of Milan and Brescia through the installation of power factor correction systems, also evaluating the adoption of an aggregative logic for primary substations with the same voltage level. These analyses took concrete form with the sending to ARERA, on October 31, of a “Joint Terna/Unareti report” containing the results of coordination activities for the planning of interventions aimed at voltage control and the management of reactive energy exchanges. Following the process described above, at the end of November, DCO 515/2021/R/eel was published containing ARERA guidelines for completing tariff regulation of reactive energy, for which the final measure is expected during the first quarter of 2022. Instruments to protect distributors’ credit: general system overheads and network overheads Since 2016, as a result of the insolvencies accounted for by some sales companies and the litigation involving the Standard Network Code for the transport of electricity (i.e. CTTE) on the issue of financial guarantees to be presented to cover General System Overheads (GSO), ARERA has undertaken many initiatives aimed at strengthening the credit protection of distributors. Resolution 50/2018/R/eel introduced a system for the compensation of GSO paid but not collected by distributors. The mechanism is financed by an Account set up at the CSEA, supplemented both by any amounts collected by distributors subsequent to the recognition of the amount for previous years, and by tariff revenues supplemented by the components covering the GSO. Unareti S.p.A., as for the previous years, adhered to this mechanism also for 2021 and requested the recognition of a total amount equal to approximately 2.3 million euro, which was paid in December 2021. Resolution 461/2020/R/eel subsequently introduced a similar compensation mechanism for the non-collection of network overheads not otherwise recoverable relating to the period January 1, 2016 to December 31, 2019\. Unareti S.p.A. has adhered to this mechanism and, by the deadline of June 30, 2021, requested the recovery of a net amount of approximately 800,000 euro recognized, following the required verifications, by CSEA in December 2021 net of the advance already paid in December 2020 (and equal to approximately 500,000 euro). 13This Resolution moved by 1 year, i.e. to January 1, 2022, the entry into force of the provisions set forth in Resolution 568/2019/R/eel in light of the emergency from COVID-19. According to the guidelines reported by ARERA in DCO 515/2021/R/eel, this date should be further postponed to July 1, 2022. 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 72 72 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Lastly, with Resolution 261/2020/R/eel, ARERA made urgent additions to the CTTE concerning the provision of guarantees and the handling of defaults, with the aim of strengthening the protection of distributors. In particular, limiting provisions have been introduced to the forms of credit rating and acceptable insurance sureties. Energy efficiency certificates and tariff contribution recognized to distributors for fulfilment of the obligation Energy Efficiency Certificates (TEE) or White Certificates (WC) are negotiable certificates issued by the GSE that certify the achievement of energy savings in final uses through the realization of energy efficiency interventions. The system was introduced by Ministerial Decrees July 20, 2004 as amended, and provides for electricity and natural gas distributors to reach annual quantitative targets for primary energy savings, expressed in tonnes of oil equivalent (TOE) saved. A TEE/WC is equivalent to 1 TOE. Distributors can fulfil the obligation by directly realizing energy efficiency projects that entitle the issue of WC or by purchasing the certificates from other entities that generate them on the market (typically from Energy Service Companies – ESCO). The Authority defines the methods for determining and paying the tariff contribution to be paid to distributors and the revenue is collected through fees applied to electricity and gas bills. The following table shows the energy saving targets defined by the MiSE MD May 21, 2021. Targets for electricity distributors(1) Targets for gas distributors(1) Minimum Target (2) Period to compensate the residual obligatory portion(2) Millions of WC Millions of WC (%) (no. years) Ministerial Decree January 11, 2017 2020 3.17 3.92 60% 2 Ministerial Decree May 21, 2021 2020 1.27 1.57 60% 2 2021 0.45 0.55 60% 2 2022 0.75 0.93 60% 2 2023 1.05 1.3 60% 2 2024 1.08 1.34 60% 2 (1) Obliged entities: electricity and gas distributors with more than 50,000 final customers. (2)Minimum target and compensation period: the obliged entity that achieves an obligation portion of less than 100% but still at least the minimum target set by the Ministerial Decree (60%) may offset the residual portion in the following two-year period (n+2) without incurring penalties. MD May 21, 2021 amended MiSE MD January 11, 2017 (as updated by MD May 10, 2018), by providing: a significant reduction in 2020 obligations, the postponement of the 2020 obligation year deadline to July 16, 2021, and the definition of obligations for the 2021-2024 regulatory period; the establishment of a cap for the tariff contribution defined by ARERA, taking into account the trend of WC prices on the market and those recorded in bilateral trades; the issuance of WC to the overrun by the GSE to distributors that request it at a value equal to the difference between 260 €/WC and the value of the tariff contribution for the year of obligation, up to a maximum delta of 15 €/WC and setting a floor of 10 €/WC. The obliged parties can request the WC to the overrun until the minimum obligation is reached and to cover the residual amounts of obligation expiring, provided they are already in possession of a WC amount of at least 20% of the minimum obligation on their ownership account. For the cancellation of these WC, the tariff contribution will not be recognized. Distributors can then redeem all or part of the amount paid for the purchase of WC from the GSE for delivery of WC generated by projects or bought on the market. The redemption takes place from the first WC and is possible only if the obliged party holds a number of WC exceeding the minimum obligation for the current obligation year, and within two years following the expiry of the obligation. However, it is not possible to proceed with the redemption in the same obligation year in which the WC were issued. WC cancelled in lieu of the GSE ones are paid the current year’s tariff contribution and the refund of the amount paid to the GSE is made through tariff contribution adjustment. 73 A2A Report on Operations 2021 The new MD also introduces a system of incentives for savings through downward auction procedures, which were expected to be defined by a subsequent MiTE MD by December 31, 2021\. Auctions will be for the economic value of the saved TEP \- on a pay-as-bid basis \- and may cover specific sectors and projects. This incentive system will be available to entities that support the investment for the implementation of the efficiency project. Resolution 358/2021/R/efr defined the tariff contribution for the mandatory year 2020, setting it at 250 €/TEE while the additional fee was defined as 10 €/TEE (maximum applicable value). Subsequently, ARERA, with Resolution 547/2021/R/efr determined an exceptional tariff contribution for the mandatory year 2020 equal to 7.26 €/TEE, recognizing the difficulties encountered by the obliged parties in the procurement of certificates on the market, due on the one hand, to the late introduction of the Ministerial Decree 2021 (published only in May 2021, and which provided for the reduction of obligations for the year 2020) and, on the other hand, to the continuing criticality relating to the issue of new TEE (also due to the continuation of the pandemic crisis). This last measure has enabled the distributors of the A2A Group to reduce their estimated losses by a total of around 1.8 million euro. Determination DMRT/EFC/16/2021 defined the targets for the 2021 obligation year. The values for the companies of the A2A Group are shown in the table below and compared to the 2020 obligation year, there is a significant reduction in the obligations due to the reformulation of the targets introduced by the Ministerial Decree of May 21, 2021. Obliged Party TEE obligation 2020 TEE obligation 2021 Unareti S.p.A. 149,008 46,979 Lereti S.p.A. 26,187 10,449 LD Reti S.r.l. 32,497 12,411 RetiPiù S.r.l. 18,540 6,205 Total 226,232 76,044 Electric mobility The Ministry of infrastructure and sustainable mobility is currently reviewing the PNIRE (National Infrastructure Plan for the Recharge of Electric Vehicles), which defines the guidelines for the development of recharging infrastructures (IdR) for electric vehicles in Italy. Given the growing dissemination of electric vehicles (the PNIEC estimates 6 million by 2030) and the consequent increase in IdR, not only will the energy required for recharging increase, but these vehicles, through IdR, will be able to provide valuable services to the transmission grid and, in the medium to long term, to the distribution networks: the batteries, in fact, have the ability to quickly provide input/output services. With reference to recharging in the private sector, Resolution 541/2020/R/eel provided for the possibility for domestic users (or other LV users) with contractually committed power between 2 kW and 4.5 kW, connected to a recharging system for electric vehicles, to withdraw up to 6 kW at night, on Sundays and on all public holidays, without additional fees related to the increase in power. This trial was granted for the period July 1, 2021 through December 31, 2023. In April 2021, the Authority, through the publication of a clarification, officially provided for the possibility that, in the same real estate unit, POD intended for the recharging of electric vehicles may be installed in the name of third parties \- such as CPO, Charging Point Operators \- with respect to the owner of the main POD. Operators are therefore allowed to intercept several end customers through a single POD, exploiting the synergies and savings deriving therefrom (sharing of fixed components, synergies on maximum power and connection costs). 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 74 74 4 Evolution of the regulation and impacts on the Business Units of the A2A Group With the approval of Legislative Decree no. 199/2021, there are some changes regarding the installation of publicly accessible IdRs. In particular: some interventions have been introduced to simplify the authorization process; the possibility was introduced for municipalities to provide for the installation of at least one recharging point for every six electric vehicles registered; the provision was amended of DL of July 16, 2020 (so-called “Simplification Decree”) relating to the definition of ad hoc tariffs for electric recharging by ARERA which, within six months of the coming into force of the above-mentioned Legislative Decree, will have to define tariff measures applicable to IdR accessible to the public in order to encourage the spread of electric vehicles. These measures may also provide for a discount on the components covering general system charges, on condition that they are compatible with EU regulations on state aid, are of a transitional nature and that the entire tariff benefit is passed on to the end customer. The Ministerial Decree of the Ministry of Economic Development of August 25, 2021 concerning the Granting of contributions for the installation of infrastructures for the recharging of electric vehicles carried out by individuals in the exercise of business, arts and professions, as well as by persons liable to corporate income tax (IRES)”governs the granting and disbursement of capital contributions aimed at supporting the purchase and installation of IdR carried out by companies and professionals (i.e. amount of 90 million euro). Finally, it should be noted that the PNRR has allocated resources for the installation of IdR accessible to the public for about 750 million euro, which will be allocated to the creation of about 20,000 ultra-fast charging points throughout the country: the allocation of these funds is expected to start from 2023. Activities of ARERA in the regulation and control of the Integrated Water Service (SII) Approval of the Water Tariff Method for the third regulatory period 2020-2023 (MTI-3) Resolution 580/2019/R/idr approved the Water Tariff Method (MTI-3) for the third regulatory period (2020-2023), defining the rules for calculating the costs eligible for recognition, as well as the limits to the applicable tariff increases (reduced compared to the maximum levels provided for in the previous regulatory period). The subsequent Resolution 639/2021/R/idr defined the rules and procedures for the two-yearly update between 2022 and 2023: in particular, the component covering the cost of financial and tax expense fell to 4.8% (the previous value in force until 2021 was 5.24%). As already introduced by Resolution 580/2019/R/idr remains confirmed. It had provided: modification of the recognition of financial charges on work in progress (LIC): excluding from recognition in the tariff LICs with balances that have remained unchanged for more than 4 years and application to LICs of a lower rate than for assets that have entered service and decreasing over time; the drafting, in addition to the Plan of Interventions, of a Plan for Strategic Works (POS) 2020-2027 containing the forecast of infrastructural interventions dedicated to complex works with a useful life greater than/equal to 20 years priority for the quality of service. The LIC of the works contained in the POS benefit from full (and not decreasing) tariff recognition; the modification of the regulatory useful lives, for assets that came into operation in 2020, dividing the assets between aqueduct, sewerage, purification and common activities and associating them with the relative macro-indicator of technical and commercial quality; the introduction of an incentive for the measures put in place by the Operator to make users more aware of their consumption and to encourage the procedures for limitation in case of default and selective disconnection of supply; the separation, in the calculation of the adjustments of the other water activities, the activities linked to energy and environmental sustainability objectives, for which the Manager is granted a sharing equal to 75% of the difference between revenues and costs incurred. The benefits of this “incentive” will apply in the tariffs 2022 (a+2); the application to ordinary LIC, for the years 2020 and 2021, of the rate recognized for fixed assets relating to strategic works. In the Brescia area, the tariff proposals for the 2020-2023 period, approved by the EGA Board on December 29, 2020, were confirmed by the Provincial Council on March 2, 2021\. For the two-year period 2020-2021, A2A Ciclo Idrico S.p.A. and Azienda Servizi Valtrompia S.p.A. applied tariff increases of 2% and 1.5% per annum respectively. 75 A2A Report on Operations 2021 With regard to the Operator Lereti S.p.A. belonging to the ACSM-AGAM Group: in the Varese area, the proposed 2020-2023 aqueduct tariffs were approved by the Provincial Council on April 29, 2021 and are now being examined by ARERA for final approval. For 2021, the tariff increase is 8.4% per year; in the Como area, the 2012-2023 aqueduct tariff proposals were approved by the Provincial Council on March 9, 2021: for 2021, the tariff increase is 8.4% per year. On December 21, 2021, the Board of Directors of the EGA of Como resolved in favor of the company an amount equal to 15.3 million euro as “recognition of prior year items” with reference to the years 2010-2011, reserving the right to establish with a subsequent provision the methods of distribution and billing to users of this sum (given exclusively by the costs/revenues differential without application of inflation and financial charges). Regarding the “prior year items” relating to the period 2001-2009 and amounting to a further 24 million euro, also considering the outcome of the services conference with the municipalities involved (Como, Brunate, Cernobbio), the EGA Board of Directors declared itself not competent. Appeals toward approvals of 2020-2023 tariff proposals A2A Ciclo Idrico S.p.A. has lodged an appeal with the Brescia Regional Administrative Court (TAR) for the annulment of the MTI-3 tariff arrangement approved by the Provincial Council, contesting the scope of the costs (capital and operating) recognized in that not all of the municipalities managed by the company were included. With regard to the Como area, the operator Lereti S.p.A. notified an appeal to the Regional Administrative Court (TAR) on March 23, 2021 due to the failure to complete the preliminary investigation into the so-called “prior year items”. A similar appeal is being prepared against the resolution of the EGA Board of Directors of December 21, 2021, in order to obtain full recognition of all amounts due under the heading of “prior year items”, including those for the period 2001-2009. Integration of the contractual quality discipline of the SII (TIMSII) Resolution 609/2021/R/idr updated the regulation of the measurement of the SII (TIMSII), providing for the introduction of protection obligations for users affected by problems of hidden losses (also taking into account the potential contribution that could derive from the use of new metering instruments equipped with water smart metering devices), the strengthening of provisions regarding the collection of metering data and remote reading, as well as the promotion of measures to allow the owners of residential units (so-called “indirect users” underlying condominium users) to have individual consumption data and information. Specifically, the measure established: from January 1, 2022: the introduction of “Metering service effectiveness” indicators, supplementing the M1 indicator of Resolution 917/2017/R/idr (RQTI) and the related obligation to monitor and report to the Authority; from January 1, 2023: the introduction of “specific standards” to strengthen the protection of users with regard to the metering service; from January 1, 2022: the definition of “hidden losses” as those water losses occurring downstream of the meter on user-responsibility plants. These are losses that are not surfaced and cannot be traced with the normal diligence required of the user to control its assets, and minimum user protections are in place nationally for such cases; by June 30, 2022: in order to increase awareness of consumption in the case of grouped (condominium) users, Managers are required to: communicate to indirect users at least once a year, information on how to contact their Manager and the approved tariff structure (with indication of how to communicate the size of their household); make available to the condominium user or the condominium administrator a calculation tool for the distribution of the single condominium bill on the basis of the property units and their consumption (actual or estimated); formally request from the condominium administrator or the contact person of the grouped users the actual number of members of the household (exclusively in cases where the Manager has not been able to obtain the information even after a formal request, the residential household tariff shall be calculated on the basis of the standard per capita criterion); millions of euro Constraint to Operator Revenues (VRG) 2021 RAB 2019 (net residual) underlying 2021 tariffs A2A Ciclo Idrico S.p.A. 90.3 305.7 ASVT S.p.A. 9.6 20.1 Lereti S.p.A. \- COMO 16.4 46.2 Lereti S.p.A. \- VARESE 26.6 38.7 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 76 76 4 Evolution of the regulation and impacts on the Business Units of the A2A Group by December 31, 2023: the Manager is required to assign a unique, geolocated identification code to each user contracted. Revision of the tariff structure applied to end users In order to harmonize the tariff structure applied to end users throughout the national territory, ARERA Resolution 665/2017/R/idr approved the Integrated Text of Water Service Fees (TICSI) in force since January 1, 2018\. The TICSI introduces the concept of standard per-capita tariff and includes: the distinction between resident and non-resident, condominium and non-domestic users; the application to resident domestic users of a standard per-capita tariff for a transitional period (2018-2021) and, in any case, until the actual availability of information, defined on the basis of a typical family of 3 members (with the first facilitated bracket equal to 55 mc/year) and an actual per-capita tariff (facilitated bracket: at least 18.25 mc/year per member) only in the case of self-declaration regarding the number of members of the household; the regime tariff structure as from 2022 with the application of the effective per capita tariff to all resident domestic users; the rationalization of tariff types for uses other than domestic; the application of a trinomy tariff (fixed portion, capacity portion and variable portion) uniform at national level for industrial users related to discharges of waste water authorized to discharge into public sewers. This tariff is designed to intercept with the variable portion, quality in terms of pollution of the discharge, with the capacity portion, the correct allocation of the costs to use the treatment capacity of the plant destined to receive the discharges, and with the fixed portion, the coverage of administrative and metering costs; the assessment of the effects of the new tariff structure on the revenues of the Operator, providing for ex ante and ex post checks. The tariff structure is adopted by the EGA on the basis of the data provided by the Operators and was to be submitted to the Authority by June 30, 2018. the Brescia EGA approved the new structure on February 13, 2020 and on July 31, defined the guidelines to be used for billing: each Area Operator must recalculate the annual payments for 2018, 2019 and 2020 by December 31, 2021; the Como EGA approved the new structure on January 19, 2021 effective January 1, 2018\. During 2021, adjustment procedures were initiated by the company Lereti S.p.A. with reference to the years 2018, 2019 and 2020, applying the tariff increases approved at the same meeting; the Varese EGA had already approved the new structure in 2019. 2018 Budget Law: National plan for action in the water sector Article 1, paragraph 516, of Law 205/2017 requires, for the purpose of planning and implementing the measures necessary to mitigate the damage related to the phenomenon of drought and to promote the strengthening and adaptation of water infrastructures, with a specific Prime Ministerial Decree adoption of the “National Plan of Action in the Water Sector”, divided into two sections: “aqueducts” section and “reservoirs” section. The measures of the National Plan and reported by the EGAs to the ARERA are financed with public resources. The subsequent DPCM of August 1, 2019 bearing the following title “Adoption of the first draft of the National Plan of interventions in the water sector \- aqueducts section” approves 26 interventions for a total amount of 80 million euro for the two years 2019 and 2020: among the interventions also included is that relating to the Municipality of Calvisano (BS) managed by A2A Ciclo Idrico S.p.A. for the construction of the aqueduct, sewerage and purification network. ARERA drew up an initial list of necessary and urgent interventions, within which the Calvisano intervention has so far benefited from contributions of 5.3 million euro. Resolution 284/2020/R/idr initiated the procedure for the identification of the second list of necessary and urgent interventions for the purpose of updating the “aqueducts” section of the National Plan. The Authority intends to define a single plan (submitted by the respective EGAs and Regions) based on a multi-year programme for the period 2021-2028, to which the entirety of the residual resources provided for in article 1, paragraph 155, of Law 145/2018. As part of this process, in September, the ACSM-AGAM Group presented some strategic projects that still need to be validated by the Lombardy Region. In view of the continuing health emergency, Resolution 58/2021/R/idr introduces simplification measures to ensure the timely disbursement of resources for the design and implementation of the interventions contained in Annex 1 to the Prime Ministerial Decree DPCM August 1, 2019\. With reference to Calvisano, Resolution 582/2021/R/idr authorizes the CSEA to disburse the portion of the loan equal to 1.17 million euro (remaining loan equal to approximately 1.1 million euro). 77 A2A Report on Operations 2021 ARERA report 331/2021/I/idr on the criticality of water services in some regions of Southern Italy and formulation of proposals for the revision of current regulations With Resolution 331/2021/I/idr, the Authority, in view of the critical state of the water service in some regions of Southern Italy, deemed it appropriate to inform the Government and Parliament of the usefulness of regulatory interventions to modify current legislative provisions in order to speed up the award of the SII. In some areas of the country, in fact, significant criticalities in the management of the SII persist, confirming the persistence of the water service divide precisely where the infrastructural deficit is greater (areas in which the EGAs are not even constituted or, if constituted, are not operative, areas with the presence of unit-based small municipal management or in house managers to whom the service has been awarded, however who show planning and feasibility difficulties in the realization of the infrastructures). The presence of fully operational EGAs as well as the completion of the procedures for awarding the service to an integrated manager are, moreover, necessary conditions for the allocation of PNRR resources and the effective implementation of the selected interventions. Therefore, ARERA believes it is necessary to intervene at the regulatory level to overcome the management criticalities of the SII and increase its efficiency, particularly in the southern regions, and proposes to set a peremptory deadline within which to conclude the award processes and, once the terms have expired, to award, for a period of 4 years, in any case renewable, to a company subject to public control that, on the basis of the discipline of public contracts, can make use of entities with adequate industrial and financial capabilities for the provision of the service. Activities of ARERA in the regulation and control of the district heating/cooling sector (or district heat) Legislative Decree no. 102/2014, which transposes Directive 2012/27/EC on energy efficiency, granted the Authority specific powers to regulate and control under articles 9, 10 and 16, including in the district heating/cooling sector, even if only on specific aspects, since this is not a real tariff regulation. The powers concern, in fact, the preparation of measures on connection and disconnection from the networks, withdrawal rights, commercial and technical quality of service, the way in which operators make public the prices of the supply of heat. The Authority is also entrusted with the task of implementing the provisions on metering, billing, access to consumer data in order to increase customer awareness and change consumer behaviour. Resolution 548/2019/R/tlr defined, for the period January 1, 2021 \- December 31, 2023, the regulation of the technical quality (RQTT) with reference to the safety and continuity of the service, introducing obligations on emergency response, the management of interruptions (with a specific general quality standard) and dispersions as well as obligations to record information relating to safety and quality for annual communications to the Authority. The aim is to guarantee a greater degree of protection for users and to encourage the spread of the service through a progressive increase in the performance of the sector with the definition of minimum standards at national level. Resolution 478/2020/R/tlr defined the regulation of metering (TIMT) for the period January 1, 2022 \- December 31, 2024, introducing service obligations and quality standards for the metering of energy supplied to users by defining minimum reading frequencies, obligations for the communication of readings by Operators, the introduction of the obligation to self-read, the definition of calculation methods for estimating and reconstructing consumption and rules for archiving data. The regulation of the minimum performance characteristics of the meters has been postponed to a subsequent provision. Resolution 537/2020/R/tlr extended, from July 1, 2021, also to the district heating sector the system of protections for the handling of complaints and the out-of-court settlement of disputes with end users already in place in the other regulated sectors. Two levels of protection have been introduced: a basic level that provides for the extension of the contact center service of the Energy and Environment Consumer Desk to district heating, and a second level that allows end users to activate a conciliation procedure before the Authority’s Conciliation Service. Annex A of Resolution 463/2021/R/tlr updated for the period from January 1, 2022 to December 31, 2025 the regulation on the criteria for determining connection fees and procedures for exercising the right of withdrawal (TUAR). The Authority, confirming the provisions of the current TUAR, has rationalized and harmonized the contents of the various integrated texts (TITT, RQTT and TIMT) that will be applied from January 1, 2022\. Annex B to the same Resolution approves the Consolidated Text for the size classification of district heating and cooling service operators for the period January 1, 2022 \- December 31, 2025 (TUD), defining different obligations for operators based on their size thresholds, which remain 4 Evolution of the regulation and impacts on the Business Units of the A2A Group Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit 78 78 4 Evolution of the regulation and impacts on the Business Units of the A2A Group unchanged but are determined only by conventional power. The classification of the user (relevant for the payment of compensation or exclusion from regulation), on the other hand, will take place exclusively on the basis of contractual power. Finally, all the data collections to be sent to ARERA regarding the contractual relationship with the user (including metering) and prices are combined into a single deadline of June 30, while the data collection on technical quality is moved to September 30 of each year. Resolution 526/2021/R/tlr updated for the period January 1, 2022 \- December 31, 2025 the provisions regarding the commercial quality of district heating and cooling services (RQCT). In order to rationalize the regulations, the provisions regarding the estimate for connection, the obligation to inform the user in the event of a request for deactivation or disconnection have been transferred to the RQCT, while the definitions of emergency intervention have been transferred to the RQTT and the TITT. The minimum elements to be recorded for works estimates have been supplemented, including the start and end dates of any suspensions for activities (authorizations or works) by the applicant and the dates on which the authorizations were requested and obtained, also in order to reduce possible disputes regarding compliance with the quality standard. Finally, the application of a specific standard to “disconnections” and “execution of complex work” with related automatic compensation and escalation mechanism has been envisaged. Meetings with ARERA continue as part of the focus group on the regulation of conditions for access to district heating networks by third-party heat production plants. Closing with negative result of the inspection visit of the GSE on the cogeneration plant combined with district heating of Canavese (MI) The cogeneration plant of Canavese combined with a district heating network was qualified IAFR by GSE on July 28, 2010 in order to obtain Green Certificates (GC). The incentive period was from January 1, 2011 through December 31, 2018. On March 12-14, 2018, the GSE initiated a verification procedure aimed at analyzing the achievement of: i) CAR (high-efficiency cogeneration) qualification and ii) GC incentives. On March 25, 2019, after a series of integrations provided by the company, the GSE sent a letter of first outcome in which it contested the undue obtaining of GCs also on the heat delivered on primary pipeline that had come into operation after December 31, 2009, the date the GSE considers as the deadline to extend the network for the purposes of the incentive. In February 2020, the GSE closed the inspection visit positively with reference only to the verification of the CAR qualification in view of a malfunction of the metering instruments. In a letter dated November 24, 2021, the GSE concluded, however, with negative outcome, the verification relating to the GC incentives disbursed, the amount of which will have to be recalculated following the indications communicated by the GSE: the estimated restitution amounts to approximately 13 million euro (already set aside in a provision for risks equal to 14.4 million euro). The company is preparing an administrative appeal to the Lazio Regional Administrative Court against the GSE letter of November 24, 2021 in order to protect its interests. 5 Consolidated results and report on operations 82 5 Consolidated results and report on operations 5.1 Summary of results, assets and liabilities and financial position Results Note that the consolidation perimeter at December 31, 2021 has changed with respect to December 31, 2020 due to the following transactions: acquisition and line-by-line consolidation by LGH S.p.A. (now merged into A2A S.p.A.) of 100% of the shares in Agripower S.r.l., a company specialising in the development and management of power generation plants from biogas; acquisition by A2A Rinnovabili S.p.A. and line-by-line consolidation of 15 companies with 17 plants and 173 MW of installed photovoltaic capacity, previously managed by Octopus Renewables; acquisition and line-by-line consolidation by A2A Rinnovabili S.p.A. of Gash 1 S.r.l. and Gash 2 S.r.l., two project companies with authorization to build two photovoltaic plants; as part of the transaction that led to the acquisition of 27.7% of Saxa Gres S.p.A. by A2A Ambiente S.p.A., Energia Anagni S.r.l. and Bioenergia Roccasecca S.r.l., companies that will manage two OFMSW plants, currently under construction, were acquired and consolidated on a line-by-line basis. As part of the same transaction, A2A Ambiente S.p.A. set up two newco’s with majority stakes: Waldum Tadinum Energia S.r.l. and Bioenergia Gualdo S.r.l., both consolidated on a line-by-line basis; acquisition and consolidation at equity of the investment in Netcity S.r.l., a company operating in the energy efficiency sector; acquisition by A2A Ambiente S.p.A. and line-by-line consolidation of 100% of TecnoA S.r.l., a company operating in the treatment of special waste; acquisition by A2A Ambiente S.p.A. and consolidation at equity of 30% of the investment in F.lli Omini S.p.A., a company specializing in the demolition of industrial plants; incorporation and line-by-line consolidation of Romeo Gas S.p.A.. Finally, the investment held by A2A Energy Solutions S.r.l. in Consul System S.p.A., previously consolidated on a line-by-line basis, has been consolidated at equity following the sale of 26% of its shares at the end of January 2021, and the sale of the investment in Ge.S.I. S.r.l., previously consolidated at equity. Lastly, the following equity investments were reclassified to “Non-current assets held for sale”: the investment held by A2A Energy Solutions S.r.l. in Consul System S.p.A., previously consolidated on a line-by-line basis, has been reclassified as a result of the sale of 26% of its shares, which was completed at the end of January 2021; the investment held by A2A S.p.A. in Ge.S.I. S.r.l., previously consolidated using the equity method, has been reclassified following the exercise of the put option, signed on November 23, 2020, on the entire equity investment. Moreover, the economic figures at December 31, 2021 are not consistent with the previous year due to the following extraordinary transactions in 2020: line-by-line consolidation of the AEB Group as of November 1, 2020; acquisition by A2A Rinnovabili S.p.A. and line-by-line consolidation of 100% of Flabrum S.r.l. and Solar Italy V S.r.l., companies operating in the sector of power generation from renewable sources; acquisition by LGH S.p.A. (now merged into A2A S.p.A.) and line-by-line consolidation of Agritre S.r.l., Tre Stock S.r.l. (merged already in December 2020 into Linea Green S.p.A.) and Fragea S.r.l., companies operating in the biomass generation sector. It should be noted that some income statement items, referring to non-current assets held for sale (three buildings located in Milan sold in February 2022 and assets concerning gas distribution referring to ATEMs considered non-strategic for the Group) in compliance with the provisions of IFRS 5, were reclassified to the item “Net result from non-current assets held for sale”. As a result, the values as of December 31, 2020 have been restated. It should also be noted that the COVID-19 health emergency did not have any significant impact on the company’s operations in 2021, nor are there any signs that would suggest that significantly different macroeconomic scenarios are likely, thanks to the gradual reopening of economic activities following the widespread vaccination campaign launched. In particular, on the basis of the evidence available at December 31, 2021, no critical issues and uncertainties have emerged in respect of the business operating as a going concern. Finally, the impairment test carried out on the CGUs confirmed the recoverability of the assets recorded in the financial statements and did not reveal any reversals or write-downs. 83 A2A Report on Operations 2021 The results of the A2A Group at December 31, 2021 are set out below together with comparative figures for the previous year. millions of euro 01 01 2021 12 31 2021 01 01 2020 12 31 2020 Restated Changes Revenues 11,549 6,848 4,701 of which: \- Revenues from the sale of goods and services 11,352 6,655 4,697 \- Other operating income 197 193 4 Operating expenses (9,400) (4,945) (4,455) Labour costs (721) (703) (18) Gross Operating Income \- EBITDA 1,428 1,200 228 Depreciation, amortization and write-downs (679) (552) (127) Provisions (89) (94) 5 Net Operating Income \- EBIT 660 554 106 Result from non-recurring transactions - - - Net financial balance (72) (81) 9 Affiliates 2 \- 2 Result before taxes 590 473 117 Income taxes (36) (99) 63 Result after taxes from operating activities 554 374 180 Net result from discontinued operations (4) (6) 2 Minorities (46) (4) (42) Group result of the year 504 364 140 In 2021, the Revenuesof the A2A Group amounted to 11,549 million euro, up 69% compared to the previous year. The increase was in wholesale energy markets primarily due to the extraordinary increase in electricity and gas prices recorded in 2021\. Revenues in the retail market were also up thanks to higher unit prices and higher quantities sold to customers in the gas and electricity market. Finally, new companies contributed to the aforementioned positive change, acquired in 2020 (AEB Group, consolidated on a line-by-line basis from November 2020, Agritre, Fragea, Tre Stock S.r.l. and Flabrum) and in 2021 (Octopus and Agripower). The Gross Operating Income equalled 1,428 million euro, a rise of 228 million euro compared to 2020 (+19%). Excluding non-recurring items (+31 million euro in 2021, +13 million euro in 2020), Ordinary Gross Operating Margin increased by 210 million euro. Furthermore excluding the contribution deriving from the consolidation of AEB and the other companies acquired (approximately 55 million euro), growth amounted to 155 million euro (+13%) The following table highlights the composition by Business Unit: millions of euro 12 31 2021 12 31 2020 Delta Delta% Generation and Trading 368 269 99 36.8% Market 214 202 12 5.9% Waste 341 282 59 20.9% Smart Infrastructures 538 471 67 14.2% Corporate (33) (24) (9) 37.5% Total 1,428 1,200 228 19.0% 5 Consolidated results and report on operations Summary of results, assets and liabilities and financial position Significant events during the year Significant events after December 31, 2021 Outlook for operations Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend 84 5 Consolidated results and report on operations The Gross Operating Margin of the Generation and Trading Business Unit amounted to 368 million euro, an increase of 99 million euro compared to the previous year. Net of the non-recurring items in the two periods considered (+10 million euro in 2021 and +8 million euro in 2020), the Ordinary EBITDA increased by 97 million euro. The positive change is mainly attributable to: the extraordinary results achieved in the ancillary services market (“MSD”), thanks to the opportunities that emerged as a result of Terna’s requests for exceptionally critical grid conditions in the last few months of the year; the excellent performance of the Trading portfolio; the contribution of newly acquired photovoltaic and wind power plants. The exceptional change in the wholesale price of electricity (PUN), which characterised both 2021, with an upward trend, and 2020, with a downward trend, did not produce significant results for the margins of the industrial electricity portfolio following the hedging policies adopted by the Group, which significantly mitigated the effects. The positive impacts were partly offset by: lower hydroelectric production; negative effects of the energy scenario on the gas portfolio; higher charges for hydroelectric fees due to both the variable and free energy to be paid and the fixed component for some plants. EBITDA of the Market Business Unit equalled 214 million euro (202 million euro at December 31, 2020). Net of the non-recurring items recorded in the two comparison periods (+14 million euro in 2021 and +3 million euro in 2020), the ordinary Gross Operating Margin increased by 1 million euro. The change of 1 million euro (+1%) is due to the increase in margins recorded in the retail segment for: the consolidation of the AEB Group; the increase in the number of mass-market electricity customers; increased sales, particularly to large customers in the market. This growth has been scaled back: the drop in unit margins on sales in the free electricity market due to particularly high imbalance charges as a result of the substantial increase in energy prices in the year, against volumes that were not misaligned with previous years; higher operating costs than those incurred last year due to a slowdown in activities following the spread of COVID-19. The EBITDA of the Waste Business Unit equalled 341 million euro (282 million euro at December 31, 2020). Net of non-recurring items (+8 million euro in 2021, +1 million euro in 2020), the Business Unit’s ordinary Gross Operating Margin was 333 million euro, an increase of 52 million euro compared to December 31, 2020. All areas of the business unit made a positive contribution to the result for the year thanks to: the incremental contribution of biomass and biogas power generation plants acquired in the previous year (Agritre, Fragea and Tre Stock) and in 2021 (Agripower); the positive dynamics of electricity and heat transfer prices; the increase in the price of delivering waste similar to municipal waste; the greater quantities of industrial waste disposed of; the increase in paper prices due to high demand in the European market; the incremental contribution from the consolidated AEB group as of November 2020\. The Gross Operating Margin of the Smart Infrastructures Business Unit in 2021 was 538 million euro (471 million euro at December 31, 2020). Net of non-recurring items (+7 million euro in 2021; +10 million euro in 2020), the Business Unit’s ordinary Gross Operating Margin was 531 million euro, up 70 million euro (+15.2%) compared to 2020. The change in margins is distributed as follows: electricity and gas distribution networks (+41 million euro): increase linked to the change in the scope of consolidation, higher revenues admitted for regulatory purposes and lower operating costs; district heating (+23 million euro): margins increased mainly due to higher quantities sold as a result of commercial development and cooler average temperatures compared to the previous year, as well as higher services related to the activity following the superbonus measures; water cycle (+10 million euro): higher revenues due to the tariff increases approved by the sector Authority; Smart City (-4 million euro): conclusion of activities started in previous years relating to the construction of infrastructures for laying fibre optic cables and lower margins due to the transfer of the business unit (telecommunications) to the corporate. 85 A2A Report on Operations 2021 “Depreciation, amortization, provisions and write-downs”totalled 768 million euro (646 million euro at December 31, 2020), of which 41 million euro from the consolidation of the AEB Group and 15 million euro from the first-time consolidation of the companies acquired in 2021, representing an increase of 122 million euro. “Depreciation, amortization and write-downs” totalled 679 million euro (552 million euro at December 31, 2020), of which 38 million euro from the consolidation of the AEB Group, recording an overall increase of 127 million euro. Amortization of intangible assets amounted to 201 million euro (136 million euro at December 31, 2020). The item shows higher amortization and depreciation of 65 million euro, of which 11 million euro deriving from the consolidation of the AEB Group, 4 million euro relating to the consolidation of Flabrum and Agripower, 24 million euro relating to the recovery of amortization relating to the gas distribution network in ATEM Milan1, 20 million euro relating to the implementation of IT systems and 6 million euro relating to the integrated water service and gas distribution and metering. Depreciation of tangible assets show an increase of 54 million euro compared to December 31, 2020 and includes: higher depreciation of 9 million euro, relating to the consolidation of the AEB Group; higher depreciation of 12 million euro relating to the consolidation, from 2021, of Agripower and Octopus; higher depreciation of 2 million euro, relating to the plan for replacement of electricity meters; higher depreciation of 2 million euro for rights of use; higher depreciation of 5 million euro following the new appraisals on landfills; higher depreciation of 9 million euro relating to the decommissioning of some plants; higher depreciation of 7 million euro relating to the increased operating hours of the turbogas plants; higher depreciation of 8 million euro mainly relating to the investments which went into production after December 31, 2020. Write-downs for the year amounted to 13 million euro, of which 9 million euro deriving from consolidation of the AEB Group, 1 million euro from write-downs of the Asrab and Cavaglià landfills, 1 million euro from write-downs of the electrical network and abandoned gas pipes and 2 million euro from write-downs of electronic equipment no longer used in the Group’s operations. The balance of “Provisions for risks” shows a net effect of 56 million euro (64 million euro at December 31, 2020) due to allocations in the year of 66 million euro, offset by the surpluses of 10 million euro since some ongoing disputes have ceased to exist. Allocations for the year included 13 million euro allocation for public water diversion fees, 7 million euro allocation to tax provisions, 29 million euro allocation to provisions for landfill closure and post-closure expenses and decommissioning, 6 million euro allocation to personnel lawsuits and disputes provisions and 11 million euro other provisions for ongoing disputes. Surpluses in provisions for risks amounted to 10 million euro and include 3 million euro for the release of provisions for additional fees paid for hydroelectric power plants, 2 million euro for the release of provisions for legal and tax disputes and other releases for 5 million euro. The “Bad debts provision” showed a balance of 33 million euro (30 million euro at December 31, 2020), of which 1 million euro deriving from the consolidation of the AEB Group, determined by the allocation for the year. As a result of these changes “Net operating income”amounted to 660 million euro (554 million euro at December 31, 2020). The “Result from non-recurring transactions”was nil at December 31, 2021 (nil at December 31, 2020). “Net financial charges”amounted to 72 million euro (81 million euro at December 31, 2020), representing a decrease of 9 million euro. The fall is mainly related to the decrease of 10 million euro in interest on bonds due to the refinancing of bonds that matured with the issuance of newer bonds at lower rates. The “Affiliates”was 2 million euro (nil at December 31, 2020), and is mainly attributable to the positive valuation of the shareholdings held in the companies Consul System and Metamer. 5 Consolidated results and report on operations Summary of results, assets and liabilities and financial position Significant events during the year Significant events after December 31, 2021 Outlook for operations Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend 86 5 Consolidated results and report on operations “Income taxes”for the year amounted to 36 million euro (99 million euro at December 31, 2020). The reduction in taxes with respect to the previous year reflects the release of deferred tax liabilities following the realignment option pursuant to DL 104/2020, exercised by some Group companies, which allowed the realignment of the differences between higher statutory values and lower values for tax purposes on tangible assets and the consequent deduction of higher tax amortization starting from the current year, as well as the release of a part of deferred IRAP tax assets as the Group considered their recoverability to be unreasonable. The impact of the release of deferred tax assets/liabilities amounted to 168 million euro, while the recognition of a substitute tax following the realignment option pursuant to DL 104/2020 was equal to 23 million euro. The “Net result from discontinued operations”is negative and equal to 4 million euro (negative for 6 million euro at December 31, 2020) and refers to the reclassification of revenues, costs and amortization relating to some assets concerning gas distribution referring to ATEMs considered non-strategic for the Group and three properties in the Milan area which, in compliance with IFRS5, at December 31, 2021 were reclassified under “Assets held for sale”. The “Group result of the year”, after the minorities of 46 million euro were deducted, was positive and amounted to 504 million euro (positive for 364 million euro at December 31, 2020). Balance sheet and financial position For changes in the scope of consolidation at December 31, 2021, reference should be made to the section “Income statement” in this Summary of the A2A Group’s financial position, results of operations and cash flows. 87 A2A Report on Operations 2021 Sources/uses statement millions of euro 12 31 2021 12 31 2020 Changes EMPLOYED CAPITAL Net fixed assets 8,026 7,067 959 \- Tangible assets 5,588 5,162 426 \- Intangible assets 3,125 2,737 388 \- Shareholdings and other non-current financial assets (*) 73 32 41 \- Other non-current assets/liabilities (*) (93) (99) 6 \- Deferred tax assets/liabilities 424 265 159 \- Provisions for risks, charges and liabilities for landfills (797) (752) (45) \- Employee benefits (294) (278) (16) of which with counter-entry to equity (134) (94) Net Working Capital and Other current assets/liabilities 243 507 (264) Net Working Capital: 601 617 (16) \- Inventories 204 139 65 \- Trade receivables 3,291 2,030 1,261 \- Trade payables (2,894) (1,552) (1,342) Other current assets/liabilities: (358) (110) (248) \- Other current assets/liabilities (*) (405) (181) (224) \- Current tax assets/tax liabilities 47 71 (24) of which with counter-entry to equity 46 7 Non current assets held for sale (*) 147 14 133 of which with counter-entry to equity - - TOTAL EMPLOYED CAPITAL 8,416 7,588 828 SOURCES OF FUNDS Equity 4,303 4,116 187 Total financial position beyond one year 4,309 3,907 402 Total financial position within one year (196) (435) 239 Total Net Financial Position 4,113 3,472 641 of which with counter-entry to equity 20 31 TOTAL SOURCES 8,416 7,588 828 (*) Excluding balances included in the net financial position. 5 Consolidated results and report on operations Summary of results, assets and liabilities and financial position Significant events during the year Significant events after December 31, 2021 Outlook for operations Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend 88 5 Consolidated results and report on operations Net fixed assets The “Net fixed capital”amounted to 8,026 million euro, up 959 million euro compared to December 31, 2020. Changes are detailed below: Tangible assets increased by 426 million euro due to: investments made for 714 million euro due to interventions on waste treatment and waste-to-energy plants, on thermoelectric and hydroelectric plants and on renewable source energy plants for 366 million euro, to the development and maintenance of electricity distribution plants, the expansion and reconstruction of the medium and low voltage network, and the installation of new electronic meters for 156 million euro, the development of district heating networks for 81 million euro, the purchase of movable means to collect waste and other equipment for 36 million euro, investments focussed on developing the energy efficiency plan for 29 million euro, interventions on the optic fibre and gas transport network for 13 million euro and interventions on buildings for 33 million euro; first-time consolidation of acquisitions in the year, accounting for an increase of 217 million euro; net decrease for other changes equal to 26 million euro due to decreases of 54 million euro in application of IFRS5 for assets held for sale of properties located in Milan, increases in the decommissioning provision and landfill closure and post-closure expenses for 26 million euro, increases in rights of use in application of IFRS 16 for 17 million euro, decreases in advances and prepayments to suppliers for 4 million euro, reclassifications from tangible assets to intangible assets for 9 million euro, and decrease of 2 million euro due to reclassifications to other items in the financial statements; decrease of 4 million euro arising from disposals in the year, net of accumulated depreciation; decrease of 10 million euro due to write-downs in the year; decrease of 465 million euro for the depreciation charge for the year; Intangible assets increased by 388 million euro on December 31, 2020, due to: capex for 360 million euro related to the implementation of computer systems for 131 million euro, plant development and maintenance work in the gas distribution area for 117 million euro, works on the water transport and distribution network, sewers and purification plants for 92 million euro, new acquisitions and maintenance of the customer portfolio for 11 million euro and other residual investments for 9 million euro; first-time consolidation of acquisitions in the year, accounting for an increase of 351 million euro; net decrease of 117 million euro in other changes, due to a decrease following reclassification to other items in the financial statements of assets held for sale relating to gas networks considered non-strategic for the Group (114 million euro), a decrease in environmental certificates for the industrial portfolio (12 million euro) and an increase due to reclassification from tangible to intangible assets (9 million euro); decrease of 2 million euro arising from disposals in the year, net of accumulated depreciation; decrease of 3 million euro due to write-downs in the year; decrease of 201 million euro for the depreciation charge for the year; Equity investments and other non-current financial assets, at 73 million euro, up by 41 million euro compared to December 31, 2020; The change is due to the change in the method of consolidation of Consul System S.p.A. following the exercise of the put option of 26% of the shares, for 6 million euro to the acquisition of 30% of the investment in F.lli Omini, for 1 million euro to the acquisition of 49% of the investment in NetCity S.r.l., for 14 million euro to the reclassification, under non-current assets, following the request for deposit in a specific current account, of the sums seized by the Court of Taranto as part of the ongoing proceedings against the subsidiary Linea Ambiente Srl and for 11 million euro referring to investments made in innovative start-ups through Corporate Venture Capital projects. There were also further positive changes amounting to 2 million euro; other non-current assets and liabilities showed a net decrease of 6 million euro mainly due to the reclassification for 31 million euro, following the ESMA guideline applicable from May 5, 2021, in the statement of financial indebtedness, of payables due after 12 months for deferred prices arising from acquisitions made in the photovoltaic sector, offset by the net increase in liabilities for security deposits equal to 22 million euro; deferred tax assets amounted to 424 million euro (265 million euro at December 31, 2020) and showed an increase of 159 million euro. The change includes the release of deferred tax liabilities, following the exercise of the realignment option pursuant to DL 104/2020, exercised by some Group companies, which allows the realignment of the differences between higher statutory values and lower values for tax purposes on tangible assets and the consequent deduction of higher tax amortization starting from the current year, as well as the release of a part of deferred IRAP tax assets as the Group considered their recoverability to be unreasonable. The impact of the release of deferred/tax assets/liabilities was equal to 168 million euro; 89 A2A Report on Operations 2021 the Provisions for risks, charges and liabilities for landfills rise, net of the effects of the first-time consolidations for 3 million euro, by 42 million euro. The change in the year is the net result of uses in the year (29 million euro), due to decommissioning and landfill costs (22 million euro), the settlement of legal disputes (1 million euro) and additional uses (6 million euro). There was also an increase deriving from net provisions during the year for 56 million euro and other increases for 15 million euro, following some new appraisals as well as the update of existing appraisals and the discounting rates used to estimate future costs for dismantling and restoration; employee benefits increased by 16 million euro, relating to provisions for the year net of payments during the year, payments to pension funds and actuarial valuations. Net Working Capital and Other current assets/liabilities The “Net Working Capital”, defined as the algebraic sum of trade receivables, closing inventories and trade payables, amounted to 601 million euro, down by 16 million euro compared to December 31, 2020\. Comments on the main items are given below: “Inventories” amounted to 204 million euro (139 million euro at December 31, 2020), net of the related obsolescence provision for 22 million euro, up 65 million euro compared to December 31, 2020\. The change is due to the effect of first-time consolidation of 9 million euro, an increase of 49 million euro in fuel stocks (gas and diesel), an increase of 11 million euro in stocks of materials and white certificates, and other decreases of 4 million euro; “Trade receivables” amounted to 3,291 million euro (2,030 million euro at December 31, 2020), with an increase of 1,261 million euro, of which 9 million euro due to the first-time consolidation effects of the year. The change in trade receivables is primarily due to the increase in tariffs for the sale of electricity and gas in the last quarter of the year. The “Bad debts provision”, calculated in compliance with IFRS 9, amounted to 133 million euro and showed a net increase of 3 million euro compared to December 31, 2020; “Trade payables” amounted to 2,894 million euro, with an increase of 1,342 million euro, of which 13 million euro due to the first-time consolidation effects of the year. “Other current assets/liabilities” presented a net increase in liabilities of 248 million euro, due to: net increase of 255 million euro in payables due to early collection of electricity and gas futures contracts, which will take place in the following year; 40 million euro net increase in tax payables for VAT, excise duties and other indirect taxes; increase in receivables for security deposits for 35 million euro; net decrease in current tax receivables of 24 million euro; an increase of 21 million euro in receivables for energy requalification and efficiency works at condominiums and third parties; increase in advances to suppliers by 15 million euro; a net increase of 13 million euro in payables due to the Cassa per i Servizi Energetici e Ambientali, including payables for energy tariff components previously collected by the GSE; net increase of 6 million euro in derivative assets, reflecting a change in fair value at the end of the period and in the quantities hedged; net decrease in payables to employees for 3 million euro; other increases in current assets of 4 million euro. “Assets/liabilities held for sale”were positive and amounted to 147 million euro at December 31, 2021, and relate for 102 million euro to the reclassification of certain assets and liabilities relating to gas distribution referring to ATEMs considered non-strategic for the Group and the reclassification of assets owned by the parent company A2A S.p.A. referring to three buildings located in Milan which were sold in February 2022 for 45 million euro. Consolidated “Invested capital”at December 31, 2021 amounted to 8,416 million euro and was financed by Equity for 4,303 million euro and the Net Financial Position for 4,113 million euro. Equity At 4,303 million euro, “Equity”shows a positive movement of 187 million euro. The positive change was partly due to the year result for 550 million euro (504 million euro pertaining to the Group and 46 million euro to minorities), offset by the distribution of dividends for 248 million euro. There was also a positive valuation of cash flow hedge derivatives and IAS 19 reserves for a total of 7 million euro. Other negative changes in Group Equity, amounting to 107 million euro, mainly arose from the acquisition of 49% of LGH S.p.A.. 5 Consolidated results and report on operations Summary of results, assets and liabilities and financial position Significant events during the year Significant events after December 31, 2021 Outlook for operations Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend 90 5 Consolidated results and report on operations The “Consolidated Net Financial Position”at December 31, 2021 was 4,113 million euro (3,472 million euro at the end of 2020). Excluding changes in the scope of consolidation during the current year and the application of the new ESMA Guidelines, the Net Financial Position stood at 3,366 million euro, recording, after investments of 1,074 million euro and dividends of 248 million euro, a cash generation of 106 million euro. millions of euro 01 12 2021 12 31 2021 01 12 2020 12 31 2020 NET FINANCIAL POSITION AT THE BEGINNING OF THE YEAR (3,472) (3,154) First-time consolidation effect (183) (85) New contracts IFRS 16 (17) (20) Net result 550 368 Taxes for the year 36 99 Net interest of the year 72 81 Gains/losses for the year - 4 Depreciation/amortization 666 555 Write-downs/disposals of tangible and intangible assets 19 16 Net allocations for the year 89 94 Affiliates (2) - Net interest paid (80) (80) Net taxes paid (165) (123) Dividends paid (263) (256) Change in receivables from customers (1,285) (123) Change in payables to suppliers 1,329 25 Change in inventories (56) 53 Other changes in net working capital 225 (116) Cash flow from operating activities 1,135 597 Investments in tangible and intangible assets (1,074) (738) Investments in shareholdings and securities (444) (139) Contribution of cash and cash equivalents first-time consolidations 27 36 Disposals of fixed assets and shareholdings 5 38 Dividends received from shareholdings - 1 Purchase of treasury shares (109) \- Net cash flows from investment activities (1,595) (802) Free cash flow (460) (205) Other changes 8 (1) Changes in financial assets/liabilities with counter-entry to equity 11 (7) NET FINANCIAL POSITION AT THE END OF THE YEAR (4,113) (3,472) 91 A2A Report on Operations 2021 5.2 Significant events during the year A2A and LGH: merger process On November 23, 2020 and December 14, 2020, A2A received a request from LGH shareholders (representing a total of 42.5% of the LGH share capital) to start the process for a possible merger by incorporation of LGH into A2A. Pursuant to this request, and in agreement with LGH minority shareholders, the preliminary merger proposal was submitted on April 16, 2021. The preliminary merger proposal, sent to the attention of LGH minority shareholders who together hold 49% of the share capital, envisages that on completion of the merger they will hold 2.75% of the A2A share capital. The preliminary merger proposal was accepted on June 15, 2021 by LGH Minority Shareholders on a percentage basis (at least 70%) and within the contractual terms. On June 28, 2021, the Boards of Directors of A2A and LGH approved the plan for the merger by incorporation of LGH into A2A. The merger by incorporation of LGH into A2A is in line with the process of rationalising the companies of the A2A Group and completes the path of evolution of the partnership between A2A and the minority shareholders of LGH, as outlined in the partnership agreements signed on March 4, 2016 and subsequently integrated. The merger, in addition to rationalizing the Group companies, will enable economic synergies to be generated over time thanks to the integrated management of processes and systems. On October 7 and 8, 2021, the Extraordinary Shareholders’ Meetings of the two companies were held, which approved the plan for the merger by incorporation of LGH into A2A. The merger agreement was signed on December 15, 2021, and the statutory effects of the merger will take effect on December 31, 2021. A2A presents its new 2030 business plan and repositions its brand to “Life Company” On January 19, 2021, the A2A Group’s Board of Directors examined and approved the 2021-2030 Strategic Plan, A2A’s first Business Plan with a 10-year horizon. Sustainability guides the new strategy that focuses the Plan on two industrial macro-trends, circular economy and energy transition, to which all the Group’s Business Areas, Energy, Waste and Networks, contribute. Investments of 16 billion euro are planned, 90% in line with the UN Sustainable Development Goals (SDGs), including 6 billion euro in the circular economy and 10 billion euro in energy transition. In addition, a gross operating margin of 2.5 billion euro is expected at the end of the plan, with net profits growing by more than 8% on average per year and dividends increasing by 3% on average per year. In line with the business plan presented, the A2A Group aims to define a new brand territory in which to operate: by dealing with energy, water and the environment and thanks to the circular use of natural resources, A2A is a “Life Company” that takes care of the conditions necessary for life and its quality. A2A acquires the largest merchant photovoltaic portfolio in Italy On February 14, 2021, the A2A Group signed a binding agreement for the acquisition of the largest photovoltaic portfolio, without GSE incentives, including 9 plants located in Lazio and 8 in Sardinia. The nominal installed power is 173 MW. The plants will be able to guarantee an increase in installed capacity that will allow them to produce approximately 420 GWh per year of green energy, equal to the annual consumption of approximately 200,000 residential customers, thus avoiding the emission of a total of 2.5 million tonnes of CO2(over the entire life cycle of the plants). The assets acquired by Octopus Renewables are added to the 111 MW photovoltaic portfolio already held by A2A: by virtue of this acquisition, A2A reaches 33% of energy produced from renewable sources. The purchase was completed in March 2021. A2A launches a new portal dedicated to Open Innovation On February 17, 2021, the A2A Group made available a platform aimed at start-ups, companies, universities, research centres and all the players in the Italian and international innovation ecosystem, in which projects will be set up to test and jointly develop technological solutions to meet challenges such as energy transition and circular economy, decarbonisation, sustainable mobility, the water cycle and the creation of the cities of the future. 5 Consolidated results and report on operations Summary of results, assets and liabilities and financial position Significant events during the year Significant events after December 31, 2021 Outlook for operations Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend 92 5 Consolidated results and report on operations A2A joins the European hydrogen alliance A2A joined the European Clean Hydrogen Alliance (ECHA), an association created with the aim of developing the hydrogen value chain in line with the European strategy. By joining the Alliance, A2A confirms its commitment to contribute to the energy transition, decarbonization and sustainable growth and is ready to collaborate with the other players in the sector in the development of the hydrogen chain and the coordination of investments. In fact, in the new A2A Strategic Plan, presented last January, 10 billion euro of investments are planned by 2030 dedicated to the energy transition. A2A Group: 2020 results approved On March 18, 2021, the Board of Directors of A2A S.p.A. approved the drafts of the financial statements and of the consolidated annual financial report at December 31, 2020. EBITDA was 1,204 million euro and Ordinary EBITDA was 1,191 million euro, in line with the 2019 figure. The net profit amounted to 364 million euro (389 million euro at December 31, 2019). Investments increased sharply to 738 million euro, or 18% more than in the previous year, 80% of which were consistent with the United Nations 2030 Agenda Goals (SDGs) and about 40% related to the circular economy. The Net Financial Position amounted to 3,472 million euro (3,154 million euro at December 31, 2019). The Board of Directors proposed to the Shareholders’ Meeting a dividend of 0.08 euro per share up 3.2% compared to the previous year. World Water Day and the Aquarius project On March 21, 2021, World Water Day, the A2A Group confirmed its strong commitment to efficient and sustainable water management. A2A Ciclo Idrico has doubled its investments over the last five years, reaching 56.4 million euro in 2020, corresponding to 95.4 euro per inhabitant, a figure close to the European average of 100 euro per inhabitant and more than double that of the Italian average of 40 euro per inhabitant. In addition, A2A Ciclo Idrico has started in Brescia from the beginning of 2021 a phase to repair the pipes, identified by means of the Acquarius monitoring system. This system consists of 180 sensors installed in order to monitor the networks and detect the noise caused by any water spills: when this happens, these sensors transmit the information to a data processing platform which, by interlacing all the indications collected, is able to locate the point where the pipe is broken or deteriorated. ASVT, an acronym for Azienda Servizi Valtrompia, is now the protagonist of the realization of one of the longest-awaited projects in the province of Brescia: the Val Trompia purification plant. This work will produce important environmental benefits for the areas crossed by the Mella river \- from Val Trompia to Bassa Bresciana, passing through the city of Brescia \- and at the same time will make it possible to overcome the problem of European infringements for those municipalities in Val Trompia that are not covered by the purification service. The project for the new purification plant currently underway will allow the treatment of the wastewater generated by 85,000 population equivalent (PE), for an investment of 27 million euro; the second phase, for further expansion of the plant, in the event of growth in the population of Val Trompia, will involve an investment of a further 9 million euro and could serve up to 138 thousand population equivalent. ESG performance: Gaia Rating rewards A2A sustainability A2A has been recognized as a leader in its sector, in terms of ESG performance, by GAIA Rating, a non-financial rating agency, part of the Ethifinance Group, which specializes in assessing the ESG performance of over a thousand companies listed on European markets. A2A obtained an overall score of 77 points out of 100, beating the average for the “Conventional and Renewable Energy Producer” sector by a good 26 points. A2A and TIM: collaboration agreement for digital transformation and energy efficiency On April 21, 2021, A2A and TIM signed a Memorandum of Understanding, which brings together the skills and technologies consolidated in their respective areas of excellence. For the A2A “Life Company”, the agreement will allow making its digital transformation process even faster and more effective, in order to optimize its operational and commercial processes through the use of the TIM Group’s cloud, 5G and IoT services. For TIM, the aim of the agreement will be to increase the energy efficiency of Noovle Data Centres, making them increasingly green and sustainable by optimizing consumption and using alternative energy sources. 93 A2A Report on Operations 2021 World Earth day 2021: A2A lancia le olimpiadi della sostenibilità On the occasion of World Earth Day 2021, A2A launched the Sustainability Olympics, a project involving 186 second-grade secondary schools for a total of 11,000 students throughout Italy. The initiative aims to raise awareness among young people on the issue of sustainable development, making them more aware of the importance of the main contents of the UN 2030 Agenda and its objectives. With the support of Consorzio ELIS, a non-profit organization that promotes quality vocational training, students attending the 4th year of high school will compete in the creation of works and videos, competing to participate in the final challenge. Three finalist classes will be selected to take part in the A2A creative marathon as part of Earth Day 2022\. Ordinary and extraordinary shareholders’ meeting of A2A S.p.A. On April 29, 2021 the Ordinary and Extraordinary Shareholders’ Meeting of A2A S.p.A. was held to approve the company’s financial statements for the year 2020 and to approve the distribution of the dividend proposed by the Board of Directors of 0.08 euro per share. The shareholders also voted in favour with a binding vote on the first section of the 2021 Report on Remuneration and with an advisory, non-binding vote on the second section of the 2021 Report on Remuneration. The Shareholders’ Meeting also authorized and defined the terms within which the Board of Directors may purchase and dispose of treasury shares. A2A presents the 2020 Integrated Report On May 6, 2021, A2A presented the 2020 Integrated Report, which confirms the Group’s commitment to sustainable development and to contributing to the achievement of the objectives of the UN Agenda 2030. The A2A Integrated Report is a tool based on transparency, increasingly evolved, drawn up according to rigorous internationally shared standards and methodologies. The 2020 edition includes for the first time a new section dedicated to the management of financial risks connected with climate change, in line with the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD): the aim is to provide the world of finance with all the information it needs to properly assess the A2A strategy for managing climate-related risks and opportunities. In 2020, the Group distributed 1,853 million euro to stakeholders and approximately 13,000 orders were issued for supplies of approximately 1.9 billion euro. Of this value, 97% went to Italian suppliers. Investments amounted to 738 million euro (+18% compared to 2019), 80% of which were dedicated to projects in line with the objectives of the UN Agenda 2030: 43% in the circular economy and 57% in the energy transition. With regard to the energy transition, there was a 6% increase in the production of energy from renewable sources, which now accounts for 33% of the Group’s total generation. In addition, 2020 was the year in which A2A abandoned the use of coal at the Lamarmora power plant in Brescia \- ahead of the time scale required by the PNIEC \- thanks to investments in the creation of thermal storage and projects to recover heat from industrial activities. In the environmental sector, 2020 saw an increase of two percentage points in differentiated waste collection, which reached an average of 71% in the municipalities served by the Group with a percentage of municipal waste destined for material or energy recovery of 99.7%. Smart Grid Pilot: A2A, Alfa Acciai and Lombardy Region launch their project On May 12, 2021, A2A, through its subsidiary A2A Calore & Servizi, Alfa Acciai and the Lombardy Region presented an innovative project whereby the heat hitherto dispersed by the Brescia steelworks will be recovered and conveyed to the A2A district heating network in the city, thus creating a significant example of “super-circulation”. The project, which started with the 2021/2022 heating season, involved a total investment of 5.7 million euro, of which 2.8 million euro financed by the Lombardy Region, and the laying of the district heating network for a total of 1.2 km of double piping and 12 months of work. 5 Consolidated results and report on operations Summary of results, assets and liabilities and financial position Significant events during the year Significant events after December 31, 2021 Outlook for operations Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend 94 5 Consolidated results and report on operations The Board of Directors of A2A S.p.A. has taken a framework resolution for the issue of bonds The Board of Directors of A2A S.p.A. that met on May 13, 2021, passed a framework resolution authorizing the issue of one or more non-subordinated, unsecured and non-convertible bonds under its EMTN Program, the size of which was increased to 6 billion euro. The maximum issuance by April 30, 2023 will be 1.5 billion euro. The issue of bonds will be used, inter alia, to finance and/or refinance the Group’s investments and/or to maintain adequate levels of liquidity, as well as to be used for one or more liability management operations. A2A S.p.A: purchase program of ordinary treasury shares On May 13, 2021, A2A S.p.A. announced the launch of a program to purchase ordinary treasury shares, with a maximum duration of 18 months from the date of the shareholders’ resolution of April 29, 2021, which authorized and established the terms. The program to purchase the treasury shares, approved by the Board of Directors, has develop objectives, following transactions related to business projects consistent with the strategies of the Company in relation to which there is the opportunity of stock exchanges. The maximum number of treasury shares that may be held by virtue of the aforementioned shareholders’ resolution is 313,290,527, taking into account the shares already held by A2A S.p.A. and its subsidiaries, being one tenth of the shares making up the share capital. The maximum number of shares that may be purchased under the Program has been set at 63,000,000, corresponding to 2.011% of the A2A share capital, which indicatively at today’s date \- considering the reference price of 1.6710 euro per share \- would correspond to approximately 105 million euro. On May 21, 2021, A2A S.p.A. announced that it had purchased 10,819,885 treasury shares at the unit average price of 1.7314 euro for a total of 18,733,754.89 euro. On May 28, 2021, A2A S.p.A. announced that it had purchased 10,741,876 treasury shares at the unit average price of 1.7165 euro for a total of 18,438,101.52 euro. On June 4, 2021, A2A S.p.A. announced that it had purchased 11,959,985 treasury shares at the unit average price of 1.7103 euro for a total of 20,455,130.69 euro. On June 11, 2021, A2A S.p.A. announced that it had purchased 10,762,044 treasury shares at the unit average price of 1.7480 euro for a total of 18,811,850.89 euro. On June 18, 2021, A2A S.p.A. announced that it had purchased 8,058,428 treasury shares at the unit average price of 1.7785 euro for a total of 14,331,811.14 euro. On June 25, 2021, A2A S.p.A. announced that it had purchased 10,091,256 treasury shares at the unit average price of 1.7813 euro for a total of 17,975,055.97 euro. On January 28, 2022, A2A S.p.A. announced that it had purchased 11,869 treasury shares at the unit average price of 1.705 euro for a total of 20,236.65 euro. The share buyback program was characterized by ESG aspects. A2A has in fact decided to allocate the implicit economic benefit deriving from the purchase program to the Banco dell’Energia Onlus. This benefit was determined by the better price obtained from the purchase of the shares compared to the target price envisaged in the mandate given to the financial intermediary responsible for purchasing the shares. By virtue of the ordinary share buyback programme described above, A2A S.p.A. does not hold any treasury shares at December 31, 2021\. A2A publishes the new Sustainable Finance Framework A2A has published the new Sustainable Finance Framework, a set of guidelines to reinforce the link between the Group’s financial and sustainable strategy. Compared to the previous 2019 Green Financing Framework, A2A is among the first issuers of the sector and the first Italian issuer to adopt a framework that combines two approaches: the Green Use of Proceeds, which allows maximum transparency about the use of proceeds for specific projects, and the new Sustainability-Linked component, which allows a comprehensive reading of the Group’s strategy. A set of Key Performance Indicators (KPIs) has been identified and included in the Framework. It reflects the two pillars of A2A’s strategic plan, energy transition and the circular economy, and confirms the Group’s commitment to the achievement of the Sustainable Development Goals of the UN 2030 Agenda. The Sustainable Finance Framework, which covers any type of financial instrument, has been prepared in compliance with the Green Bond Principles (2018) and Sustainability-Linked Bond Principles (2020) published by the International Capital Market Association (ICMA), and the Green Loan Principles (2021) and Sustainability-Linked Loan Principles (2019) published by the Loan Market Association (LMA). Vigeo Eiris, one of the leading international ESG rating agencies, issued a Second Party Opinion confirming the robustness of the Sustainable Finance Framework and attesting its alignment with ICMA and LMA 95 A2A Report on Operations 2021 principles. The agency also highlighted A2A’s commitment to the development of sustainable finance and its “Advance” position as an issuer. Eni and A2A: agreement for the Milan district heating network On May 25, 2021, Eni and A2A signed a 20-year agreement for the supply of heat generated by the Bolgiano production site of Enipower (a wholly-owned subsidiary of Eni), which will be used to supply the Milan district heating network. A2A Calore & Servizi will build a heat exchange and re-pumping station near the Eni plant, which will allow the transfer of the heat made available by Eni through the A2A district heating network from San Donato Milanese to Milan. Thanks to this agreement it will be possible to supply the Milan network with co-generated heat with low environmental impact amounting to approximately 54 GWh per year, which is equivalent to the average annual requirements of about 6,000 households. A2A: Standard Ethics confirms “strong” rating for third consecutive year On May 31, 2021, Standard Ethics, an independent rating agency that measures the sustainability of companies, has confirmed to A2A the EE rating, which corresponds to strong. In the opinion of the rating agency, A2A has for some time adopted environmental strategies and policies in line with the Paris Agreement for the containment of climate change, as well as ESG (Environmental, Social and Governance) reporting in line with international best practice. Progress in reducing emissions is well monitored and considered to be in line with the objectives that A2A has set itself in its new 10-year Business Plan. A2A and Ardian sign a non-binding term sheet for a partnership to accelerate the energy transition A2A and Ardian aim for the partnership to become one of Italy’s leading energy transition platforms and one of the country’s largest electricity producers and suppliers with a clear focus on green energy and energy transition, and a clear decarbonization strategy, in line with the objectives set by the Italian PNIEC and the Paris Agreement. The term sheet provides for the establishment of a company controlled by A2A (“NewCo”), into which A2A will confer a business unit that will include full ownership of shareholdings/portfolios of assets relating to energy generation (hydroelectric, CCGT, wind and solar), energy sales, energy management storage and hydrogen-related projects. The preliminary indicative valuation of the perimeter to be transferred to the NewCo is approximately 3 billion euro (enterprise value), with a 2020 pro-forma aggregate EBITDA of 360 million euro. This assessment implies a valuation of the entire business units of A2A involved in the partnership (including minority shareholdings and portions of business units not contributed to NewCo) of approximately 4.1 billion euro (enterprise value). Ardian will invest up to 1.5 billion euro in cash in the NewCo, thus accelerating the roll-out and financing of the 3GW plan in generation from renewable sources outlined by A2A in January 2021\. The partnership will become the exclusive vehicle for A2A and Ardian future investments in the renewable energy generation sector in Italy and the parties’ preferred vehicle for joint investments in the power generation sector in Italy. Following the capital increase, Ardian will hold up to 45% in the NewCo. The creation of the partnership is subject to, among other things, the completion of due diligence, further discussions between the parties, the negotiation of binding agreements and the satisfaction of certain additional conditions (including approvals and authorizations required by relevant bodies). A2A and Ardian have agreed to grant each other binding exclusivity periods until March 31, 2022\. On March 17, 2022, negotiations with Ardian were interrupted, partly due to the escalation of international tensions and the significant consequences on the volatility of energy markets in Europe. Major companies in the energy, water and district heating sectors sign a Single Protocol for joint conciliation On June 11, 2021, a historic agreement was signed between seven major companies in the energy, water and district heating sectors and the 20 National Consumer Associations of the CNCU, National Council of Consumers and Users. For the first time in Italy, in light of the positive experience gained in recent years, a Single Protocol has been signed: the aim of the agreement is to relaunch joint negotiations, strengthen the alternative dispute resolution tool by consolidating the dialogue between companies and consumer associations and strengthening the relationship of trust with consumers. The protocol renews and strengthens the commitment to a tool that ensures consumers effective protection of their rights without resorting to legal proceedings that are often long and costly. 5 Consolidated results and report on operations Summary of results, assets and liabilities and financial position Significant events during the year Significant events after December 31, 2021 Outlook for operations Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend 96 5 Consolidated results and report on operations A2A S.p.A.: new procedure with related parties approved On June 25, 2021, the Board of Directors of A2A S.p.A. approved the new procedure for transactions with related parties effective from July 1, 2021, making adjustments to the current text of the procedure to incorporate the new regulations adopted by Consob with Resolution no. 21624/2020 and the formal and substantive improvements designed to improve the efficiency of the application of the related rules, which come into force on the same date. A2A, Sustainability-Linked credit line On July 2, 2021, the A2A Group subscribed to a 500 million euro 5-year Sustainability-Linked revolving credit line connected to the achievement of two of the Group’s sustainability targets, included in the Sustainable Finance Framework published in May: growth in installed capacity from renewable sources and increase in the recovery of materials from treated waste. The line provides for a mechanism for adjusting the margin both if A2A reaches the set targets (step down) and if the Group does not reach said sustainability targets (step up). The savings due to the achievement of the targets or the potential penalty caused by non-achievement will benefit the community: the amount will be donated to the Banco dell’Energia Onlus, a non-profit organization promoted by A2A and the AEM and ASM Foundations, set up with the aim of supporting those who find themselves in situations of economic and social fragility, with particular attention to energy poverty. This donation will not replace but will be in addition to the Group’s traditional support of Banco dell’Energia. This instrument also represents the first credit line, among public operations, in the Italian domestic market with a donation mechanism. A2A, the first Sustainability-Linked Bond placed On July 7, 2021, A2A successfully placed its first Sustainability-Linked Bond of 500 million euro, with a duration of 10 years. The bond, intended institutional investors and issued within the framework of the Euro Medium Term Notes Program, is based on the recently published Sustainable Finance Framework. The bond is connected to the achievement of a sustainability target relating to the reduction of direct greenhouse gas emissions per kilowatt hour of energy produced. A2A’s objective, in line with the Group’s 10-year Strategic Plan, is to reach a level of 296 g of CO2 per kWh or less by 2025, consistent with the Science Based Target commitment approved in March 2020\. The bond was placed at an issue price of 99.547% and will have an annual yield of 0.672% and a coupon of 0.625%, with a spread of 65 basis points over the mid-swap reference rate. The coupon of the new bond is linked to the achievement of the sustainability target and provides for an increase in the interest rate of 25bps if the target is not reached, while it will remain unchanged until the maturity of the bond if the target is reached. The issue attracted a lot of interest, receiving orders for 1.2 billion euro, more than 2.5 times the amount offered. ESG Reporting Awards: A2A first in the ranking for the best sustainability report in the “Energy & Utilities” category On August 4, 2021, A2A was awarded for the best sustainability report in the “Energy&Utilities” category, achieving first place in the “ESG Reporting Awards 2021” ranking by ESG Investing Global Markets Media Ltd, a financial media company based in England. The award is linked to the analysis and evaluation, from the point of view of sustainability and climate-related reporting, of listed companies in various sectors around the world. Sustainable development and energy transactions: agreement between A2A and Confcommercio to support businesses On September 30, 2021, an agreement was signed between A2A, through its subsidiary A2A Energia, and Confcommercio, with the aim of activating actions for the dissemination of the culture of sustainability in the tertiary sector and giving rise to a strategic partnership aimed at supporting concrete projects for energy transition. 97 A2A Report on Operations 2021 A2A enters in the new MIB ESG index On October 18, 2021, A2A was included in the new MIB ESG index launched by Euronext and Borsa Italiana. This index is the first in Italy dedicated to blue-chip listed companies and aims to identify the best practices at ESG (Environmental, Social, and Governance) level. The MIB ESG Index ranks the top 40 companies on the basis of sustainability, corporate social responsibility and liquidity criteria, combining the assessment of economic performance and ESG impacts, in line with the principles of the UN Global Compact. For A2A, inclusion in the new index represents further confirmation of the Life Company’s business strategy, guided by sustainability and set out in the company’s 10-year Business Plan, which has provided for 16 billion euro of investment in energy transition and circular economy, 90% of which is in line with the United Nations Sustainable Development Goals (SDGs). A2A: agreement with F.lli Omini for decommissioning activities On October 21, 2021, an agreement was signed by A2A, through its subsidiary A2A Ambiente, for the acquisition of a 30% interest in F.lli Omini S.p.A., a company specializing in demolition, aimed at creating a partnership for the decommissioning activities of industrial plants. The partnership will allow for the effective decommissioning of industrial facilities for the benefit of the territories, and will help eliminate negative impacts on the environment. A2A, first Green Bond with investments aligned to the EU taxonomy On October 25, 2021, A2A successfully placed a new Green Bond for 500 million euro with a duration of 12 years, with the aim of financing Green Projects aligned to the EU Taxonomy. The bond, intended for institutional investors and issued under the Euro Medium Term Notes Program, is based on the Group’s Sustainable Finance Framework, the set of guidelines that reinforce the link between financial strategy and sustainable strategy. The bond was placed at an issue price of 99.204% and will have an annual yield of 1.071% and a coupon of 1.000%, with a spread of 70 basis points over the mid-swap reference rate. The net proceeds from the issue will go to finance the Eligible Green Projects: strategic projects of circular economy and energy transition \- which will concern the development of renewables, the environmental sector, networks \- defined within the Sustainable Finance Framework, thanks to which A2A will contribute to the ecological transition of the country. The Group verified the alignment between these green projects and the European Taxonomy \- the EU regulation that lists the economic activities that can be considered sustainable \- in particular the one related to the “climate change mitigation” objective. A2A also undertakes to indicate, as part of the reporting of the allocation of the proceeds of the Green Bond, the actual amount of investments aligned to the European Taxonomy that will be financed. The issue recorded orders for 1.6 billion euro, more than 3 times the amount offered. A2A enters Netcity and grows in services for the energy transition On October 28, 2021, A2A, through its subsidiary A2A Energia, completed the purchase of 49% of the capital of Netcity, a Suncity Group company specializing in the supply of energy efficiency, distributed generation and electric mobility products for the consumer segment. The operation allows to preside over the activities of procurement, installation and assistance of products and services dedicated to consumer accounts. A2A Energia, through the entry of Netcity, will have the opportunity to expand its current portfolio of products and value added services, with a complete range of systems for heating and domestic air conditioning, solutions for electric mobility, for self-production and for energy storage, and to strengthen its control over the related installation and service processes. This agreement will also allow a further geographical expansion of the areas served by the Group also for this type of products and services. 5 Consolidated results and report on operations Summary of results, assets and liabilities and financial position Significant events during the year Significant events after December 31, 2021 Outlook for operations Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend 98 5 Consolidated results and report on operations A2A \- Corporate Venture Capital The Corporate Venture Capital (CVC) program was created in 2019 to promote the Group’s innovation through investments in early stage start-ups operating in strategic businesses such as energy transition and circular economy, in line with the Business Plan. Below are the major investments made during 2021. On November 30, 2021, investments were made in three new start-ups offering solutions dedicated to storage, energy transition and renewable energy: Energy Dome, an Italian company that has patented a new battery based on the thermodynamic cycle and the use of carbon dioxide (CO2), with high efficiency and durability, which optimizes the storage and use of energy from renewable sources; Enspired is an Austrian start-up that has developed a digital “energy trading as a service” (Taas) platform equipped with advanced artificial intelligence algorithms, which aims to promote energy transition and make electricity grids more flexible; Beem Energy, from France, offers a plug-and-play photovoltaic panel kit for self-generation of electricity in residential settings. On December 9, 2021, A2A signed an agreement with EUREKA! Venture Sgr to enter the fund “Technology Transfer Eureka! Fund I”. This fund is focused on investments in advanced materials and more generally in applications and solutions related to Materials Science and Engineering. A2A: takes over TecnoA and continues to grow in the circular economy On December 10, 2021, A2A acquired, through its subsidiary A2A Ambiente, 100% of TecnoA, a leading company in central and southern Italy in the treatment of industrial waste. This operation consolidates the Group’s position as a player of excellence in activities at the service of the Italian production and industrial system, which is forced to export around 1.2 million tonnes of waste every year. This new acquisition is in line with the objectives of the business plan, which provide for strong investments, with particular focus on infrastructures able to fill the national plant gap in closing the waste management cycle, using the best available technologies. With TecnoA, the A2A Group will have a capacity for treating industrial waste of over 800,000 tonnes per year. A2A enters Volta Green Energy and accelerates in renewables On December 27, 2021, A2A entered into an industrial partnership with a majority stake in Volta Green Energy. The agreement aims to accelerate and enhance the development of the renewable sector. Volta Green is a platform dedicated to the development, asset management, Operation & Maintenance and Engineering, Procurement & Construction of renewable energy plants. Through this transaction, A2A consolidates its position among the leading operators in the development of plants in the renewables sector in Italy, more than doubling its portfolio of assets dedicated to the generation of solar and wind energy, which now amounts to around 300 MW. 99 A2A Report on Operations 2021 5.3 Significant events after December 31, 2021 A2A and Ardian sign binding agreements for the acquisition of wind and photovoltaic portfolios On January 22, 2022, A2A and Ardian, the world’s leading private investment company, signed a binding agreement pursuant to which A2A will acquire interests in 3New&Partners, Daunia Calvello and Daunia Serracapriola, companies that comprise a portfolio of wind farms in Italy with a total capacity of 335 MW (195 MW pro-rata with respect to the interest held by Ardian in this portfolio), for an equity value of 265 million euro. The two parties have also signed a second binding agreement for a further portfolio, 4New, wholly owned by a fund managed by Ardian, consisting of wind and photovoltaic plants for a total of 157 MW of which 117 MW located in Italy and the remaining 40 MW in Spain: the acquisition by A2A provides for an equity value of 187 million euro. A2A: business plan update On January 27, 2022, the Board of Directors of A2A, chaired by Marco Patuano, examined and approved the update of the 2021-2030 Business Plan, which reinforces the commitment to decarbonization, ahead of the targets set by COP26, with a further two billion euro of investment. Circular economy and energy transition are confirmed as the two pillars of the Plan that encapsulate the Group’s concrete actions, to which all Business Units contribute. The main new elements of the Plan Update are in line with global carbon footprint reduction goals. To encourage the adoption of this model of sustainable mobility, A2A has quadrupled the installation of planned infrastructure compared with the last Plan: 24 thousand electric recharging points by 2030 with a focus on low power (up to 7kW) and high power (over 50 kW), to encourage both a slow (e.g. overnight) and fast (similar to traditional refuelling stations) delivery mode. For mobility segments the evolution of which is not foreseen towards electricity, A2A wants to make available green solutions such as green hydrogen and bio-LNG. The Group plans to develop more than 60 biomethane plants, at least 5 of which with liquefaction to obtain bio-LNG, while for the production of hydrogen it will be possible to exploit continuously produced energy sources such as waste-to-energy plants, with a decentralized business model based on local ecosystems serving industry and heavy transport. A2A awarded 5.4 GW in the third capacity market auction called by Terna On February 23, 2021, A2A, in the third capacity market auction called by Terna for the delivery year 2024, was awarded a total of 5.4 GW of capacity at national level which, with a mix of technological solutions including gas-fired plants, electrochemical storage and renewable source plants (hydroelectric and photovoltaic), contributes to ensuring the flexibility and decarbonization of the Italian electricity system, in line with the objectives of the A2A Business Plan. For existing capacity, the annual contract has an award price of 33,000 euro/MW/year. The new capacity provides for a 15-year contract with an award price of 70,000 euro/MW/year for capacity already authorized, of 48,110 euro/MW/year for that yet to be authorized. A2A returns to the capital market and places a new sustainable bond: demand seven times the issue offer Although in a complex context, dictated by the serious crisis unleashed on financial markets by the war in Ukraine, on March 9, 2022, the company placed a senior unsecured bond maturing in March 2028. A maximum amount of 500 million euro has been set for the bond, which has an expected rating of Baa2 from Moody’s and BBB from S&P. This is a sustainable bond tied to installed capacity from renewable sources. Orders received reached 3.5 billion, which is seven times the supply. The securities, intended for institutional investors, were issued at a price of 99.30% of nominal value and will have an annual yield of 1.622% and a coupon of 1.5% with a spread of 100 basis points over mid-swap. 5 Consolidated results and report on operations Summary of results, assets and liabilities and financial position Significant events during the year Significant events after December 31, 2021 Outlook for operations Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend 100 5 Consolidated results and report on operations 5.4 Outlook for operations Forecasts for 2022, as contained in the 2021-2030 Strategic Plan and presented to the market on January 27, 2021, envisage Ebitda of between 1.40 and 1.45 billion euro and Group Net Income, net of non-recurring items, of between 330 and 370 million euro. These forecasts are made prior to and do not incorporate the possible turmoil that the Russia-Ukraine conflict could generate directly and indirectly in the markets in which the Group operates and that cannot be estimated at present, as it depends not only on the severity and duration of the conflict, but also on potential actions to mitigate some of these risks that could be approved at governmental or EU level. The A2A Group constantly monitors the evolution of the situation and, as it has done in other crisis situations (for example in the case of the recent COVID-19 pandemic), identifies possible mitigation actions aimed at greater protection of the economic and financial situation. In this sense, more than 75% of fixed-price production (Renewables and WTE), and 35% of thermoelectric production (CCGT) have been covered so far, thus reducing the possible negative effects of a fall in prices. In order to face possible scenarios of financial tension, it should be noted that the Group’s solid liquidity position, also supported by committed and uncommitted back-up lines (at March 14, 2022 equal to 1.7 billion euro), is allowing managing positions on the commodities market as well as any temporary increases in working capital due to price increases. A2A has recently successfully issued a 500 million euro bond in a very difficult market context in addition to subscribing to medium-term bilateral credit lines, demonstrating the Group’s ability to access capital and banking markets. 101 A2A Report on Operations 2021 5.5 Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend The annual financial statements of A2A S.p.A. for the year ended December 31, 2021 show a net profit of 485,477,683.00 euro. If you are in agreement with the criteria used to prepare the financial statements, with the accounting principles and methods used in those statements and with the measurement criteria adopted, we invite you to approve: the allocation of the net profit for the year of 485,477,683.00 euro as follows: 24,273,884.00 euro to the legal reserve; 283,214,637.00 euro as an ordinary dividend payable to shareholders to ensure a remuneration of 0.0904 euro for each outstanding ordinary share; 177,989,162.00 euro to the extraordinary reserve. By way of information, we bring to your attention that the number of shares currently outstanding is equal to 3,132,905,277 shares. The dividend will be paid from May 25, 2022, with ex-dividend date May 23, 2022 and record date May 24, 2022. The Board of Directors 5 Consolidated results and report on operations Summary of results, assets and liabilities and financial position Significant events during the year Significant events after December 31, 2021 Outlook for operations Proposal for the allocation of net profit for the year ended December 31, 2021 and the distribution of a dividend 6 Analysis of main sectors of activities 104 6 Analysis of main sectors of activities 6.1 Summary of results sector by sector GENERATION AND TRADING MARKET WASTE SMART INFRASTRUCTURES (*) CORPORATE ELIMINATIONS INCOME STATEMENT millions of euro 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated Revenues 8,095 3,861 3,885 2,515 1,260 1,111 1,280 1,136 301 264 (3,272) (2,039) 11,549 6,848 \- of which inter-sector 2,263 1,209 152 105 229 133 367 344 261 248 (3,272) (2,039) Labour costs 85 87 53 49 337 326 105 110 141 131 721 703 Gross operating income \- EBITDA 368 269 214 202 341 282 538 471 (33) (24) 1,428 1,200 % of revenues 4.5% 7.0% 5.5% 8.0% 27.1% 25.4% 42.0% 41.5% (11.0%) (9.1%) 12.4% 17.5% Depreciation, amortization, provisions and write-downs (208) (170) (76) (60) (159) (171) (274) (206) (51) (39) (768) (646) Net operating income \- EBIT 160 99 138 142 182 111 264 265 (84) (63) 660 554 % of revenues 2.0% 2.6% 3.6% 5.6% 14.4% 10.0% 20.6% 23.3% (27.9%) (23.9%) 5.7% 8.1% Result from non-recurring transactions \- \- Financial balance (70) (81) Result before taxes 590 473 Income taxes (36) (99) Result after taxes from operating activities 554 374 Net result from discontinued operations (4) (6) Minorities (46) (4) Group result of the year 504 364 Gross investments (1) 144 76 73 53 273 174 516 389 77 51 (9) (5) 1,074 738 (1) See the items “Capex” in the schedules on tangible and intangible assets presented in Notes 1 and 2 to the balance sheet. It should be noted that the income statement data from January 1 to December 31, 2020 have been reallocated to make them homogeneous to the results by “Business Unit” from January 1 to December 31, 2021. Moreover, the income statement items were reclassified for 2020, in compliance with IFRS5, to the item “Net result from assets sold/held for sale” to make them homogeneous with the values in the 2021 financial statements. (*) The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 105 A2A Report on Operations 2021 GENERATION AND TRADING MARKET WASTE SMART INFRASTRUCTURES (*) CORPORATE ELIMINATIONS INCOME STATEMENT millions of euro 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated Revenues 8,095 3,861 3,885 2,515 1,260 1,111 1,280 1,136 301 264 (3,272) (2,039) 11,549 6,848 \- of which inter-sector 2,263 1,209 152 105 229 133 367 344 261 248 (3,272) (2,039) Labour costs 85 87 53 49 337 326 105 110 141 131 721 703 Gross operating income \- EBITDA 368 269 214 202 341 282 538 471 (33) (24) 1,428 1,200 % of revenues 4.5% 7.0% 5.5% 8.0% 27.1% 25.4% 42.0% 41.5% (11.0%) (9.1%) 12.4% 17.5% Depreciation, amortization, provisions and write-downs (208) (170) (76) (60) (159) (171) (274) (206) (51) (39) (768) (646) Net operating income \- EBIT 160 99 138 142 182 111 264 265 (84) (63) 660 554 % of revenues 2.0% 2.6% 3.6% 5.6% 14.4% 10.0% 20.6% 23.3% (27.9%) (23.9%) 5.7% 8.1% Result from non-recurring transactions \- \- Financial balance (70) (81) Result before taxes 590 473 Income taxes (36) (99) Result after taxes from operating activities 554 374 Net result from discontinued operations (4) (6) Minorities (46) (4) Group result of the year 504 364 Gross investments (1) 144 76 73 53 273 174 516 389 77 51 (9) (5) 1,074 738 (1) See the items “Capex” in the schedules on tangible and intangible assets presented in Notes 1 and 2 to the balance sheet. It should be noted that the income statement data from January 1 to December 31, 2020 have been reallocated to make them homogeneous to the results by “Business Unit” from January 1 to December 31, 2021. Moreover, the income statement items were reclassified for 2020, in compliance with IFRS5, to the item “Net result from assets sold/held for sale” to make them homogeneous with the values in the 2021 financial statements. (*) The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 6 Analysis of main sectors of activities Summary of results sector by sector Results sector by sector Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit Corporate 106 6 Analysis of main sectors of activities GENERATION AND TRADING MARKET WASTE SMART INFRASTRUCTURES (*) CORPORATE ELIMINATIONS TOTAL GROUP millions of euro 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Tangible assets 2,205 2,099 42 62 1,132 908 2,146 2,010 196 229 (133) (146) 5,588 5,162 Intangible assets 154 85 286 311 125 66 2,205 2,197 125 146 230 (68) 3,125 2,737 Trade receivables and current financial assets 2,428 1,017 1,406 862 384 413 490 451 75 232 (1,483) (934) 3,300 2,041 Trade payables and current financial liabilities 2,529 1,007 952 553 373 354 397 461 864 697 (1,475) (932) 3,640 2,140 It should be noted that the balance sheet data at December 31, 2020 have been reallocated to make them homogeneous to the results by “Business Unit” at December 31, 2021. (*) The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 107 A2A Report on Operations 2021 GENERATION AND TRADING MARKET WASTE SMART INFRASTRUCTURES (*) CORPORATE ELIMINATIONS TOTAL GROUP millions of euro 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Tangible assets 2,205 2,099 42 62 1,132 908 2,146 2,010 196 229 (133) (146) 5,588 5,162 Intangible assets 154 85 286 311 125 66 2,205 2,197 125 146 230 (68) 3,125 2,737 Trade receivables and current financial assets 2,428 1,017 1,406 862 384 413 490 451 75 232 (1,483) (934) 3,300 2,041 Trade payables and current financial liabilities 2,529 1,007 952 553 373 354 397 461 864 697 (1,475) (932) 3,640 2,140 It should be noted that the balance sheet data at December 31, 2020 have been reallocated to make them homogeneous to the results by “Business Unit” at December 31, 2021. (*) The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 6 Analysis of main sectors of activities Summary of results sector by sector Results sector by sector Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit Corporate 108 6 Analysis of main sectors of activities 6.2 Results sector by sector Generation and Trading Business Unit The activity of the Generation and Trading Business Unit is related to the management of the generation plants portfolio1of the Group with the dual purpose of maximizing the availability and efficiency of the plants, minimizing operating and maintenance costs (O&M) and maximizing the profit deriving from the management of the energy portfolio through the purchase and sale of electricity and fuels (gaseous and non-gaseous) and environmental certificated on domestic and international wholesale markets. This Business Unit also includes the activity of trading on domestic and foreign markets of all energy commodities (gas, electricity, environmental certificates). Market Business Unit The activities of the Market Business Unit are aimed at the retail sale of electricity and natural gas to customers in the free market and sale to customers served under protection scheme. Furthermore, it deals with providing energy efficiency and electric mobility services. Waste Business Unit The activities of the Waste Business Unit relates to the management of the integrated waste cycle, which ranges from collection and street sweeping to the treatment, disposal and recovery of materials and energy. In particular, collection and street sweeping mainly refers to street cleaning and the collection of waste for transportation to its destination. Instead, waste treatment is an activity that is carried out in dedicated centers to convert waste in order to make it suitable for the recovery of materials. Disposal of urban and special waste in combustion plants or landfills ensures the possible recovery of energy through waste-to-energy or the use of biogas. The Waste Business Unit includes the activities carried out abroad for the provision of know-how and technologies for the realization of waste pre-treatment plants. Smart Infrastructures Business Unit2 The Smart Infrastructures Business Unit develops and manages the infrastructures functional to the wide range of services provided by the Group, focusing on technology and innovation. In particular, the Business Unit’s activity mainly concerns the development and technical-operational management of electricity distribution networks, natural gas transport and distribution networks and the related metering service, characterized by important technological evolutions thanks to the use of smart meters. It manages the entire integrated water cycle (water collection, aqueduct management, water distribution, sewerage management, purification). The activity is also aimed at the sale of heat and electricity produced by cogeneration plants (mostly owned by the Group), through district heating networks and ensures the operation and maintenance of cogeneration plants and district heating networks. Also included are the activities related to the management services for heating plants owned by third parties (heat management services). The Smart Infrastructures Business Unit also develops infrastructures in the field of telecommunications, designs solutions and applications aimed at creating new models of cities and territories and improving the quality of life of citizens. It should be noted that from January 2021, the Business Unit develops and manages public lighting and traffic regulation systems; finally, it builds and manages a network of recharging infrastructures functional to the electrification of transport. Corporate Corporate services include the activities of guidance, strategic direction, coordination and control of industrial operations, as well as services to support the business and operating activities (e.g. administrative and accounting services, legal services, procurement, personnel management, information technology, communications, landline and mobile telephone service etc.) whose costs, net of amounts recovered from accrual to individual Business Units based on services rendered, remain the responsibility of the Corporate. 1 Total installed capacity of 9.2 GW. 2 The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 109 A2A Report on Operations 2021 The following is a summary of the main economic data by sector: Results by sector 2021 millions of euro Generation and Trading Market Waste Smart Infrastructures Corporate Eliminations and adjustments Total Revenues from the sale of goods and services 8,006 3,849 1,207 1,248 284 (3,242) 11,352 Other revenue and income 89 36 53 32 17 (30) 197 Total revenues 8,095 3,885 1,260 1,280 301 (3,272) 11,549 Labour costs 85 53 337 105 141 721 Gross Operating Margin \- EBITDA 368 214 341 538 (33) 1,428 Depreciation, amortization, provisions and write-downs 208 76 159 274 51 768 Net Operating Income \- EBIT 160 138 182 264 (84) - 660 Capex 144 73 273 516 77 (9) 1,074 Results by sector 2020 millions of euro Generation and Trading Market Waste Smart Infrastructures Corporate Eliminations and adjustments Total Revenues from the sale of goods and services 3,746 2,501 1,084 1,105 242 (2,023) 6,655 Other revenue and income 115 14 27 31 22 (16) 193 Total revenues 3,861 2,515 1,111 1,136 264 (2,039) 6,848 Labour costs 87 49 326 110 131 703 Gross Operating Margin \- EBITDA 269 202 282 471 (24) 1,200 Depreciation, amortization, provisions and write-downs 170 60 171 206 39 646 Net Operating Income \- EBIT 99 142 111 265 (63) - 554 Capex 76 53 174 389 51 (5) 738 6 Analysis of main sectors of activities Summary of results sector by sector Results sector by sector Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit Corporate 110 6 Analysis of main sectors of activities 6.3 Generation and Trading Business Unit The following is a summary of the main quantitative and economic data relating to the Generation and Trading Business Unit: 368 mln € EBIDTA +36.8% compared to 2020 144 mln€ CAPEX 76 mln in 2020 (+89.5%) 125.0 €/MWh SINGLE NATIONAL PRICE (39 €/MWh in 2020) 13,921 GWh THERMOELECTRIC PRODUCTION FROM OTHER FACILITIES (+14.9% vs 2020) 157 GWh PRODUCTION OF COAL-FIRED PLANTS (+37.7% vs 2020) 318,075 GWh ENERGY DEMAND IN ITALY (+5.6% vs 2020) 4,544 GWh PRODUCTION FROM RENEWABLE SOURCES OF WHICH 313 GWh PHOTOVOLTAIC AND WIND (129 GWh in 2020) +0.6 €/MWh CLEAN SPARK SPREAD (1.3 €/MWh in 2020) 111 A2A Report on Operations 2021 Operating figures Net electricity production GWh 12 31 2021 12 31 2020 CHANGE % 2021/2020 Net thermoelectric production 14,078 12,233 1,845 15.1% \- CCGT 12,459 11,461 998 8.7% \- Oil 1,462 658 804 n.s. \- Coal 157 114 43 37.7% Net production from Renewable Sources 4,544 4,537 7 0.2% \- Hydroelectric 4,231 4,408 (177) (4.0%) \- Photovoltaic 291 127 164 n.s. \- Wind 22 2 20 n.s. TOTAL NET PRODUCTION 18,622 16,770 1,852 11.0% The Group’s electricity output stood at 18,622 GWh, an increase of 1,852 GWh (+11%) on the previous year. The increased demand for energy as a result of the economic recovery experienced in 2021 was met by increased thermoelectric generation and output from new renewable sources. In particular, thermoelectric production in the year under review amounted to 14,078 GWh (12,233 GWh at December 31, 2020). The growth recorded (+15.1%) is linked to the higher output of combined cycle plants, and the San Filippo del Mela plan under the essentiality regime. The high energy requirements and peaks in demand, especially in December, also led Terna to request the temporary reactivation of the Monfalcone coal-fired plant. Production from renewable sources in 2021 was in line with the previous year: the lower hydroelectric production (-4%), linked to the low rainfall of the year, was offset by the significant contribution of new photovoltaic (+164 GWh) and wind power (+20 GWh) renewable sources thanks to the new photovoltaic (+173 MW) and wind power (8.2 MW) capacity acquired by the Group. Economic figures millions of euro 01 01 2021 12 31 2021 01 01 2020 12 31 2020 CHANGE % 2021/2020 Revenues 8,095 3,861 4,234 109.7% Gross Operating Margin \- EBITDA 368 269 99 36.8% % of Revenues 4.5% 7.0% Depreciation, amortization, provisions and write-downs (208) (170) (38) 22.4% Net Operating Income \- EBIT 160 99 61 61.6% % of Revenues 2.0% 2.6% Capex 144 76 68 89.5% FTE 1,051 1,068 (17) (1.6%) Labour costs 85 87 (2) (2.3%) Revenues amounted to 8,095 million euro, an increase of 4,234 million euro (+109.7%) compared to the previous year. The change was mainly due to the extraordinary increase in electricity and gas prices and, to a lesser extent, to higher volumes sold and brokered, particularly on the electricity market. The Gross Operating Margin of the Generation and Trading Business Unit amounted to 368 million euro, an increase of 99 million euro compared to the previous year. Net of the non-recurring items in the two periods considered (+10 million euro in 2021 and +8 million euro in 2020), the Ordinary EBITDA increased by 97 million euro. 6 Analysis of main sectors of activities Summary of results sector by sector Results sector by sector Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit Corporate 112 6 Analysis of main sectors of activities The positive change is mainly attributable to: the extraordinary results achieved in the ancillary services market (“MSD”), thanks to the opportunities that emerged as a result of Terna’s requests for exceptionally critical grid conditions in the last few months of the year; the excellent performance of the trading portfolio; the contribution of newly acquired photovoltaic and wind power plants. The exceptional change in the wholesale price of electricity (PUN), which characterised both 2021, with an upward trend, and 2020, with a downward trend, did not produce significant results for the margins of the industrial electricity portfolio following the hedging policies adopted by the Group, which significantly mitigated the effects. The positive impacts were partly offset by: lower hydroelectric production; negative effects of the energy scenario on the gas portfolio; higher charges for hydroelectric fees due to both the variable and free energy to be paid and the fixed component for some plants. Depreciation, amortization, provisions and write-downs totalled 208 million euro (170 million euro at December 31, 2020). The change was mainly due to newly acquired companies in the renewable energy sector, amortization relating to investments made during the year and higher provisions for risks net of releases. As a result of the above changes, Net Operating Income amounted to 160 million euro (99 million euro at December 31, 2020). Capital expenditure in the year under review amounted to approximately 144 million euro and included extraordinary maintenance work of 87 million euro, of which 64 million euro at thermoelectric plants and 19 million euro at the Group’s hydroelectric plants. Furthermore, in 2021, development work totalling 54 million euro was carried out, mainly aimed at guaranteeing the coverage of peak demand and the balancing of fluctuating energy requirements in the electricity grid (gas turbines at the combined-cycle plants in Cassano and Chivasso and the start-up of projects for endothermic engines in Cassano) in order to contribute to the adequacy and safety of the national electricity system. Adjustments to standards amounted to around 3 million euro. In 2021, FTEs stood at 1,051 units (1,068 FTEs at December 31, 2020). The negative change is due to the continuation of the efficiency plan implemented for some hydroelectric and thermoelectric power generation plants (Monfalcone). 113 A2A Report on Operations 2021 6.4 Market Business Unit The following is a summary of the main quantitative and economic data relating to the Market Business Unit: 214 mln € EBIDTA +5.9% compared to 2020 73 mln€ CAPEX 53 mln in 2020 2,711 Mcm GAS SALES (+14.6% vs 2020) 18,426 GWh ELECTRICITY SALES (+22.7% vs 2020) 1,573 (#/1000) PDR RETAIL MARKET GAS CUSTOMERS FREE MARKET: 935 PDR (+7.7% compared to 2020) 1,383 (#/1000) POD RETAIL MARKET ELE CUSTOMERS FREE MARKET: 938 POD (+14.0% compared to 2020) 6 Analysis of main sectors of activities Summary of results sector by sector Results sector by sector Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit Corporate 114 6 Analysis of main sectors of activities Operating figures Electricity 12 31 2021 12 31 2020 CHANGE % 2021/2020 Electricity Sales (GWh) Electricity Sales Free Market (GWh) 15,968 13,587 2,381 17.5% Electricity Sales under Greater Protection Scheme (GWh) 983 1,213 (230) (19.0%) Electricity Sales Safeguard Market (GWh) 1,475 212 1,263 n.s. Total Electricity Sales (GWh) 18,426 15,012 3,414 22.7% POD Electricity POD Electricity Free Market (#/1000) 938 823 115 14.0% POD Electricity under Greater Protection Scheme (#/1000) 382 447 (65) (14.5%) POD Electricity under Safeguarding Scheme (#/1000) 63 63 n.s. Total POD Electricity (#/1000) 1,383 1,270 113 8.9% Gas 12 31 2021 12 31 2020 CHANGE % 2021/2020 Gas Sales (Mcm) Gas Sales Free Market (Mcm) 2,146 1,810 336 18.6% Gas Sales under Protection Scheme (Mcm) 565 555 10 1.8% Total Gas Sales (Mcm) 2,711 2,365 346 14.6% PDR Gas PDR Gas Free Market (#/1000) 935 868 67 7.7% PDR Gas under Greater Protection Scheme (#/1000) 638 746 (108) (14.5%) Total PDR Gas (#/1000) 1,573 1,614 (41) (2.5%) The quantities are stated gross of losses. The data related to the POD and PDR does not include the numbers relating to large customers. In 2021, the Market Business Unit recorded 18,426 GWh of electricity retail sales, up 22.7% on the previous year. The increase recorded was attributable to the higher quantities sold in the free market, in particular to large customers, the greater contribution of the safeguard market and the sales of the AEB Group, consolidated since November 2020. Gas sales to end markets, equal to 2,711 million cubic meters, showed a growth of 14.6% compared to 2020, partly due to higher consumption linked to the economic recovery recorded during the year and the average colder temperatures, and partly to the consolidation of AEB. There was also an increase in the number of mass-market free market customers, both in the electricity and gas segments (183 thousand more than at the end of 2020). 115 A2A Report on Operations 2021 Economic figures millions of euro 01 01 2021 12 31 2021 01 01 2020 12 31 2020 CHANGE % 2021/2020 Revenues 3,885 2,515 1,370 54.5% Gross Operating Margin \- EBITDA 214 202 12 5.9% % of Revenues 5.5% 8.0% Depreciation, amortization, provisions and write-downs (76) (60) (16) 26.7% Net Operating Income \- EBIT 138 142 (4) (2.8%) % of Revenues 3.6% 5.6% Capex 73 53 20 37.7% FTE 907 815 92 11.3% Labour costs 53 49 4 8.2% Revenues amounted to 3,885 million euro (2,515 million euro at December 31, 2020), up 54.5% following the consolidation of the AEB Group and the increase in unit prices and higher quantities sold of both electricity and gas. EBITDA of the Market Business Unit equalled 214 million euro (202 million euro at December 31, 2020). Net of the non-recurring items recorded in the two comparison periods (+14 million euro in 2021 and +3 million euro in 2020), the ordinary Gross Operating Margin increased by 1 million euro. The change of 1 million euro (+1%) is due to the increase in margins recorded in the retail segment for: the consolidation of the AEB Group; the increase in the number of mass-market electricity customers; increased sales, particularly to large customers in the market. This growth has been scaled back: the drop in unit margins on sales in the free electricity market due to particularly high imbalance charges as a result of the substantial increase in energy prices in the year, against volumes that were not misaligned with previous years; higher operating costs than those incurred last year due to a slowdown in activities following the spread of COVID-19. Depreciation, amortization, provisions and write-downs totalled 76 million euro (60 million euro at December 31, 2020) due to higher depreciation, amortization, provisions and write-downs of receivables. As a result of the above changes, Net Operating Income amounted to 138 million euro (142 million euro at December 31, 2020). In 2021, the Market Business Unit investments amounted to 73 million euro. These investments concerned: about 59 million euro for the energy retail segment for expenses for the acquisition of new customers and for evolutionary maintenance and development work on the hardware and software platforms, aimed at supporting billing and marketing activities (acquisition of a dynamic pricing platform) and the start-up of NEN (the A2A Group’s full-digital start-up for electricity and gas sales); 14 million for the energy solution segment for energy efficiency projects. In 2021, FTEs stood at 907 units (815 FTEs at December 31, 2020). The change is due partly to the change in scope (consolidation of the AEB Group) and partly to the higher number of people hired to strengthen, in line with development objectives, traditional and innovative areas of activity, such as the hiring of the new company NEN. 6 Analysis of main sectors of activities Summary of results sector by sector Results sector by sector Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit Corporate 116 6 Analysis of main sectors of activities 6.5 Waste Business Unit The following is a summary of the main quantitative and economic data relating to the Waste Business Unit. OF WHICH: 341 mln € EBIDTA +20.9% compared to 2020 273 mln€ CAPEX 174 mln in 2020 (+56.9%) 988 Kton MATERIAL RECOVERY DISPOSALS (+10.1% vs 2020) 2,082 GWh ELECTRICITY SOLD (+6.6% vs 2020) 1,640 GWht HEAT SOLD (+5.3% vs 2020) 3,423 Kton WASTE DISPOSED OF (+2.2% vs 2020) 1,481 Kton ENERGY RECOVERY DISPOSALS (-0.5% vs 2020) 117 A2A Report on Operations 2021 Operating figures 12 31 2021 12 31 2020 CHANGE % 2021/2020 Waste collected (Kton) 1,893 1,660 233 14.0% Residents served (#/1000) 4,065 4,117 (52) (1.3%) Electricity sold (GWh) 2,082 1,954 128 6.6% Heat sold (GWht)* 1,640 1,557 83 5.3% (*) Quantities at the plant entrance. In 2021, the quantity of waste collected, equal to 1,893 thousand tonnes, was up by 14% compared to the previous year, penalized by the slowdown in economic activities following the spread of COVID-19, especially in the City of Milan. The consolidation of AEB (+157 thousand tonnes) also contributed to the change in the period. The quantities of electricity rose by 6.6% thanks to the contribution of the newly acquired companies (Agripower, Agritre and Fragea), the increased productivity of the Acerra waste-to-energy plant and the greater availability of the Parona waste-to-energy plant. Heat produced is up 5.3% as a result of higher quantities required by the district heating segment. Waste disposed of (Kton) 12 31 2021 12 31 2020 CHANGE % 2021/2020 Urban waste disposal 2,656 2,662 (6) (0.2%) \- WTE 1,364 1,375 (11) (0.8%) \- Landfill 1 2 (1) (50.0%) \- Treatment plants 1,291 1,285 6 0.5% Industrial disposals 767 687 80 11.6% \- WTE 75 66 9 13.6% \- Landfill \- 21 (21) (100.0%) \- Treatment plants 692 600 92 15.3% TOTAL 3,423 3,349 74 2.2% The quantities reported are net of intra-group disposals. Net waste disposed of rose by 2.2%, thanks to an increase in disposals at treatment plants, especially industrial ones; on the other hand, the quantities treated in waste-to-energy plants registered a slight reduction due to reduced availability of the Brescia waste-to-energy plant (more days of stoppage for maintenance). The growth related exclusively to the disposal of waste intended for material recovery (significant increase in bulky items and soil). Economic figures millions of euro 01 01 2021 12 31 2021 01 01 2020 12 31 2020 CHANGE % 2021/2020 Revenues 1,260 1,111 149 13.4% Gross Operating Margin \- EBITDA 341 282 59 20.9% % of Revenues 27.1% 25.4% Depreciation, amortization, provisions and write-downs (159) (171) 12 (7.0%) Net Operating Income \- EBIT 182 111 71 64.0% % of Revenues 14.4% 10.0% Capex 273 174 99 56.9% FTE 6,470 6,046 424 7.0% Labour costs 337 326 11 3.4% 6 Analysis of main sectors of activities Summary of results sector by sector Results sector by sector Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit Corporate 118 6 Analysis of main sectors of activities In 2021, the Waste Business Unit recorded revenue of 1,260 million euro, an increase of 13.4% compared with the previous year (1,111 million euro at December 31, 2020) mainly due to the contribution of the companies acquired in the previous year (Agritre operating from March 2020, AEB and Fragea consolidated from November 2020) and in the year, (Agripower), higher revenue from material recovery (particularly paper sales), electricity sales and waste disposal from industrial treatment plants. The EBITDA of the Waste Business Unit equalled 341 million euro (282 million euro at December 31, 2020). Net of non-recurring items (+8 million euro in 2021, 1 million euro in 2020), the Business Unit’s ordinary Gross Operating Margin was 333 million euro, an increase of 52 million euro compared to December 31, 2020. All areas of the business unit made a positive contribution to the result for the year thanks to: the incremental contribution of biomass and biogas power generation plants acquired in the previous year (Agritre and Fragea) and in 2021 (Agripower); the positive dynamics of electricity and heat transfer prices; the increase in the price of delivering waste similar to municipal waste; the greater quantities of industrial waste disposed of; the increase in paper prices due to high demand in the European market; the incremental contribution from the consolidated AEB Group as of November 2020\. Depreciation, amortization, provisions and write-downs equalled 159 million euro (171 million euro at December 31, 2020). The change is the combined effect of higher amortization and depreciation relating to newly acquired companies and investments made during the year and lower provisions for risks and charges compared with the previous year. As a result of these changes, Net Operating Income totalled 182 million euro (111 million euro at December 31, 2020). Investments in 2021 amounted to 273 million euro and concerned: development work amounting to 203 million euro, of which 123 million euro relating to waste-to-energy plants (in particular 76 million euro for the construction of the new Parona plant and 24 million euro for the flue gas purification line of the Brescia waste-to-energy plant) and 77 million euro to treatment plants (38 million euro for OFMSW plants); 70 million euro in maintenance work on waste-to-energy plants (29 million euro), treatment plants (21 million euro) and the collection sector (20 million euro). In 2021, the FTE of the Waste Business Unit amounted to 6,470 units (6,046 FTE in 2020). The change was linked to changes in the scope of consolidation (consolidation of the AEB Group, acquisition of Agripower and winning new tenders for the management of collection services) and to recruitment planned for 2020 and postponed to 2021\. 119 A2A Report on Operations 2021 6.6 Smart Infrastructures Business Unit The following is a summary of the main quantitative and economic data relating to the Smart Infrastructures Business Unit: 538 mln € EBIDTA +14.2% compared to 2020 516 mln€ CAPEX 389 mln in 2020 (+32.6%) 753 M€ RAB ELECTRICITY (+8.8% vs 2020) 1,578 M€ RAB GAS (+2.6% vs 2020) 3,178 GWht HEAT SOLD (+12.1% vs 2020) 411 M€ RAB WATER SERVICES (+8.4% vs 2020) 6 Analysis of main sectors of activities Summary of results sector by sector Results sector by sector Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit Corporate 120 6 Analysis of main sectors of activities Operating figures Networks 12 31 2021 12 31 2020 CHANGE % 2021/2020 Electricity distributed (GWh) 11,423 10,673 750 7.0% Gas distributed (Mcm) 3,448 2,996 452 15.1% Water distributed (Mcm) 76 77 (1) (1.3%) RAB Electricity (M€) (*) 753 692 61 8.8% RAB Gas (M€) (*) 1,578 1,538 60 2.6% RAB Water (M€) (*) 411 379 32 8.4% (*) Provisional figures, underlying the calculation of allowed revenues for the period. The quantities of electricity and gas distributed by the Smart Infrastructures Business Unit increased by 7% and 15.1%, respectively, compared with the previous year, which had been significantly impacted by the slowdown in economic activities caused by the measures adopted to counter the health emergency. The quantities of water distributed amounted to 76 Mcm, slightly down on the previous year. In 2021, the RABs relating to electricity distribution amounting to 753 million euro and gas distribution amounting to 1,578 million euro were, as a result of the high investments made, up by 8.8% and 2.6% respectively compared with the RABs in 2020, including the shares relating to AEB. The RAB for water services increased by 8.4% thanks to the capex made. Heat GWht 12 31 2021 12 31 2020 CHANGE % 2021/2020 SOURCES Plants in: 1,554 1,369 185 13.5% \- Lamarmora 385 375 10 2.7% \- Famagosta 95 81 14 17.3% \- Tecnocity 72 64 8 12.5% \- Other plants 1,002 849 153 18.0% Purchases from: 2,137 2,048 89 4.3% \- Third parties 473 472 1 0.2% \- Other Business Units 1,664 1,576 88 5.6% TOTAL SOURCES 3,691 3,417 274 8.0% USES Sales to end customers 3,178 2,836 342 12.1% Distribution losses 513 581 (68) (11.7%) TOTAL USES 3,691 3,417 274 8.0% Electricity from cogeneration 297 298 (1) (0.3%) Note: \- The figures only refer to district heating and include cold sales. Sales relating to heat management are not included. \- Purchases include the quantities of heat purchased from the Waste Business Unit. Heat sales by the Smart Infrastructures Business Unit in the year in question amounted to 3,178 GWht, an increase of 12.1% over the volumes sold in the previous year. The increase recorded is attributable not only to the acquisition of new customers and the contribution of AEB Group sales, but also to the colder temperatures recorded in 2021 compared to the previous year. 121 A2A Report on Operations 2021 Economic figures millions of euro 01 01 2021 12 31 2021 01 01 2020 12 31 2020 CHANGE % 2021/2020 Revenues 1,280 1,136 144 12.7% Gross Operating Margin \- EBITDA 538 471 67 14.2% % of Revenues 42.0% 41.5% Depreciation, amortization, provisions and write-downs (274) (206) (68) 33.0% Net Operating Income \- EBIT 264 265 (1) (0.4%) % of Revenues 20.6% 23.3% Capex 516 389 127 32.6% FTE 3,052 2,918 134 4.6% Labour costs 105 110 (5) (4.5%) The Smart Infrastructures Business Unit’s revenue for the period amounted to 1,280 million euro (1,136 million euro at December 31, 2020, +12.7%). The change is due to the incremental contribution deriving from the consolidation of AEB, higher revenues from district heating, the water cycle and increased services compared to the same period last year. The Gross Operating Margin of the Smart Infrastructures Business Unit in 2021 was 538 million euro (471 million euro at December 31, 2020). Net of non-recurring items (+7 million euro in 2021; +10 million euro in 2020), the Business Unit’s ordinary Gross Operating Margin was 531 million euro, up 70 million euro (+15.2%) compared to 2020. The change in margins is distributed as follows: electricity and gas distribution networks (+41 million euro): increase linked to the change in the scope of consolidation, higher revenues admitted for regulatory purposes and lower operating costs; district heating (+23 million euro): margins increased mainly due to higher quantities sold as a result of commercial development and cooler average temperatures compared to the previous year, as well as higher services related to the activity following the superbonus measures; water cycle (+10 million euro): higher revenues due to the tariff increases approved by the sector Authority; Smart City (-4 million euro): conclusion of activities started in previous years relating to the construction of infrastructures for laying fibre optic cables and lower margins due to the transfer of the telecommunications business unit to the corporate. Depreciation, amortization, provisions and write-downs equalled 274 million euro (206 million euro at December 31, 2020). The change is attributable to higher depreciation and amortization due to both the consolidation of AEB and the capex made in 2020\. As a result of the above changes, Net Operating Income amounted to 264 million euro, in line with the previous year (265 million euro at December 31, 2020). Investments in the period in question amounted to 516 million euro and regarded: in the electricity distribution segment, development and maintenance work on plants and in particular the connection of new users, maintenance work on secondary cabins, the extension and refurbishment of the medium and low voltage network, the maintenance and upgrading of primary plants and investments in the launch of the 2G smart meter project (183 million euro); in the gas distribution subsector, development and maintenance work on plants relating to the connection of new users and the replacement of medium and low pressure piping and smart gas meters (126 million euro); in the integrated water cycle sector, maintenance and development work carried out on the water transport and distribution network, as well as works and restoration works on the sewer networks and purification plants (95 million euro); district heating and heat management segment: development and maintenance of plants and networks for a total of 86 million euro. in the public lighting sector for new projects (15 million euro); in the Smart City segment, mainly laying fibre optics, radio frequencies and data centres (10 million euro); in the e-mobility sector for the installation of new electric energy recharging stations (1 million euro). In 2021, FTEs stood at 3,052 units (2,918 FTEs at December 31, 2020). The change was related to the consolidation of the AEB Group and the undertaking of new investment projects. 6 Analysis of main sectors of activities Summary of results sector by sector Results sector by sector Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit Corporate 123 A2A Report on Operations 2021 6.7 Corporate Economic figures millions of euro 01 01 2021 12 31 2021 01 01 2020 12 31 2020 CHANGE % 2021/2020 Revenues 301 264 37 14.0% Gross Operating Margin \- EBITDA (33) (24) (9) 37.5% % of Revenues (11.0%) (9.1%) Depreciation, amortization, provisions and write-downs (51) (39) (12) 30.8% Net Operating Income \- EBIT (84) (63) (21) 33.3% % of Revenues (27.9%) (23.9%) Capex 77 51 26 51.0% FTE 1,541 1,405 136 9.7% Labour costs 141 131 10 7.6% The Gross Operating Margin, corresponding to the corporate structure costs not charged back to the various Group companies in 2021 amounted to -33 million euro (-24 million in 2020). The negative change in margins is due to the greater weight in the year of costs not charged back compared to total expenses incurred by the Corporate. Depreciation, amortization, provisions and write-downs equalled 51 million euro (39 million euro at December 31, 2020). The change was driven by higher depreciation and amortization for capex during the year. After depreciation, amortization, provisions and write-downs there was a Net operating loss of 84 million euro (a net operating loss of 63 million euro at December 31, 2020). Capex totalled 77 million euro, including 49 million euro for information systems and 22 million euro for buildings. In the year in question, FTEs amounted to 1,541 units, an increase of 136 units compared to 2020, due to the change in the scope of consolidation of AEB, the postponement of recruitment planned for 2020 and additions to strengthen some areas of activity, in line with the Group’s development needs and objectives. 6 Analysis of main sectors of activities Summary of results sector by sector Results sector by sector Generation and Trading Business Unit Market Business Unit Waste Business Unit Smart Infrastructures Business Unit Corporate 7 Risks anduncertainties 126 7 Risks and uncertainties 7.1 Risks and uncertainties The A2A Group has a risk assessment and reporting process which is based on the Enterprise Risk Management method of the Committee of Sponsoring Organizations of the Treadway Commission (CoSO report) and best risk management practice and is in compliance with the Corporate Governance Code, which states: “…Each issuer shall adopt an internal control and risk management system consisting of policies, procedures and organizational structures aimed at identifying, measuring, managing and monitoring the main risks.... ”. The Group has also adopted a specific procedure that defines in detail the roles, responsibilities and methodologies for the Enterprise Risk Management (ERM) process. This process requires a risk model to be set up that takes account of the Group’s characteristics, its multi-business vocation and the sector to which it belongs. This model is subject to periodic revision consistent with the evolution of the Group, and the context in which it operates. The methodology adopted is characterized by the regular identification of the risks to which the Group is exposed. In this context, an assessment process is carried out which, through the involvement of all its structures, allows the Group to identify the most important risks and establish the relative controls and mitigation plans. At this stage, the involvement of risk owners is essential as responsible for the identification, assessment and update of risk scenarios (specific events in which risk can materialize) related to activities of its competence. This phase is carried out with the support and coordination of the Group Risk Management organizational structure through operating methods that allow clearly identifying risks, the related causes and management methods. The methodology adopted is modular and leverages on the fine-tuning of the experience gained and methods of analysis used: on the one hand, it aims to develop the risk assessment further with specific reference to the consolidation of the mitigation process and on the other to develop and integrate risk management activities in business processes. This evolution is carried out consistent with the gradual increase in the awareness of management and the business structures about risk management issues, achieved among other things through the use of specific training support provided by Group Risk Management. The ERM process also supports the ISO 9001, ISO 14001 and ISO 45001 certifications of Group companies. Set out below is a description of the main risks and uncertainties to which the Group is exposed. The geo-political tensions related to the crisis between Russia and Ukraine and the health emergency, having possible repercussions on more than one type of risk, are discussed in this opening section. Impacts of the Russia-Ukraine conflict The ongoing conflict between Russia and Ukraine is further increasing the volatility of energy commodity prices, which were already at record levels before the outbreak of the war. In addition to the direct impacts on the production and sale of electricity and gas, such a price increase could lead to a general increase in inflation with particular reference to the prices of oil derivatives and foodstuffs, as well as tensions on financial markets, technological impacts and a possible increase in cyber-attacks. The A2A Group, as part of its industrial activity of generating energy carriers and marketing them on a wholesale basis, is managing the growing volatility of the price of gas both by monitoring the limits of exposure to commodity risk and by optimising its buying and selling strategies. It should also be noted that the Group, in its procurement activities, operates on platforms. Should the supply situation become critical and in line with national energy policy choices, the reactivation of the Monfalcone coal-fired thermoelectric power plant and the possibility of interrupting, requested by the network operator, the supply of energy to specific industrial entities cannot be ruled out. It should also be noted that recently DL 17/22, followed by the MD MITE Gas storage 2022-2023 and ARERA Resolution 110/2022/R/Gas, required operators to bring the filling of storage to at least 90% of available capacity. With reference to the activity of retail marketing of electricity and gas, the increase in the price of commodities causes an increase in credit exposures to customers (even in the event of constant volumes). This greater exposure naturally generates a greater risk in the event of default by individual counterparties 127 A2A Report on Operations 2021 and a greater financial commitment in the event of late payment. The extent of these tensions, which have been modest so far, will depend on how the crisis develops and how long it lasts. The other business units (Waste and Smart Infrastructures) are less exposed to commodity risk. The impacts of the Russia-Ukraine conflict are therefore estimated to be indirect and, essentially, related to the potential reduction in GDP and the rise in inflation. In order to face possible scenarios of financial tension, it should be noted that the Group's solid liquidity position, also supported by committed and uncommitted back-up lines (at March 14, 2022 equal to 1.7 billion euro), is allowing managing positions on the commodities market as well as any temporary increases in working capital due to price increases. A2A has recently successfully issued a 500 million euro bond in a very difficult market context in addition to subscribing to medium-term bilateral credit lines, demonstrating the Group's ability to access capital and banking markets. Finally, in the presence of high alert for cyber-attacks, the Group has activated a channel with the National Security leadership to exchange information, accelerating the programme to secure endpoints with advanced malware protection tools. Health emergency COVID-19 virus With reference to the rise of the Coronavirus emergency, it should be noted that crisis management measures have been put in place, as well as the identification of appropriate prospective mitigations linked to the risk of temporal extension of the emergency. Since 2018, the A2A Group has had a Group crisis plan that identifies the organizational system, activities and procedures necessary to deal with the events that led to the declaration of crisis, with the aim of protecting human resources inside and outside the A2A Group, containing material and immaterial damage and guaranteeing the correct management of communication flows externally and the continuity of the services offered, quickly organizing normal operating conditions and safeguarding the company's reputation. It should be noted that the A2A Group is managing the COVID-19 health emergency in full application of the provisions of the above procedure with the establishment and management of special Crisis Committees. These committees, which meet to coordinate crisis management activities, make it possible to direct the company's actions in line with the provisions of the various Prime Ministerial Decrees issued and carry out preventive activities by defining mitigation plans to be activated if the emergency situation worsens. The main monitoring and mitigation actions identified are described below: definition of the minimum functional services to be monitored by the plant managers and the list of managers necessary to manage the plants and related back-up, also with reference to contractors; this activity has been completed and can be activated in the event of personnel unavailability; actions involving personnel aimed at avoiding assemblages and ensuring the safety of people (preparation of the procedural documents according to the provisions of health protocols, adoption of PPE, sanitization of premises, temperature measurement, etc.); the segregation of the personnel of external companies was also guaranteed; preparation of a plan of equipment and PPE requirements for use in disposable mode; adoption of organizational and technological solutions to ensure that certain critical processes can be carried out remotely and methods for the execution of emergency intervention. Achievement of the objectives defined in the business plan Reference is made to the risks connected with failure to achieve or partial achievement of the objectives outlined in the Business Plan, which could have both an economic and financial impact as a result of lower growth in the Group's margins and a reputational impact as a result of failing to meet the expectations of stakeholders with regard to sustainability commitments. The 2022-2030 Plan outlines ambitious growth targets, mainly in terms of the circular economy (recovery of materials and energy, exploitation of heat otherwise dispersed, preservation of water resources) and energy transition (support for growth in renewable energy sources, exploitation of the electricity generation of combined cycle plants, increase in the customer base, support for the electrification of consumption). The main risk factors affecting the various areas of development include: possible critical issues related to authorizations and adverse territorial contexts, the presence of major competitors capable of hindering the achievement of market shares in domestic and foreign markets, legislative and regulatory uncertainties related to the deregulation of domestic energy markets, and commercial risks related to the targets defined in the Plan adopted to increase the customer base. Moreover, since the last 7 Risks and uncertainties Risks and uncertainties 128 7 Risks and uncertainties months of 2021, difficulties have been encountered in the procurement of certain materials used both in ordinary maintenance activities and at the sites where development initiatives are carried out; at the same time, the suppliers of these materials are asking Group companies to adjust their prices upwards. This tension on availability and prices was particularly accentuated for certain products (such as ammonia) that are indispensable for the operation of waste treatment plants. To support the realization of development initiatives, mainly organizational measures are highlighted, with corporate structures focused on the analysis of the markets and development areas covered by the Plan, on the management of technical and engineering aspects, on the maintenance of relations based on transparency and collaboration with the territories, bodies and institutions involved, as well as commercial development initiatives that also envisage the use of innovative communication channels and methods. To support the path of sustainable growth, training activities and the identification of focal points are underway to support the process of increasing integration of sustainability principles in business processes, contribute to the definition of the objectives of the Sustainability Plan, promote and enhance new sustainability projects and encourage the circulation of information on these issues. Legislative and regulatory risks The A2A Group operates in highly regulated sectors whether they are managed under natural monopoly (such as infrastructure for the distribution and transport of electricity and gas, the integrated water cycle and district heating) or under free market regime (such as energy management, trading and sale of energy carriers and other services to customers). The 2018 Budget Law, moreover, has extended the regulatory and control competences of the Authority for Electricity, Gas and Water System (AEEGSI, which changed its name to ARERA \- Regulation Authority for Energy, Networks and the Environment) to include the separate and combined municipal and equivalent waste collection cycle. Among the risk factors, therefore, the constant and not always predictable evolution of the legislative and regulatory framework of reference shall be considered. For these risk factors, the Group adopts a legislative and regulatory risk monitoring and management policy in order to mitigate, to the extent possible, the effects through oversight on various levels, which primarily involves collaborative dialogue with the institutions (ARERA, Competition and Market Protection Authority, Authority for Communications Guarantees, Ministry of Ecological Transition) and with technical bodies of the sector (GSE Energy Services Operator, GME Energy Markets Operator, Terna) as well as active participation in category associations and working groups established at said entities. Also the view to European regulations, following the work of Brussels through participation in the tables of Eurelectric and Cedec, allows seeing "in advance" the subject of transposition into Italian law (in some cases automatic as per regulations). To address these issues, the top management set up a specific organization structure called Regulatory Affairs and Competition, broadening the mandate, strengthening the link with the business and exceeding the vision for which the relationship with the regulator shall be interpreted solely as compliance (or litigation). Constant dialogue with Business Units is also envisaged, not only for the simulation of impacts on current activities but also for the evaluation of new initiatives. Regulatory Affairs and Competition also implemented constantly updated monitoring and control tools (ex. Regulatory Review produced every six months or the Regulatory Agenda drawn up at the time of the Budget/Plan), in order to consider the potential impacts on the regulation on the company. The organizational structure also oversees regulatory risk for the ACSM-AGAM and AEB Groups in order to monitor and manage its impact in a coordinated manner. The main topics involved in current changes in regulations and legislation, with major potential effects on the Group, are as follows: the rules governing large-scale diversion of hydroelectric concessions following Law no. 12/2019 which, in article 11-quater, provided for an overall reorganization of the subject, giving the Regions an increasingly important role (for the Lombardy Region, reference is made to the Regional Law no. 5/2020 as amended by subsequent Regional Law no. 19/2021); 129 A2A Report on Operations 2021 the outcome of the appeals filed by some operators and a trade association for the annulment of the Ministerial Decree MiSE of June 28, 2019 and all related acts of ARERA and Terna that implemented the capacity market regulations; tenders concerning the granting of concessions for the gas distribution service; the termination of the SII concessions held by the Group companies operating in the sector and their transfer for consideration to the Single Area Operator (with particular reference in the immediate future to the municipalities managed on a transitional basis by A2A Ciclo Idrico in the province of Brescia and to most of the municipalities of ASVT expiring on December 31, 2021); the certification of energy savings and the consequent issue of White Certificates by the Energy Services Manager; the impact on the development of district heating due to the lack of a specific incentive tool and the start of regulation of the sector by ARERA only for aspects relating to commercial and technical quality and not also for support for investments; the provisions of the 2017 Competition Law on the termination of price protection schemes for electricity and gas customers, the date of which was further extended for electricity household customers to January 1, 2024. Finally, it should be noted that, in view of the numerous interventions by the Antitrust Authority in the sectors of interest to the A2A Group (in terms of initiating investigations into abuse of a dominant position, agreements and investigations) the Board of Directors of A2A S.p.A. approved during the meeting of June 20, 2019, the adoption of the Antitrust Compliance Programme with the consequent appointment of a person responsible for its implementation and during the meeting of January 20, 2020, adoption of the Antitrust Code of Conduct. Finally, on June 23, 2020 an Antitrust Guideline was adopted, which regulates the rules of conduct that A2A Group employees must observe in order to avoid antitrust violations (document available on the company Intranet). In 2021, training sessions continued for personnel in the various Business Units. For a more detailed discussion of these risks, reference should be made to the section "Regulatory developments and impacts on the Business Units of the A2A Group". Financial risks Liquiditi risk Liquidity risk regards the Group’s timely ability to meet its payment commitments. To hedge this risk, the Group ensures the maintenance of adequate financial resources, as well as a liquidity buffer sufficient to meet unexpected commitments. At December 31, 2021, the Group had cash and cash equivalents totalling 957 million euro, as well as unused committed loans and lines of credit of 1,125 million euro. The management of liquidity risk is pursued by the Group also by means of a Bond Issue Program (Euro Medium Term Note Programme) sufficiently large and partially unused as to enable the Group to timely resort to the Capital market. At December 31, 2021, this program amounts to 6 billion euro, of which 2,400 million euro still available. The Group's ability to obtain loans in the banking or financial markets depends, among other things, on prevailing market conditions and the Group's rating at the time of the need for financing. There is no guarantee that the Group will be able to access financing on equal or better terms than it currently has. Risks associated with compliance with debt covenants This risk exists if the loan agreements provide for the option by the lender, upon the occurrence of certain events, to request early repayment of the loan, thus entailing a potential liquidity risk for the Group. The section “Other Information/Covenants Compliance Risk” of the consolidated Financial Report illustrates in detail these risks related to the A2A Group. The same section also lists the loans that contain financial covenants. At December 31, 2021, there was no situation of non-compliance with the covenants of the A2A Group companies. Interest rate risks Interest rate risk is related to the uncertainty associated with the trend in interest rates, changes in which can result in, given a certain amount and composition of debt, an increase in net financial expenses. The volatility of financial expenses associated to the performance of interest rates is therefore monitored and mitigated through a policy of interest rate risk management aimed at identifying a balanced mix of fixed-rate and floating rate loans and the use of derivatives that limit the effects of fluctuations in interest rates. To provide a better understanding of the risks of interest rate fluctuations to which the Group is subjected every six month at December 31 and June 30, a sensitivity analysis was conducted of net financial expenses and valuation items of derivative financial contracts as a result of interest rate fluctuations. The section 7 Risks and uncertainties Risks and uncertainties 130 7 Risks and uncertainties “Other Information/Interest Rate Risk” of the consolidated Financial Report illustrates the effects on the change in financial charges and in the fair value of derivatives resulting from a change in the forward curve of interest rates of +/- 50 bps. Risks associated with industrial and business activities Macroeconomic context risks (GDP) The Group's activities are sensitive to economic cycles and general economic conditions in the countries in which it operates. A slowing economy could determine, for example, a drop in consumption and/or of industrial production, having as a result a negative effect on the demand for electricity and of other carriers offered by the Group, thereby affecting the results and prospects and preventing the implementation of planned development strategies. The current situation in the energy markets in which the production facilities operate, particularly thermoelectric power plants, shows encouraging signs of recovery also as a result of the gradual easing of the restrictive measures adopted at the time at national and international level to address the COVID-19 emergency. However, it cannot be ruled out that the overall economic situation could experience further deterioration in the future, also, but not only, with reference to a possible re-occurrence of the pandemic and the related response measures, with a potential increase in the time required for the production system to recover. To ensure this, it should be pointed out that all the measures undertaken in the past for combined-cycle plants are still active and in operation, with the aim of guaranteeing their operating flexibility, efficiency and availability at times when such requirements are requested of them. For the years to come, macroeconomic projections foresee the continuation of the gradual recovery in international trade and a moderate expansion in domestic demand, which should lead to a gradual recovery in GDP with consequent positive repercussions on the demand for electricity and energy carriers offered by the Group. The above recovery in economic prices could, however, be negatively affected by the trend in energy commodity prices, which have been rising since the last few months of 2021: the delicate geopolitical situation in Eastern Europe, the rapid recovery of the economies of various countries with increased demand for gas and European stocks at historic lows are among the main factors that are causing both price rises and commodity volatility. All of this could lead to potential impacts in terms of a contraction in consumption and tensions on credit. Risks related to commodity and energy prices Given the features of the sectors in which it operates, the Group is exposed to energy scenario risk, namely the risk linked to changes in the price of energy raw materials (electricity, natural gas), and the prices of CO2emissions allowances (EUA). Significant, unexpected and/or structural changes in commodity prices, especially in the medium term, may result in a reduction in the Group's operating margins and cash flows. To mitigate these risks, the Group has approved an Energy Risk Policy that regulates the procedures by which commodity risk is monitored and managed, or the highest level of variability to which the result is exposed with reference to the trend of prices of energy commodities. Consistent with the provisions of the Policy, the commodity risk limits of the Group are defined and approved annually by the Board of Directors. Market risk is mitigated by constantly monitoring the total net exposure of the Group’s portfolio and addressing the main factors affecting the trend. Appropriate hedging strategies are defined, where necessary, designed to maintain this risk within the established limits, typically through hedging at 12 and 24 months. The objective of stabilizing the cash flows generated by the asset portfolio and outstanding contracts is thus pursued through the management of physical contracts and derivative financial instruments, limiting to the extent possible, the volatility of the Group's economic and financial results following changes in commodity prices. Social-environmental context risk Possible opposition (the so-called "Not In My Back Yard" phenomenon) to the presence of plants promoted by certain stakeholders and amplified through the use of social networks, due to a negative perception of certain activities (such as waste recovery and disposal) in the areas served could hinder the regular operation of existing plants as well as the authorization process for new plants (for example, waste recovery or disposal plants and the conversion of thermoelectric plants), and therefore the growth planned by the Group in certain business areas. 131 A2A Report on Operations 2021 To mitigate this risk, the Group has set up organizational structures dedicated to monitoring institutional relations, with local communities and the territory, in order to establish and maintain collaborative dialogue with the various stakeholders. Within this framework, the Group, in order to build consensus around its initiatives, participates in technical round tables with institutional counterparts, especially at local level, as well as through the organization of multi-stakeholder forums designed to promote dialogue with the local community. The forum was established with the aim of identifying solutions that can respond in a targeted and effective manner to the needs and expectations of stakeholders and that allow promoting the environmental, economic and social sustainability activities carried out by the Company and the Group and services provided in the territory. Risks related to climate change Reference is made to potential impacts for Group Companies in connection with the reduction/suspension of services, rather than damage to company assets and/or people, that may occur upon the occurrence of events related to climate change (both chronic and acute) with reference to hazards arising from changes/events related to temperature regimes, wind, precipitation and solid masses. With reference to chronic changes, in particular, the Group's hydroelectric power generation, the consumption of electricity, gas and heat for winter heating and the electricity and drinking water distribution services provided by the Group may be impacted by unfavourable changes in weather and climate parameters, such as scarcity and changes in rainfall patterns, particularly mild temperatures in winter and heat waves in summer. Changes in the availability of water resources can also lead to conflicts between various stakeholders as well as restrictions on the operation of hydroelectric plants. These factors can have an unfavourable impact on the Group's production, sales and reputation and, consequently, have negative economic and financial impacts. As part of the operating activities of the electricity grids, the issue of continuity of service during periods of special climatic conditions, with specific reference to particularly violent and concentrated heat waves and/or precipitation, affecting the areas served, generating reputational risks as a result of prolonged interruptions in the provision of the service. Several actions are underway to mitigate this risk: to ensure optimum exploitation of water resources available for energy, the Group has established organizational structure dedicated to the development of analyses and engineering models to support the programming, both medium and short-term, of hydroelectric plants; with reference to the reduction in demand for thermal energy by end users compared to as planned, the Group has set up company organizational structures dedicated to constantly updating demand forecasts in relation to expected temperature trends. In addition, long-term investments have been planned to reduce the costs of heat production thanks to heat recovery and to develop district heating networks with a view to optimizing distribution methods; with reference to the operation of the electricity grids, in addition to the usual maintenance activities, the Group planned and launched the strengthening of the interventions to rationalize the meshing of the grids, the construction and commissioning of new primary substations, a three-year plan to increase the resilience of the grid in agreement with ARERA. There are also remote operational controls, advanced technical safety tools, emergency intervention teams as well as specific safeguards for infrastructure, which are more exposed to risks of interruption in the delivery of services; in order to guarantee, even in the long term, the supply of drinking water on an ongoing basis, the A2A Group monitors and maps leaks from the water network in order to identify the priority of investments to contain them and is studying the interconnection of aqueducts and the search for new sources of water supply. As mentioned previously, extreme weather phenomena such as floods and landslides can have a negative impact on the Group's assets (such as canals, dams, plants) as well as on third-party infrastructures necessary for the continuity of the Group's activities (e.g. electricity transmission lines). These factors can result in direct damage to assets and/or indirect damage due to the interruption of production activities. To mitigate this risk, the Group implemented emergency management plans and procedures. In addition, insurance policies have been taken out to cover direct and indirect damage caused by natural phenomena. Finally, the Group is exposed to the risks associated with the transition to a low-carbon economy, which is expressed through regulatory amendments, possible conflicts for the use of resources, technological innovation, changes in consumption styles and stakeholder expectations. If these factors were not sufficiently taken into account in the definition of the Group's strategic choices, they could lead to economic and financial impacts due, for example, to the depreciation of industrial assets and possible reputation impacts. 7 Risks and uncertainties Risks and uncertainties 132 7 Risks and uncertainties To contribute to the decarbonization process, the Group is committed to reducing its CO2emissions \- both direct and indirect. In fact, the Board of Directors approved a target for the Group's overall emissions to be achieved by 2030, which was recognized as a Science Based Target, i.e. in line with the level of decarbonization required to achieve the objectives of the Paris Agreement (limiting global warming to values well below 2 °C above pre-industrial levels and continuing efforts to limit warming to 1.5 °C). The main strategies adopted by the Group to achieve this objective include: ending the use of coal and fuel oil, increasing the efficiency of thermoelectric power plants fired with natural gas (combined cycles) and reducing emissions, adopting a strategic plan that calls for a significant increase in energy production from renewable sources, consistent with the target, and using energy entirely from renewable sources for consumption. Operating risks due to the ownership and operation of electricity generation, cogeneration, waste treatment and recovery plants and distribution networks and plants The Group manages production sites, infrastructure and services that are operationally and technologically complex (power plants, dams, waste recovery and disposal plants, cogeneration plants, electricity, gas and heat distribution networks, waste collection and urban hygiene services, integrated drinking water supply service, etc.). Accidental mechanical and/or electrical breakdowns, structural failures, fires, terrorist attacks, as well as labour unrest promoted by employees and referring to alleged failures on the part of the employer to adopt the COVID-19 prevention measures, could lead to damage to assets and, in the worst cases, compromise the Group's production capacity, as well as the possibility of guaranteeing the continuity of the services provided. All these factors can also lead to cost increases, damage to third parties, as well as penalties imposed by the competent authorities. In order to mitigate these risks, the Group realizes preventive management strategies aimed at reducing the probability of their occurrence and/or mitigating their impact. In addition, the Group has investments in place to ensure constant technological updating and adequate levels of plant maintenance, emergency management plans and procedures and a crisis management procedure that provides for the establishment of interdisciplinary management committees, organized at both Group and Business Unit level and coordinated among them. Finally, work is in progress to structure the Business Continuity Plan for the A2A Group. Finally, it should be noted that, to date, no critical points have been found in the provision of services in connection with the persistence of the health emergency. The Group takes out insurance cover against any direct and indirect damage which may arise from other types of risk. As part of the insurance contract periodically (every three years), inspections are carried out on the plants and measures to improve the safety of assets and loss prevention are recommended/verified. Information technology and operational technology risks The A2A Group's activities are managed through IT (Information Technology) and OT (Operational Technology) systems and networks that support the main business processes, whether operational, administrative or commercial. In particular, the Group uses IT systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory, legal and tax requirements. In addition, the Group collects and stores at Data Centers, sensitive data, including intellectual property, business information and personal information of customers, service providers and employees. The functioning of these information and technology systems and networks, as well as the processing and storage capacity of this data in a secure manner, are fundamental to the Group's activities. Increased threats to the security of information infrastructure, including from the use of personal tools as a result of the remoteness of work in the period of health emergencies, and increasingly sophisticated forms of cybercrime pose a risk to the security of the Group's systems and networks and to the confidentiality, availability and integrity of its data. A security breach could expose the Group, its customers, service providers and employees to risks of misuse of information or systems, compromise of confidential information, loss of financial resources, data manipulation and destruction and operational disruption. All of these factors could adversely affect the Group's reputation, competitive position, business and results of operations; safety violations could also result in litigation, fines and disqualification penalties, as well as operational and other costs. In order to mitigate this risk, numerous actions are in place within the Group: internal policies and procedures, tools for segregating access to information, specific policies on the use of mobile devices, assessments of the vulnerability of systems and applications, specific software for detecting malware, training activities to increase employee awareness, periodic IT Security risk assessment activities to identify the most critical applications. In addition, corporate reorganizations were implemented aimed, 133 A2A Report on Operations 2021 among other things, at guaranteeing an integrated and holistic management of corporate security for all assets, both physical and digital; activities are also being carried out to structure an evolved Security Operations Center capable of increasing the effectiveness of threat monitoring, as well as specific interventions to mitigate emerging risks, also following the consistent use of remote working modes linked to the COVID-19 pandemic. Any inadequacies, fragmentations, unavailability and/or malfunctioning of the applications could compromise the Group's ability to operate within the set times and methods. These factors could result in a loss of reputation with customers as well as economic and financial impacts. In order to mitigate this risk, activities are underway to renew existing platforms or to rationalize the applications in use, particularly for Customer Relationship Management and billing platforms supporting commercial activities. There is also the risk of possible relevant and prolonged interruptions to information systems and company infrastructures as a result of potential events (natural or otherwise) affecting them, with potentially even critical consequences on the Group's ability to maintain the continuity of its systems. To mitigate this risk, the Group has put in place a process to ensure business continuity, based on the presence of a primary Data Center residing in the infrastructure of an external provider and equipped with high levels of security in terms of service continuity as well as the implementation of data backup solutions. Lastly, the project aimed at guaranteeing the company's business continuity is nearing completion: critical processes have been identified and a Business Continuity Management System \- SGCO \- is being created, also with the aim of obtaining ISO 22301 certification. As part of the broader business project continuity activities are being developed for the further strengthening and expansion of the Disaster Recovery plan, which envisages the implementation of a Group cloud strategy to make corporate information systems more usable and resilient. Health and safety risks The occurrence of such risks may occur both in the event of accidents or serious or very serious injuries affecting employees and workers of contractors and/or third parties and in the event of occupational illnesses. These risks are related to the Group's activities such as, for example, those related to operational services in the territory and the performance of operating and maintenance processes at the plants. The occurrence of such risks may lead to loss of reputation, as well as criminal, civil and/or administrative proceedings for violations of regulations, and/or sanctions, costs for compensation and/or increase in insurance premiums and, in the worst cases, interruption of plant operations, with consequent negative economic and financial impacts for the Group. In order to mitigate these risks, the Group has set up organizational structures dedicated to the management of Health and Safety aspects at the parent company as well as at the Business Units, the individual companies and the main plants. The Group also maintains Health and Safety Management Systems certified in accordance with ISO 45001 for the parent company A2A and most of its Subsidiaries. In addition to specific compulsory training plans for each role and company assignment, Leadership in Health and Safety – LiHS training programs have been implemented and progressively extended also to all Business Units, which envisage at all levels emotional involvement on the issue of security and the dissemination of security culture through leaders identified within the operating areas. In relation to the COVID-19 pandemic, given the current regulatory framework, this type of risk also includes the possibility of legal action brought by employees leading to alleged liability profiles of the employer and Group companies in the event of contact with the virus and contraction of the disease. In order to manage this risk, the Group is scrupulously adopting the prescriptions and protocols provided for by current regulations and guidelines issued by the competent bodies, as well as maximizing remote work. From this point of view, it should be noted that, in compliance with the provisions of current legislation, checks are carried out on COVID-19 green certifications (Green Pass as per article 9, paragraph 3 of Decree Law no. 52 of 2021) of employees and third parties accessing infrastructure and premises of Group Companies. Environmental risks The emergence of such risks may occur as a result of accidents in production processes and of the particular characteristics of the business carried out by the Group, which may lead to reactions by the public opinion about presumed repercussions on the environment and/or on the health of resident populations. These risks are related, for example, to the disposal of production residues, emissions from production processes, the management of waste collection, storage, treatment and disposal activities, water purification, the management of the emptying and maintenance of water reservoirs for electricity production, etc. All these factors can potentially lead to loss of reputation, criminal, civil and 7 Risks and uncertainties Risks and uncertainties 134 7 Risks and uncertainties administrative proceedings, penalties, environmental reclamation and restoration costs and, in the worst cases, interruption of plant operations with consequent negative economic and financial impacts for the Group. It is also noted that any amendments to the existing legislation could entail costs and investments to ensure compliance with the new requirements as well as operational impacts on certain industrial activities. In order to mitigate these risks, the Group, in addition to implementing technical and technological systems for the prevention and reduction of pollution at the various industrial sites in compliance with sector regulations and in accordance with the best available techniques, has set up organizational structures dedicated to the management of environmental aspects at the parent company as well as at the Business Units, individual companies and the main plants. The Group also keeps the Environmental Management Systems certified according to the ISO 14001 standard active for the parent company A2A and for the main companies. For some sites, there are also registrations under the European EMAS Regulation. With specific reference to the management of the Group's landfills, including those under post-operational management, it should be noted that monitoring of the values of pollutants in the water table is carried out on a regular basis and summary reports are sent to the relevant bodies. There are frequent checks carried out by as well as the execution of internal audits and by external certifiers for the maintenance, among others, of compliance with the UNI EN ISO 14001 standard. The A2A Group has taken out insurance cover against damage arising from both accidental and gradual pollution in order to cover any residual environmental risk, i.e. against events caused by a sudden and unpredictable fact, and against the environmental damage inherent in continuing operations. The Group is also active in monitoring the regulations in progress and is also present on the technical panels set up by the associations in order to highlight any critical issues related to regulatory developments. A2A Report on Operations 2021 8 Other information 138 138 8 Other information 8.1 Other information Audit of the financial statements and disclosures pursuant to article 149-duodecies of the Consob Issuers’ Regulations The annual financial statements of A2A S.p.A. have been subject to a full audit by EY S.p.A. on the basis of their appointment for financial years 2016 to 2024 by shareholders in general meeting. The following table provides a summary of the fees paid for audit work performed within the Group during 2021, analyzed between the leading auditor EY S.p.A. and other auditors. Description thousands of euro Leading Auditor Other auditors A2A S.p.A. Audit of annual financial statements 185 Audit of consolidated financial statements 43 Periodic tests of accounting 23 Review of half-yearly report 70 Audit of the separate annual accounts for ARERA 16 Total 337 Subsidiaries Audit of annual financial statements 1,124 Periodic tests of accounting 220 Review of half-yearly report 237 Audit of the separate annual accounts for ARERA 81 Other consolidated groups (Agripower, ACSM-AGAM, AEB) 397 88 Total 2,059 88 Associates and joint ventures Audit of the information sent to shareholders for the consolidation 25 Total 25 TOTAL A2A GROUP 2,421 88 In addition to the above audit work, companies belonging to the EY network also performed other engagements in 2021 for fees amounting in total to 306 thousand euro, which mainly related to activities as the Company’s legal auditor as specified by current legislation. Treasury shares “Treasury shares” had no value at December 31, 2021 (54 million euro at December 31, 2020). At December 31, 2020, the treasury shares held by the parent company A2A S.p.A. were 23,721,421, amounting to 54 million euro. During the second quarter of 2021, the parent company A2A S.p.A. purchased treasury shares for a value of 109 million euro, by virtue of the share buyback program initiated on May 13, 2021 and concluded on June 24, 2021, thus coming to hold 86,154,895 treasury shares, equal to 2.75% of the share capital. The Group then proceeded to acquire 49% of the share capital of Linea Group Holding S.p.A. (now merged into A2A S.p.A.) by assigning these treasury shares to minority shareholders. Secondary locations The company does not have secondary offices. 139 A2A Report on Operations 2021 Related parties and tax consolidation Details of related party transactions are provided in note 40 to the consolidated financial statements and note 35 to the separate financial statements. Climate Change The recent 2021-2030 business plan published on January 27, 2022 is based on circular economy and energy transition, focusing on the importance of climate change and the need to move towards progressive decarbonization: in particular, the Group has committed to zero direct and indirect emissions (both Scope 1 and Scope 2) generated by the Group by 2040, ahead of the targets set by COP26. The Group’s Integrated Report 2021 are prepared in accordance with the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), with the aim of giving the information needed by the financial community to properly assess climate-related risks and opportunities. In this sense, it has been estimated that physical weather uncertainties will affect the Group’s overall EBITDA, as provided for in the Business Plan, with a variation of between -1.3% and +0.3%; whilst transition risks and opportunities will have an estimated variation of between -1% and +1.1%. Already in previous years, the recoverability of the value of coal- and fuel oil-fired plants (Monfalcone CGU, San Filippo del Mela CGU) was estimated on the basis of a defined useful life, in line with the expiry of the Integrated Environmental Authorization (IEA). During impairment testing of the financial statements for the year ended December 31, 2021, no impairment losses were identified. The useful lives of tangible and intangible assets and the amount of contingent liabilities, including decommissioning provisions, in line with the respective accounting standards, are constantly monitored, also in relation to the impacts of climate change. Taxonomy In June 2021, the European Commission formally adopted the first Technical Delegated Act of EU Regulation 2020/852 (so-called Taxonomy) that defines the list of economic sectors and activities currently included in the Taxonomy and the related technical screening criteria for whether they contribute substantially to the achievement of the environmental objectives of climate change mitigation and adaptation. In order to ensure compliance with the requirements of EU Regulation 2020/852, the A2A Group has implemented a specific project aimed at identifying “eligible” activities in accordance with the Regulation itself. This process has led to the identification of “eligible” activities for the Group under the Taxonomy with reference to which A2A has achieved revenues, capital expenditure and/or operating expenditure in the year 2021 and which are outlined in the Group’s Consolidated Non-Financial Disclosure (CNFD) 2021. * * * The information on corporate governance and ownership structures required by article 123-bis of Legislative Decree no. 58/1998, as amended, is contained in a separate document “Report on Corporate Governance and Ownership Structures for the year ended December 31, 2021”, which forms an integral part of the financial statements documentation. In compliance with the requirements of the “Regulation on provisions relating to related party transactions” adopted by Consob with Resolution no. 17221 of March 12, 2010 and subsequently amended by Resolution no. 17389 of June 23, 2010, by way of a resolution of November 11, 2010 the Management Board approved, following the favorable opinion of the Internal Control Committee, the prescribed procedure for identifying the rules and controls designed to ensure the transparency and substantial and procedural correctness of the related party transactions carried out by A2A S.p.A. directly or through its subsidiaries. The aforementioned Procedure was applied effective January 1, 2011 and subsequently amended on August 1, 2012, November 7 and December 18, 2013 and June 22, 2015. Following a periodic review, the Procedure was subsequently amended/supplemented and approved by the Board of Directors on June 20, 2016, subject to the favourable opinion of the Audit and Risks Committee and then updated on June 22, 2017, in view of Consob Resolution no. 19925 of March 22, 2017 and on December 16, 2019, in view of the amendments to art. 192-quinquies of Legislative Decree February 24, 1998, no. 58 (“TUF”) (art. 4 of Legislative Decree May 10, 2019, no. 49). 8 Other information Other information 140 140 8 Other information Lastly, by resolution of the Board of Directors on June 25, 2021, subject to the favourable opinion of the Related Parties Committee established by board resolution of May 13, 2021, the Procedure was amended \- effective as of July 1, 2021 \- to comply with the Related Parties Regulation, as amended by Consob Resolution no. 21624 of December 10, 2020, in implementation of the so-called “Shareholders’ Rights II” Directive. The aforementioned Procedure can be found on the website . The company has availed itself of the possibility permitted by article 70, paragraph 8 and article 71, paragraph 1-bis of the Issuers’ Regulations, and hence of derogating from the requirement to make an information document available to public in the event of significant mergers, spin-offs, share capital increases by means of the contribution of assets in kind, acquisitions and disposals. 2021 Consolidated Financial Statements Consolidated financial statements 2021 these Financial Statements are available at the website 2 1 Consolidated financial statements 1.1 Consolidated balance sheet 6 1.2 Consolidated income statement 8 1.3 Consolidated statement of comprehensive income 9 1.4 Consolidated cash-flow statement 10 1.5 Statement of changes in Group equity 11 1.6 Breakdown of the balance sheet with evidence of the effect of the first consolidation of the 2021 acquisitions 12 1.7 Breakdown of the economic effect of the consolidation of new acquisitions 2021 14 2 Consolidated financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010 2.1 Consolidated balance sheet pursuant to Consob Resolution no. 17221 of March 12, 2010 18 2.2 Consolidated income statement pursuant to Consob Resolution no. 17221 of March 12, 2010 20 3 Notes to the Consolidated annual report 3.1 General information 22 3.2 Consolidated annual report 23 3.3 Financial statements 24 3.4 Basis of preparation 25 3.5 Changes in international accounting standards 26 3.6 Scope of consolidation 28 3.7 Consolidation policies and procedures 29 3.8 Accounting standards and policies 33 3.9 Business Units 45 3.10 Results sector by sector 46 3.11 Notes to the balance sheet 50 3.12 Net debt 77 3.13 Notes to the income statement 79 3.14 Earnings per share 88 3.15 Note on related party transactions 89 3.16 Consob Communication no. DEM/6064293 of July 28, 2006 92 3.17 Guarantees and commitments with third parties 93 3.18 Other information 94 Contents 3 A2A Consolidated financial statements 2021 4 Attachments to the notes to the Consolidated annual report 4.1 1\. Statement of changes in tangible assets 128 4.2 2\. Statement of changes in intangible assets 130 4.3 3\. List of companies included in the consolidated annual report 132 4.4 4\. List of shareholdings in companies carried at equity 140 4.5 5\. List of holdings in other companies 143 4.6 Certification of the consolidated financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 144 5 Independent Auditors’ Report 145 This is a translation of the Italian original “Relazione finanziaria annuale consolidata 2021” and has been prepared solely for the convenience of international readers. In the event of any ambiguity the Italian text will prevail. The Italian original is available at the website . 1 Consolidated financial statements 6 1 Consolidated financial statements millions of euro Note 12 31 2021 12 31 2020 NON-CURRENT ASSETS Tangible assets 1 5,588 5,162 Intangible assets 2 3,125 2,737 Shareholdings carried according to equity method 3 33 17 Other non-current financial assets 3 64 36 Deferred tax assets 4 424 265 Other non-current assets 5 25 28 Total non-current assets 9,259 8,245 CURRENT ASSETS Inventories 6 204 139 Trade receivables 7 3,291 2,030 Other current assets 8 4,051 685 Current financial assets 9 9 11 Current tax assets 10 68 76 Cash and cash equivalents 11 964 1,012 Total current assets 8,587 3,953 NON-CURRENT ASSETS HELD FOR SALE 12 162 28 TOTAL ASSETS 18,008 12,226 (1)As required by Consob Resolution no. 17221 of March 12, 2010, the effects of related party transactions on the consolidated financial statements are provided in the statements and discussed in Note 40. (2) Significant non-recurring events and transactions in the consolidated financial statements are provided in Note 41 as required by Consob Communication DEM/6064293 of July 28, 2006. 1.1 Consolidated balance sheet (1-2) Assets 7 A2A Consolidated financial statements 2021 millions of euro Note 12 31 2021 12 31 2020 EQUITY Share capital 13 1,629 1,629 (Treasury shares) 14 - (54) Reserves 15 1,627 1,598 Result of the year 16 504 364 Equity pertaining to the Group 3,760 3,537 Minority interests 17 543 579 Total equity 4,303 4,116 LIABILITIES Non-current liabilities Non-current financial liabilities 18 4,322 3,909 Employee benefits 19 294 278 Provisions for risks, charges and liabilities for landfills 20 797 752 Other non-current liabilities 21 129 146 Total non-current liabilities 5,542 5,085 Current liabilities Trade payables 22 2,894 1,552 Other current liabilities 22 4,487 866 Current financial liabilities 23 746 588 Tax liabilities 24 21 5 Total current liabilities 8,148 3,011 Total liabilities 13,690 8,096 LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE 25 15 14 TOTAL EQUITY AND LIABILITIES 18,008 12,226 Equity and liabilities 1 Consolidated financial statements Consolidated balance sheet Consolidated income statement Consolidated statement of comprehensive income Consolidated cash-flow statement Statement of changes in Group equity Breakdown of the balance sheet with evidence of the effect of the first consolidation of the 2021 acquisitions Breakdown of the economic effect of the consolidation of new acquisitions 2021 8 1 Consolidated financial statements millions of euro Note 01 01 2021 12 31 2021 01 01 2020 12 31 2020 Restated (*) Revenues Revenues from the sale of goods and services 11,352 6,655 Other operating income 197 193 Total revenues 27 11,549 6,848 Operating expenses Expenses for raw materials and services 9,088 4,687 Other operating expenses 312 258 Total operating expenses 28 9,400 4,945 Labour costs 29 721 703 Gross operating income \- EBITDA 30 1,428 1,200 Depreciation, amortization, provisions and write-downs 31 768 646 Net operating income \- EBIT 32 660 554 Result from non-recurring transactions 33 - - Financial balance Financial income 17 12 Financial expenses 89 93 Affiliates 2 - Result from disposal of other shareholdings - - Total financial balance 34 (70) (81) Result before taxes 590 473 Income taxes 35 36 99 Result after taxes from operating activities 554 374 Net result from discontinued operations 36 (4) (6) Net result 550 368 Minorities 37 (46) (4) Group result of the year 38 504 364 Result per share (in euro): \- basic 0.1639 0.1170 \- basic from continuing operations 0.1651 0.1175 \- basic from assets held for sale (0.0012) (0.0005) \- diluted 0.1639 0.1170 \- diluted from continuing operations 0.1651 0.1175 \- diluted from assets held for sale (0.0012) (0.0005) (1)As required by Consob Resolution no. 17221 of March 12, 2010, the effects of related party transactions on the consolidated financial statements are provided in the statements and discussed in Note 40. (2) Significant non-recurring events and transactions in the consolidated financial statements are provided in Note 41 as required by Consob Communication DEM/6064293 of July 28, 2006. (*)The values as at December 31, 2020 have been restated to make them consistent with the values as at December 31, 2021 by reclassifying under the item “Net result from discontinued operations” revenues, operating costs and depreciation related to gas distribution assets and depreciation related to buildings subject to sale. 1.2 Consolidated income statement (1-2) 9 A2A Consolidated financial statements 2021 millions of euro 12 31 2021 12 31 2020 Net result of the year (A) 550 368 Actuarial gains/(losses) on Employee’s Benefits booked in the Net equity (38) 11 Tax effect of other actuarial gains/(losses) 11 (3) Total actuarial gains/(losses) net of the tax effect (B) (27) 8 Effective part of gains/(losses) on cash flow hedge 47 34 Tax effect of other gains/(losses) (13) (10) Total other gains/(losses) net of the tax effect of companies consolidated on a line-by-line basis (C) 34 24 Other gains/(losses) of companies valued at equity net of the tax effect (D) - - Total comprehensive result (A) \+ (B) +(C) +(D) 557 400 Total comprehensive result attributable to: \- Shareholders of the parent company 511 396 \- Minority interests (46) (4) With the exception of the actuarial effects on employee benefits recognized in equity, the other effects stated above will be reclassified to the Income Statement in subsequent years. 1.3 Consolidated statement of comprehensive income 1 Consolidated financial statements Consolidated balance sheet Consolidated income statement Consolidated statement of comprehensive income Consolidated cash-flow statement Statement of changes in Group equity Breakdown of the balance sheet with evidence of the effect of the first consolidation of the 2021 acquisitions Breakdown of the economic effect of the consolidation of new acquisitions 2021 10 1 Consolidated financial statements millions of euro 12 31 2021 12 31 2020 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 1,012 434 Operating activities Net Result 550 368 Net income taxes 36 99 Net financial interests 72 81 Capital gains/expenses - 4 Tangible assets depreciation 465 413 Intangible assets amortization 201 142 Fixed assets write-downs/disposals 19 16 Net provisions 89 94 Result from affiliates (2) - Net financial interests paid (80) (80) Net taxes paid (165) (123) Dividends paid (263) (256) Change in trade receivables (1,285) (123) Change in trade payable 1,329 25 Change in inventories (56) 53 Other changes in net working capital 225 (116) Cash flow from operating activities 1,135 597 Investment activities Investments in tangible assets (714) (451) Investments in intangible assets and goodwill (360) (287) Investments in shareholdings and securities (*) (444) (139) Contribution of first consolidation of acquisitions on cash and cash equivalents 27 36 Disposal of fixed assets and shareholdings 5 38 Dividends paid by equity investments and other investments - 1 Purchase of Treasury shares (109) - Cash flow from investment activities (1,595) (802) FREE CASH FLOW (460) (205) Financing activities Changes in financial assets Issuance of loans (6) - Proceeds from loans 5 1 Other changes 2 (1) Total changes in financial assets (*) 1 - Changes in financial liabilities Borrowings/bonds issued 1,147 1,079 Repayment of borrowings/bond (725) (228) Lease payments (2) (34) Other changes (9) (34) Total changes in financial liabilities (*) 411 783 Cash flow from financing activities 412 783 CHANGE IN CASH AND CASH EQUIVALENTS (48) 578 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 964 1,012 (*) Cleared of balances in return of shareholders’ equity and other balance sheet items. 1.4 Consolidated cash-flow statement 11 A2A Consolidated financial statements 2021 Changes from January 1, 2020 to December 31, 2020 millions of euro Share capital Note 13 Treasury shares Note 14 Cash Flow Hedge Note 15 Other Reserves and retained earnings Note 15 Result of the year Note 16 Total Equity pertaining to the Group Minority interests Note 17 Total Net shareholders equity Net equity at December 31, 2019 1,629 (54) (30) 1,355 389 3,289 362 3,651 Result allocation 389 (389) Distribution of dividends (241) (241) (15) (256) IAS 19 reserves (*) 8 8 8 Cash flow hedge reserves (*) 24 24 24 Other changes 93 93 228 321 Group and minorities result of the year 364 364 4 368 Net equity at December 31, 2020 1,629 (54) (6) 1,604 364 3,537 579 4,116 (*) These form part of the statement of comprehensive income. Changes from January 1, 2021 to December 31, 2021 millions of euro Share capital Note 13 Treasury shares Note 14 Cash Flow Hedge Note 15 Other Reserves and retained earnings Note 15 Result of the year Note 16 Total Equity pertaining to the Group Minority interests Note 17 Total Net shareholders equity Net equity at December 31, 2020 1,629 (54) (6) 1,604 364 3,537 579 4,116 Result allocation 364 (364) Distribution of dividends (248) (248) (15) (263) IAS 19 reserves (*) (27) (27) (27) Cash flow hedge reserves (*) 34 34 34 Other changes 54 (94) (40) (67) (107) Group and minorities result of the year 504 504 46 550 Net equity at December 31, 2021 1,629 - 28 1,599 504 3,760 543 4,303 (*) These form part of the statement of comprehensive income. 1.5 Statement of changes in Group equity 1 Consolidated financial statements Consolidated balance sheet Consolidated income statement Consolidated statement of comprehensive income Consolidated cash-flow statement Statement of changes in Group equity Breakdown of the balance sheet with evidence of the effect of the first consolidation of the 2021 acquisitions Breakdown of the economic effect of the consolidation of new acquisitions 2021 12 1 Consolidated financial statements millions of euro Note Consolidated at 12 31 2020 A2A Rinnovabili Group Ambiente Group Agripower Group Total effect first consolidation acquisitions 2021 Changes Consolidated at 12 31 2021 ASSETS NON-CURRENT ASSETS Tangible assets 1 5,162 150 10 57 217 209 5,588 Intangible assets 2 2,737 71 267 13 351 37 3,125 Shareholdings carried according to equity method 3 17 0 0 0 0 16 33 Other non-current financial assets 3 36 0 0 2 2 26 64 Deferred tax assets 4 265 2 0 3 5 154 424 Other non-current assets 5 28 0 0 0 0 (3) 25 TOTAL NON-CURRENT ASSETS 8,245 223 277 75 575 439 9,259 CURRENT ASSETS Inventories 6 139 0 1 8 9 56 204 Trade receivables 7 2,030 1 1 7 9 1,252 3,291 Other current assets 8 685 3 0 7 10 3,356 4,051 Current financial assets 9 11 0 0 0 0 (2) 9 Current tax assets 10 76 0 0 0 0 (8) 68 Cash and cash equivalents 11 1,012 16 0 11 27 (75) 964 TOTAL CURRENT ASSETS 3,953 20 2 33 55 4,579 8,587 NON-CURRENT ASSETS HELD FOR SALE 12 28 0 0 0 0 134 162 TOTAL ASSETS 12,226 243 279 108 630 5,152 18,008 LIABILITIES NON-CURRENT LIABILITIES Non-current financial liabilities 18 3,909 109 1 28 138 275 4,322 Deferred tax liabilities 0 0 0 5 5 (5) 0 Employee benefits 19 278 0 1 0 1 15 294 Provisions for risks, charges and liabilities for landfills 20 752 0 0 3 3 42 797 Other non-current liabilities 21 146 1 0 1 2 (19) 129 TOTAL NON-CURRENT LIABILITIES 5,085 110 2 37 149 308 5,542 CURRENT LIABILITIES Trade payables 22 1,552 8 0 5 13 1,329 2,894 Other current liabilities 22 866 0 1 8 9 3,612 4,487 Current financial liabilities 23 588 0 0 45 45 113 746 Tax liabilities 24 5 0 0 0 0 16 21 TOTAL CURRENT LIABILITIES 3,011 8 1 58 67 5,070 8,148 TOTAL LIABILITIES 8,096 118 3 95 216 5,378 13,690 LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE 25 14 0 0 0 0 1 15 LIABILITIES 8,110 118 3 95 216 5,379 13,705 1.6 Breakdown of the balance sheet with evidence of the effect of the first consolidation of the 2021 acquisitions (NO GAAP MEASURES) 13 A2A Consolidated financial statements 2021 millions of euro Note Consolidated at 12 31 2020 A2A Rinnovabili Group Ambiente Group Agripower Group Total effect first consolidation acquisitions 2021 Changes Consolidated at 12 31 2021 ASSETS NON-CURRENT ASSETS Tangible assets 1 5,162 150 10 57 217 209 5,588 Intangible assets 2 2,737 71 267 13 351 37 3,125 Shareholdings carried according to equity method 3 17 0 0 0 0 16 33 Other non-current financial assets 3 36 0 0 2 2 26 64 Deferred tax assets 4 265 2 0 3 5 154 424 Other non-current assets 5 28 0 0 0 0 (3) 25 TOTAL NON-CURRENT ASSETS 8,245 223 277 75 575 439 9,259 CURRENT ASSETS Inventories 6 139 0 1 8 9 56 204 Trade receivables 7 2,030 1 1 7 9 1,252 3,291 Other current assets 8 685 3 0 7 10 3,356 4,051 Current financial assets 9 11 0 0 0 0 (2) 9 Current tax assets 10 76 0 0 0 0 (8) 68 Cash and cash equivalents 11 1,012 16 0 11 27 (75) 964 TOTAL CURRENT ASSETS 3,953 20 2 33 55 4,579 8,587 NON-CURRENT ASSETS HELD FOR SALE 12 28 0 0 0 0 134 162 TOTAL ASSETS 12,226 243 279 108 630 5,152 18,008 LIABILITIES NON-CURRENT LIABILITIES Non-current financial liabilities 18 3,909 109 1 28 138 275 4,322 Deferred tax liabilities 0 0 0 5 5 (5) 0 Employee benefits 19 278 0 1 0 1 15 294 Provisions for risks, charges and liabilities for landfills 20 752 0 0 3 3 42 797 Other non-current liabilities 21 146 1 0 1 2 (19) 129 TOTAL NON-CURRENT LIABILITIES 5,085 110 2 37 149 308 5,542 CURRENT LIABILITIES Trade payables 22 1,552 8 0 5 13 1,329 2,894 Other current liabilities 22 866 0 1 8 9 3,612 4,487 Current financial liabilities 23 588 0 0 45 45 113 746 Tax liabilities 24 5 0 0 0 0 16 21 TOTAL CURRENT LIABILITIES 3,011 8 1 58 67 5,070 8,148 TOTAL LIABILITIES 8,096 118 3 95 216 5,378 13,690 LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE 25 14 0 0 0 0 1 15 LIABILITIES 8,110 118 3 95 216 5,379 13,705 1 Consolidated financial statements Consolidated balance sheet Consolidated income statement Consolidated statement of comprehensive income Consolidated cash-flow statement Statement of changes in Group equity Breakdown of the balance sheet with evidence of the effect of the first consolidation of the 2021 acquisitions Breakdown of the economic effect of the consolidation of new acquisitions 2021 14 1 Consolidated financial statements millions of euro Note A2A Rinnovabili Group Ambiente Group Agripower Group Total effect consolidation new acquisitions 2021 Old perimeter 12 31 2021 Consolidated at 12 31 2021 Consolidated al 12 31 2020 Restated REVENUES Revenues from the sale of goods and services 11 1 30 42 11,310 11,352 6,655 Other operating income \- \- \- 197 197 193 TOTAL REVENUES 27 11 1 30 42 11,507 11,549 6,848 OPERATING EXPENSES Expenses for raw materials and services 6 \- 15 21 9,067 9,088 4,687 Other operating expenses 1 \- 1 2 310 312 258 TOTAL OPERATING EXPENSES 28 7 \- 16 23 9,377 9,400 4,945 LABOUR COSTS 29 \- 1 2 3 718 721 703 GROSS OPERATING INCOME \- EBITDA 30 4 \- 12 16 1,412 1,428 1,200 DEPRECIATION, AMORTIZATION AND WRITE-DOWNS 31 6 \- 9 15 753 768 646 NET OPERATING INCOME \- EBIT 32 (2) \- 3 1 659 660 554 RESULT FROM NON-RECURRING TRANSACTIONS 33 - - - - - - - FINANCIAL BALANCE Financial income \- \- 1 1 16 17 12 Financial expenses 2 \- 4 6 83 89 93 Affiliates \- \- \- \- 2 2 \- Result from disposal of other shareholdings \- \- \- \- \- \- \- TOTAL FINANCIAL BALANCE 34 (2) \- (3) (5) (65) (70) (81) RESULT BEFORE TAXES (4) \- \- (4) 594 590 473 INCOME TAXES 35 (1) \- 1 \- 36 36 99 RESULT AFTER TAXES FROM OPERATING ACTIVITIES (3) \- (1) (4) 558 554 374 NET RESULT FROM DISCONTINUED OPERATIONS 36 - - - - (4) (4) (6) NET RESULT (3) \- (1) (4) 554 550 368 MINORITIES 37 - - - - (46) (46) (4) GROUP RESULT OF THE YEAR 38 (3) \- (1) (4) 508 504 364 1.7 Breakdown of the economic effect of the consolidation of new acquisitions 2021 (NO GAAP MEASURES) 15 A2A Consolidated financial statements 2021 millions of euro Note A2A Rinnovabili Group Ambiente Group Agripower Group Total effect consolidation new acquisitions 2021 Old perimeter 12 31 2021 Consolidated at 12 31 2021 Consolidated al 12 31 2020 Restated REVENUES Revenues from the sale of goods and services 11 1 30 42 11,310 11,352 6,655 Other operating income \- \- \- 197 197 193 TOTAL REVENUES 27 11 1 30 42 11,507 11,549 6,848 OPERATING EXPENSES Expenses for raw materials and services 6 \- 15 21 9,067 9,088 4,687 Other operating expenses 1 \- 1 2 310 312 258 TOTAL OPERATING EXPENSES 28 7 \- 16 23 9,377 9,400 4,945 LABOUR COSTS 29 \- 1 2 3 718 721 703 GROSS OPERATING INCOME \- EBITDA 30 4 \- 12 16 1,412 1,428 1,200 DEPRECIATION, AMORTIZATION AND WRITE-DOWNS 31 6 \- 9 15 753 768 646 NET OPERATING INCOME \- EBIT 32 (2) \- 3 1 659 660 554 RESULT FROM NON-RECURRING TRANSACTIONS 33 - - - - - - - FINANCIAL BALANCE Financial income \- \- 1 1 16 17 12 Financial expenses 2 \- 4 6 83 89 93 Affiliates \- \- \- \- 2 2 \- Result from disposal of other shareholdings \- \- \- \- \- \- \- TOTAL FINANCIAL BALANCE 34 (2) \- (3) (5) (65) (70) (81) RESULT BEFORE TAXES (4) \- \- (4) 594 590 473 INCOME TAXES 35 (1) \- 1 \- 36 36 99 RESULT AFTER TAXES FROM OPERATING ACTIVITIES (3) \- (1) (4) 558 554 374 NET RESULT FROM DISCONTINUED OPERATIONS 36 - - - - (4) (4) (6) NET RESULT (3) \- (1) (4) 554 550 368 MINORITIES 37 - - - - (46) (46) (4) GROUP RESULT OF THE YEAR 38 (3) \- (1) (4) 508 504 364 1 Consolidated financial statements Consolidated balance sheet Consolidated income statement Consolidated statement of comprehensive income Consolidated cash-flow statement Statement of changes in Group equity Breakdown of the balance sheet with evidence of the effect of the first consolidation of the 2021 acquisitions Breakdown of the economic effect of the consolidation of new acquisitions 2021 2 Consolidated financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010 18 millions of euro 12 31 2021 of which Related Parties (note 40) 12 31 2020 of which Related Parties (note 40) NON-CURRENT ASSETS Tangible assets 5,588 5,162 Intangible assets 3,125 2,737 Shareholdings carried according to equity method 33 33 17 17 Other non-current financial assets 64 14 36 4 Deferred tax assets 424 265 Other non-current assets 25 28 Total non-current assets 9,259 8,245 CURRENT ASSETS Inventories 204 139 Trade receivables 3,291 142 2,030 126 Other current assets 4,051 1 685 2 Current financial assets 9 1 11 1 Current tax assets 68 76 Cash and cash equivalents 964 1,012 Total current assets 8,587 3,953 NON-CURRENT ASSETS HELD FOR SALE 162 28 TOTAL ASSETS 18,008 12,226 2 Consolidated financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010 2.1 Consolidated balance sheet pursuant to Consob Resolution no. 17221 of March 12, 2010 Assets 19 A2A Consolidated financial statements 2021 millions of euro 12 31 2021 of which Related Parties (note 40) 12 31 2020 of which Related Parties (note 40) EQUITY Share capital 1,629 1,629 (Treasury shares) - (54) Reserves 1,627 1,598 Result of the year 504 364 Equity pertaining to the Group 3,760 3,537 Minority interests 543 579 Total equity 4,303 4,116 LIABILITIES Non-current liabilities Non-current financial liabilities 4,322 3,909 Employee benefits 294 278 Provisions for risks, charges and liabilities for landfills 797 752 1 Other non-current liabilities 129 146 Total non-current liabilities 5,542 5,085 Current liabilities Trade payables 2,894 76 1,552 56 Other current liabilities 4,487 7 866 7 Current financial liabilities 746 588 Tax liabilities 21 5 Total current liabilities 8,148 3,011 Total liabilities 13,690 8,096 LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE 15 14 TOTAL EQUITY AND LIABILITIES 18,008 12,226 Equity and liabilities 2 Consolidated financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010 Consolidated balance sheet pursuant to Consob Resolution no. 17221 of March 12, 2010 Consolidated income statement pursuant to Consob Resolution no. 17221 of March 12, 2010 20 millions of euro 01 01 2021 12 31 2021 of which Related Parties (note 40) 01 01 2020 12 31 2020 Restated of which Related Parties (note 40) Revenues Revenues from the sale of goods and services 11,352 478 6,655 452 Other operating income 197 193 Total revenues 11,549 6,848 Operating expenses Expenses for raw materials and services 9,088 13 4,687 8 Other operating expenses 312 74 258 55 Total operating expenses 9,400 4,945 Labour costs 721 2 703 1 Gross operating income \- EBITDA 1,428 1,200 Depreciation, amortization, provisions and write-downs 768 646 Net operating income \- EBIT 660 554 Result from non-recurring transactions - - Financial balance Financial income 17 6 12 6 Financial expenses 89 7 93 Affiliates 2 2 - Result from disposal of other shareholdings - - Total financial balance (70) (81) Result before taxes 590 473 Income taxes 36 99 Result after taxes from operating activities 554 374 Net result from discontinued operations (4) (6) Net result 550 368 Minorities (46) (4) Group result of the year 504 364 2.2 Consolidated income statement pursuant to Consob Resolution no. 17221 of March 12, 2010 2 Consolidated financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010 3 Notes to the Consolidated annual report 22 3 Notes to the Consolidated annual report 3.1 General information A2A S.p.A. is a company with legal personality organized under the laws of the Italian Republic which operates, also through its subsidiaries (“Group”), both in Italy and abroad. The A2A Group mainly operates in the following sectors: the production, sale and distribution of electricity even from renewable resources; the sale and distribution of gas; the production, distribution and sale of heat through district heating networks; waste management (from collection and sweeping to disposal) and the construction and management of integrated waste disposal plants and systems, also making these available for other operators; integrated water cycle management; technical consultancy relating to energy efficiency certificates. 23 A2A Consolidated financial statements 2021 3.2 Consolidated annual report The consolidated annual report (hereafter referred to as the “Annual report”) of the A2A Group at December 31, 2021, is presented in millions of euro; the euro is also the functional currency of the economies in which the Group operates. The Annual report of the A2A Group at December 31, 2021 has been prepared: in compliance with Legislative Decree 58/1998 (art. 154-ter) as amended and with the Issuers’ Regulations published by Consob; in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB) and approved by the European Union. IFRS means all the revised international accounting standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), formerly known as the Standing Interpretations Committee (SIC). In preparing the Annual report, the same principles used in the preparation of the consolidated annual financial report at December 31, 2020 were applied, other than the principles and interpretations described in detail in the paragraph below “Changes in accounting principles” adopted for the first time on January 1, 2021. In this file, use has been made of some Alternative Performance Measures (APM) that are different from the financial indicators expressly provided for by the IAS/IFRS international accounting standards adopted by the Group; for details of these indicators, please see the specific paragraph Alternative Performance Measures (APM) in the file of the Report on Operations. This Annual report at December 31, 2021 was approved on March 17, 2022 by the Board of Directors, which authorized publication, and has been audited by EY S.p.A. in accordance with their appointment by the Shareholders’ Resolution of June 11, 2015 for the nine years from 2016 to 2024. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 24 3 Notes to the Consolidated annual report 3.3 Financial statements The Group has adopted a format for the balance sheet which presents current and non-current assets and current and non-current liabilities as separate classifications, as required by paragraphs 60 and following of IAS 1. The income statement is presented by nature, a format which is considered more representative than a presentation by function. The selected format is in agreement with the presentation used by the Group’s major competitors and in line with international practice. The specific line items “Result from non-recurring transactions” and “Result from disposal of other shareholdings” are in the format of the income statement in order to provide clear and immediate identification of the results arising from non-recurring transactions forming part of continuing operations, separating these from the results from discontinued operations. In particular, it should be noted that the item “Result from non-recurring transactions” is intended to include the results from the sale of investments in subsidiaries and associates and other non-operating expenses/income. This item is presented between net operating income and the financial balance. In this way net operating income is not affected by non-recurring operations, making it easier to measure the effective performance of the Group’s ordinary operating activities. The Cash Flow Statement is prepared using the indirect method, as permitted by “IAS 7” and includes the disclosure amendments introduced by the integration to “IAS 7” approved on November 9, 2017. The statement of changes in equity has been prepared in accordance with IAS 1. The formats adopted for the financial statements are the same as those used to prepare the annual consolidated financial statements at December 31, 2020. 25 A2A Consolidated financial statements 2021 3.4 Basis of preparation The consolidated annual financial report at December 31, 2021 has been prepared on a historical cost basis, with the exception of those items which under IFRS must or can be measured at fair value. The consolidation principles, the accounting standards, the accounting policies and the methods of measurement used in the preparation of the Annual financial report are consistent with those used to prepare the consolidated annual financial report at December 31, 2020, except as specified below regarding newly enacted standards. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 26 3 Notes to the Consolidated annual report 3.5 Changes in international accounting standards Pursuant to IAS 8, the subsequent paragraph “Accounting standards, amendments and interpretations applicable by the company as of the current year” indicates and briefly illustrates the amendments in force as of January 1, 2021\. The following paragraph, “Accounting standards, amendments and interpretations approved by the European Union” instead detail the accounting standards and interpretations already issued, not yet approved by the European Union and therefore not applicable for the preparation of the financial statements at December 31, 2021, any impacts of which will then be transposed as of the financial statements of the following years. Accounting standards, amendments and interpretations applicable as of the current year As from January 1, 2021, applicable to the Group are the following two additions to specific paragraphs of the international accounting standards already adopted by the Group companies in previous years: IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: approved on January 13, 2021 and effective as of the financial statements ending January 1, 2021, the supplement to the standards in question follows the same one issued on January 16, 2020 “reforming major interest rate benchmarks” with which the European Council for financial stability issued recommendations aimed at strengthening existing reference indices and other potential reference rates based on interbank markets and developing alternative reference rates that are almost risk-free. This integration represents the second phase and aims to stabilize cash flow valuations avoiding impacts on the income statement deriving from the change in the rate used for valuations. This amendment did not have any impact on the Group’s economic and financial results; IFRS 16 “Leases”: approved on October 12, 2020 and temporarily extended to June 30, 2022, the integration aims to neutralize the accounting effects resulting from changes in lease payments (cancellation or reduction of lease payments) arising from agreements between parties in consideration of the negative effects of COVID-19. In the absence of such action by the regulator, these amendments would have resulted in a restatement of the financial liability and the carrying amount of the asset consisting of the right of use, resulting in a significant administrative burden. This integration did not have any impact on the Group’s economic and financial results since the payments related to contracts covered by IFRS 16 were not changed. Accounting standards, amendments and interpretations approved this year and applicable as of subsequent years IFRS 17 “Insurance contracts”: issued by the IASB on May 18, 2017 and approved November 19, 2021, will be applicable to companies that issue insurance contracts from the financial statements closed as of January 1, 2023\. No impacts are expected on the Group’s economic and financial situation; IFRS 3 “Business Combination”: issued by the IASB on May 14, 2020 and approved on July 2, 2021, the integration introduces an exception to the standard to avoid the risk of potential “day-after” losses or gains arising from liabilities and contingent liabilities that would fall within the scope of IAS 37 or IFRIC 21, if contracted separately. The integration will be applicable from financial statements ending January 1, 2022 and is not expected to have impacts on the Group’s economic and financial situation; IAS 16 “Property, plant and equipment”: issued by the IASB on May 14, 2020 and approved on July 2, 2021, the integration prohibits the deduction from the carrying amount of a fixed asset of any revenue from the sale achieved during the preparation of the fixed asset. These revenues must be recognized in the income statement. The integration will be applicable from financial statements ending January 1, 2022 and is not expected to have impacts on the Group’s economic and financial situation; IAS 37 “Provisions, liabilities and contingent liabilities”: issued by the IASB on May 14, 2020 and endorsed on July 2, 2021, the integration further specifies which costs should be considered in the definition of an onerous contract. General and administrative expenses are excluded unless explicitly included in the contract. The integration will be applicable from financial statements ending January 1, 2022 and is not expected to have impacts on the Group’s economic and financial situation. 27 A2A Consolidated financial statements 2021 Accounting standards, amendments and interpretations not yet approved by the European Union on May 7, 2021, the IASB issued an integration to IAS 12 “Income Taxes” clarifying the procedure to account for deferred taxes on transactions such as leases and decommissioning provisions. In particular, the option, previously provided for, not to calculate deferred taxation upon initial recognition of assets and liabilities deriving from lease contracts and/or decommissioning provisions is eliminated. This integration clarifies, therefore, that all companies are required to recognize deferred taxation on the transactions in question; on February 12, 2021, the IASB issued a supplement to IAS 1 “Presentation of the financial statements” in which it specifies that the Group must disclose information about its material accounting policies and no longer only significant ones. This implies, for example, assessing its accounting policies by the nature of the item and no longer primarily by its significance. The integration will be applicable from the financial statements ending January 1, 2023 and is not expected to have a significant impact on the disclosure of the accounting policies since an analysis by nature and not only by significance is already carried out; on February 12, 2021, the IASB issued a supplement to IAS 8 “Accounting policies, Changes in Accounting Estimates and Errors” in which it clarifies and specifies the definition of an estimate in relation to error correction. According to this integration, a change in estimation methods resulting from new information available does not translate into a correction of a past error and the related effects must be accounted for in the Income Statement as current changes and never as changes from previous years. The integration will be applicable to financial statements for the period beginning January 1, 2023 and is not expected to have significant impacts on the Group’s economic and financial situation; on January 23, 2020 and July 15, 2020, the IASB issued two additions to IAS 1 “Presentation of Financial Statements” that aim to better define the concept of liabilities and the related classification between short and medium/long-term. Specifically, emphasis is placed on the temporal concept of transferring money or other resources to the counterparty to settle the liability. The integration will be applicable to financial statements for the period beginning January 1, 2023 and is not expected to have an impact on the Group’s economic and financial situation. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 28 3 Notes to the Consolidated annual report 3.6 Scope of consolidation The Consolidated annual report of the A2A Group at December 31, 2021 includes the figures of the parent A2A S.p.A. and those of the subsidiaries over which A2A S.p.A. exercises either direct or indirect control. In addition, companies in which the parent exercises joint control with other entities (joint ventures) and those over which it has a significant influence are consolidated using the equity method. The following changes to the scope of consolidation of the A2A Group are reported: acquisition by LGH S.p.A. (now merged into A2A S.p.A.) of 100% of the shares in the company Agripower and line-by-line consolidation of the Agripower Group specializing in the development and management of power generation plants from biogas; acquisition by A2A Rinnovabili S.p.A. and line-by-line consolidation of 15 companies with 17 plants and 173 MW of installed photovoltaic capacity, previously managed by Octopus Renewables; as part of the transaction that led to the acquisition of 27.7% of Saxa Gres S.p.A. by A2A Ambiente S.p.A., Energia Anagni S.r.l. and Bioenergia Roccasecca S.r.l. were acquired and consolidated on a line-by-line basis. As part of the same transaction, A2A Ambiente S.p.A. set up two newco’s with majority stakes: Waldum Tadinum Energia S.r.l. and Bioenergia Gualdo S.r.l., both consolidated on a line-by-line basis; acquisition and consolidation at equity of the investment in Netcity S.r.l., a company operating in the energy efficiency sector; acquisition by A2A Ambiente S.p.A. and line-by-line consolidation of 100% of TecnoA S.p.A., a company operating in the treatment of special waste; acquisition by A2A Ambiente S.p.A. and consolidation at equity of 30% of the investment in F.lli Omini S.p.A., a company specializing in the demolition of industrial plants; incorporation and line-by-line consolidation of Romeo Gas S.p.A.. Finally, it should be noted that: the investment held by A2A Energy Solutions S.r.l. in Consul System S.p.A., previously consolidated on a line-by-line basis, has been reclassified as a result of the sale of 26% of its shares in December 2020, which was completed at the end of January 2021; the sale of the equity investment in Ge.Si. S.r.l., previously consolidated at equity. For further details on the activities of the Purchase Price Allocation required by IFRS 3, reference is made to the paragraph “Other information” of this report. 29 A2A Consolidated financial statements 2021 3.7 Consolidation policies and procedures Consolidation policies Subsidiaries Subsidiaries are those companies over which the parent company, A2A S.p.A., exercises control, also by virtue of shareholders’ agreements, and has the power, as defined by IFRS 10, to determine financial and operating policy, either directly or indirectly, in order to obtain returns from their activities. Subsidiaries are consolidated from the date on which the Group effectively acquires control and cease to be consolidated on a line-by-line basis from the date on which control is transferred to a company outside the Group. Associates, joint ventures and joint operations Shareholdings in associates, namely those in which the A2A Group has a considerable interest and is able to exercise significant influence are accounted for using the equity method. Gains and losses attributable to the Group are recognized in the financial statements from the date on which significant influence or joint control commences. In the event that the loss attributable to the Group exceeds the carrying amount of an investment, the carrying amount is reduced to zero and any excess loss is provided for to the extent that the Group has legal or constructive obligations to make good the associate’s losses or in any case to make payments on its behalf. With the adoption of IFRS 11, the Group must now classify investments in joint arrangements as either joint ventures (if the Group has rights to the net assets of the arrangement) or joint operations (if the Group has rights to the assets, and obligations for the liabilities, relating to the arrangement). Potential voting rights If the A2A Group holds call options on shares or other equity instruments that represent capital (warrants) that are convertible into ordinary shares or similar instruments having the potential, if exercised or converted, to give the Group voting rights or reduce the voting rights of third parties (“potential voting rights”), such potential voting rights are taken into consideration when assessing whether or not the Group has the power to govern or influence another company’s financial and operating policies. Treatment of put options on the shares of subsidiaries In general, paragraph 23 of IAS 32 states that a contract that contains an obligation for an entity to purchase shares for cash or another financial asset gives rise to a financial liability for the present value of the exercise price of the option. As a result, therefore, if the Group does not have the unconditional right to avoid the delivery of cash or other financial instruments when a put option on the shares of subsidiaries is exercised, it must recognize a liability. In the absence of specific instructions in the related accounting standards, the A2A Group: (i) considers the shares involving put options to have already been purchased, including in cases in which the risks and rewards connected with ownership of the shares remain with the minority shareholders and they remain exposed to equity risk; (ii) records a corresponding entry among equity reserves for the liability resulting from the obligation and any subsequent changes that are not related to the mere unwinding of the present value of the strike price; (iii) and recognises such changes through the Income Statement. Effect on the consolidation procedures of certain agreements involving the shares or quotas of Group companies a) Earn-out and earn-in clauses on the purchase price of the shares of LGH S.p.A. As a result of the merger by incorporation of LGH S.p.A. into A2A S.p.A., with effect from December 31, 2021, there are no longer any contractual obligations for earn-outs and therefore the value of the debt previously recorded has been written off. b) Earn-in/out on the purchase price of A2A Recycling S.r.l. (former RI.ECO-RESMAL Group) The contractual agreements governing the acquisition of A2A Recycling S.r.l. (former RI.ECO-RESMAL Group) envisage, among other things, an earn-in clause in favour of A2A Ambiente S.p.A., linked both to an eventual non-renewal of the concession of the Cernusco plant for reasons not attributable to A2A Ambiente S.p.A., and to any disbursements and expenses incurred to obtain renewal of the concession. This clause will have an eventual effect from the third year and no later than the fifth year after the closing of the transaction. In accordance with paragraphs 65B, 65C and 65D of IFRS 3, the Group considered the amount paid by way of earn-in as the investment value since said adjustments are not considered probable and reliably determined at the acquisition date. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 30 3 Notes to the Consolidated annual report c) Earn-out on the purchase of the equity investments made by A2A Rinnovabili S.p.A. With reference to the acquisitions of equity investments made by A2A Rinnovabili S.p.A. between 2017 and 2021, by contract, there are price and earn-out adjustments of non-significant amounts both in favour of the seller and in favour of the buyer upon the occurrence of certain conditions. Given the uncertainty and insignificance of the amounts, the Group has not recorded the corresponding payables. In compliance with IFRS 3, the Group completed the Purchase Price Allocation processes relating to all the acquisitions made. For additional information on completed “PPA” processes, please refer to the “other information” section of this disclosure. d) Options on the shares of Suncity Group S.r.l. On April 16, 2019, the incorporation of Suncity Group S.r.l., a holding company of energy efficiency companies, was completed, with a simultaneous capital increase of 26%. The transaction was completed by the subsidiary A2A Energy Solutions S.r.l., ESCo (Energy Service Company) of the A2A Group, for a value of 1.3 million euro, entirely settled in cash at closing. It was also established that, within 30 days of the deadline for approval of the financial statements at December 31, 2022, A2A Energy Solutions S.r.l. will have the right to exercise the option to purchase the remaining 74% of the share capital of the incorporated NewCo. The right to exercise the 74% put option by Suncity Partner to A2A Energy Solutions S.r.l. under the same conditions is also provided for. Therefore, in accordance with paragraph 23 of IAS 32, the Group has recognized as a liability the present value of the estimated outlay of 4.9 million euro which it will not be able to avoid if the option is exercised. e) Options on the shares of Electrometal S.p.A. On December 20, 2019, A2A Ambiente S.p.A. acquired 90% of Electrometal S.r.l.. As a result of point 9) of the shareholding purchase agreement, a call option is provided on the part of A2A Ambiente S.p.A. and a put option on the part of GAE S.r.l. (the seller) of the remaining 10%, exercisable from January 1, 2025 until December 31, 2025. In 2020, a payment of 0.5 million euro was made as price adjustment on the net financial position. The valuation of this option is proportional to the final value of 90% of the shares of Electrometal S.r.l.. Therefore, in accordance with paragraph 23 of IAS 32, the Group has recognized as a liability the present value of the estimated outlay of 2.1 million euro which it will not be able to avoid if the option is exercised. f) Options on the shares of Saxa Gres S.p.A. On April 15, 2021, A2A Ambiente S.p.A. acquired 27.7% of Saxa Gres S.p.A.. The agreement was reached for 7.1 million euro. There are contractual earn-out clauses and options on the value of the investment for which there are no amounts recorded in the financial statements. g) Options on the shares of F.lli Omini On October 28, 2021, A2A Ambiente S.p.A. acquired 30% of F.lli Omini S.p.A.. The agreement was reached on the basis of 4.5 million euro plus a price adjustment linked to the value of the Net Financial Position and Net Working Capital at the date of acquisition; paid in the first months of 2022 for 0.6 million euro. There are no earn-in/out clauses on the value of the shares. h) Options on TecnoA shares On December 12, 2021, A2A Ambiente S.p.A. acquired 100% of TecnoA S.p.A.. The agreement was reached for a transaction value of 276 million euro. A price adjustment linked to the value of the Net Financial Position and Net Working Capital at the date of acquisition is expected to be defined during the first half of 2022. For further information on the Purchase Price Allocation process, please refer to the “other information” section of this disclosure. There are no earn-in/out clauses on the value of the shares. 31 A2A Consolidated financial statements 2021 Consolidation procedures General procedure The financial statements of the subsidiaries, associates and joint ventures consolidated by the A2A Group are prepared at the end of each reporting period using the same accounting policies as the parent. Any items recognized by using different accounting standards are adjusted during the consolidation process to bring them into line with Group accounting policies. All intra-group balances and transactions, including any unrealized profits arising from transactions between Group companies, are fully eliminated. In preparing the Report the assets, liabilities, income and expenses of the companies being consolidated are included in their entirety on a line-by-line basis, with the portion of equity and net income for the period attributable to minority interests being stated separately in the balance sheet and income statement. The carrying amount of the investment in each subsidiary is eliminated against the corresponding share of its net equity, including any adjustments to fair value at the acquisition date; any differences arising are accounted for in accordance with IFRS 3. Transactions with minority interests which do not lead to the loss of control in consolidated companies are accounted for using the economic entity view approach. Adoption of international accounting standard IFRS 12 “Disclosure of Interests in Other Entities” With effect from January 1, 2014, the A2A Group has among other things adopted international accounting standard IFRS 12 “Disclosure of Interests in Other Entities”, issued by the IASB in 2011 and adopted by the European Commission on December 11, 2012. On the basis of the requirements of paragraphs 7 and following of the standard the Group discloses information below about the significant judgements and assumptions it has made in determining: i. that the parent company has control of another entity within the meaning of IFRS 10; ii. the type of joint arrangement (joint operation or joint venture) when the arrangement has been structured through a separate vehicle, in compliance with IFRS 11; iii. that the parent company has significant influence over another entity (shareholdings in associates). Shareholdings in joint ventures (IFRS 11): Ergosud S.p.A. and PremiumGas S.p.A. IFRS 11 identifies two types of arrangement, joint operations and joint ventures, on the basis of the rights and obligations of the parties, and governs the resulting accounting treatment to be adopted for the recognition of these arrangements in the financial statements. The most significant effect of the standard is the fact that a number of entities jointly controlled by A2A, which up until now have been recognized using the equity method, could fall under the definition of joint operations on the basis of the requirements of IFRS 11\. The accounting treatment for this type of joint arrangement requires the assets/liabilities and revenue/expenses connected with the arrangement to be recognized on the basis of the rights/obligations due to/assumed by A2A, regardless of the interest held. In the particular case of its shareholdings in two joint arrangements operating in the Generation and Trading Business Unit, Ergosud S.p.A. and PremiumGas S.p.A., the A2A Group considers that these fall under the category joint ventures as far as their legal form and the nature of the contractual agreements are concerned. In particular, as regards the shareholding in PremiumGas S.p.A., the Group has rights exclusively linked to the results achieved by the company. On September 26, 2018, PremiumGas S.p.A. was placed in voluntary liquidation. For the shareholding in Ergosud S.p.A., despite the existence of a tolling agreement the investee could dispatch energy autonomously, thereby ensuring business continuity also at the end of the agreement. In addition, the A2A Group does not appoint any of the company’s key management. On the basis of the above considerations, the A2A Group has accounted for the shareholdings using the equity method, continuing the treatment used in previous years. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 32 3 Notes to the Consolidated annual report Latest available summarized figures for joint ventures (consolidated at equity) Key figures at December 31, 2020 millions of euro Bergamo Pulita 50% PremiumGas 50% Metamer 50% (figures at 12 31 2019) (*) Ergosud 50% (figures at 12 31 2019) (*) INCOME STATEMENT Revenues 0.08 0.1 31.0 18.1 Gross Operating Income (0.01) 0.04 0.9 12.5 % of net revenues n.s. n.s. 2.9% 69.1% Depreciation, amortization and write-downs \- 0.01 0.2 7.8 Net Operating Income (0.01) 0.03 0.7 4.7 Result of the year (0.01) 0.03 0.5 1.4 BALANCE SHEET Total assets 2.75 4.4 8.4 147.8 Net equity 0.09 1.5 3.0 71.4 Net (debt) 1.15 0.95 1.5 (57.4) (*) Figures of the last financial statements available. Procedure for the consolidation of assets and liabilities held for sale (IFRS 5) In the case of particularly large amounts and in connection with non-current assets and liabilities held for sale, and only in this case, in accordance with IFRS 5 the relative intra-group financial receivables and payables are eliminated in order to provide a clear presentation of the financial impact of a possible disposal. Key figures at December 31, 2021 millions of euro Bergamo Pulita 50% PremiumGas 50% Metamer 50% (figures at 12 31 2020) (*) Ergosud 50% (figures at 12 31 2020) (*) INCOME STATEMENT Revenues 0.04 0.06 20.0 29.5 Gross Operating Income 0.00 0.02 0.9 11.0 % of net revenues n.s. n.s. 4.4% 37.3% Depreciation, amortization and write-downs \- \- 0.3 10.4 Net Operating Income 0.00 0.02 0.6 0.6 Result of the year 0.00 0.03 0.5 (0.3) BALANCE SHEET Total assets 2.55 4.2 8.9 154.0 Net equity 0.09 1.5 2.5 71.0 Net (debt) 1.20 0.7 (1.1) (48.6) (*) Figures of the last financial statements available. 33 A2A Consolidated financial statements 2021 3.8 Accounting standards and policies Translation of foreign currency items The consolidated financial statements of the A2A Group are presented in euro; this is also the functional currency of the economies in which the Group operates. Transactions in other currencies are initially recognized at the exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are translated into euro at the exchange rates at the balance sheet date. Non-monetary items measured at historical cost in foreign currency are translated at the exchange rates at the date of the transaction. Non-monetary items measured at fair value are translated at the exchange rates at the date when the fair value was determined. Tangible assets Assets for business use are classified as tangible assets, while non-business assets are classified as investment property. Tangible assets are measured at cost, including any additional charges directly attributable to bringing the asset into an operating condition (e.g. transport, customs duty, installation and testing costs, notary and land registry fees and any non-deductible VAT), increased when material and where there are obligations by the present value of the estimated cost of restoring the location from an environmental point of view or dismantling the asset. Borrowing costs, where directly attributable to the purchase or construction of an asset, are capitalized as part of the cost of the asset if the type of asset so warrants. If important components of tangible assets have different useful lives, they are accounted for separately using the “component approach”, assigning to each component its own useful life for the purpose of calculating depreciation (the component approach). Land, whether occupied by residential or industrial buildings or devoid of construction, is not depreciated as it has an unlimited useful life, except for land used in production activities that is subject to deterioration over time (e.g. landfills, quarries). Ordinary maintenance costs are fully expensed to the income statement in the year they are incurred. Costs for maintenance carried out at regular intervals are attributed to the assets to which they refer and are depreciated over the specific residual possibility of use of such. Tangible assets are stated net of accumulated depreciation and any write-downs. Depreciation is charged from the year in which the individual asset enters service on a straight-line basis over the estimated useful life of the asset for the business. The estimated realizable value which is deemed to be recoverable at the end of an asset’s useful life is not depreciated. The useful life of each asset is reviewed annually and any changes, if needed, are made with a view to showing the correct value of the asset. Landfills are depreciated on the basis of the percentage filled, which is calculated as the ratio between the volume occupied at the end of the period and the total volume authorized. The main depreciation rates used, which are based on technical and economic considerations, are as follows: buildings_______________________________________________________________1.0% \- 50.0% production plants________________________________________________________1.0% \- 75.0% transport lines__________________________________________________________2.5% \- 50.0% transformation stations___________________________________________________2.5% \- 40.0% distribution networks____________________________________________________1.4% \- 66.7% fiber-optic networks____________________________________________________________5.0% miscellaneous equipment___________________________________________________4.5% \- 65.1% mobile phones________________________________________________________________100% furniture and fittings____________________________________________________10.0% \- 14.3% electric and electronic office machines_______________________________________5.0% \- 25.0% vehicles________________________________________________________________2.8% \- 50.0% e-moving______________________________________________________________________5.0% leasehold improvements___________________________________________________4.3% \- 69.4% leased assets____________________________________________________________1.7% \- 64.3% 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 34 3 Notes to the Consolidated annual report Tangible assets are subjected to impairment testing if there is any indication that an asset may be impaired in accordance with the paragraph below “Impairment of assets”; write-downs may be reversed in subsequent periods if the reasons for which they were recognized no longer apply. When an asset is disposed of or if future economic benefits are no longer expected from using an asset, it is removed from the balance sheet and any gain or loss (being the difference between the disposal proceeds and the carrying amount) is recognized in the income statement in the year of the derecognition. Leasing Assets for rights of use are recognized on the start date of the lease, i.e. the date on which the underlying asset is available for use. Rights to use assets are measured at cost, net of accumulated depreciation and impairment losses, and adjusted for any restatement of lease liabilities. The cost of assets for rights of use includes the amount of lease liabilities recognized and lease payments made on or before the commencement of the lease. Assets for right of use are depreciated on a straight-line basis from the effective date to the end of the useful life of the asset consisting of the right of use or at the end of the lease term, whichever is earlier. If the lease transfers ownership of the underlying asset to the lessee at the end of the term of the contract or if the cost of the asset consisting of the right of use reflects the fact that the lessee will exercise the purchase option, the asset consisting of the right of use is depreciated from the effective date until the end of the useful life of the underlying asset. Lease liabilities are recognized at the present value of lease payments not yet paid at the reporting date. Lease payments also include the exercise price of a purchase option if it is reasonably certain that the option will be exercised. Intangible assets Intangible assets are identifiable non-monetary assets without physical substance which are controlled by the enterprise and able to produce future economic benefits, and include goodwill when acquired for consideration. The fact of being identifiable distinguishes an intangible asset that has been acquired from goodwill; this requirement is normally met when: (i) the intangible asset is attributable to a legal or contractual right, or (ii) the asset is separable, in other words it can be sold, transferred, rented or exchanged individually or as an integral part of other assets. Control by the enterprise consists of the right to enjoy the future economic benefits flowing from the asset and to restrict the access of others to those benefits. Intangible assets are stated at purchase or production cost, including ancillary charges, determined in the same way as for tangible assets. Intangible fixed assets produced internally are not capitalized but recognized in the income statement in the year in which the costs are incurred. Intangible assets with a definite useful life are reported in the financial statements net of the related accumulated amortization and impairments in the same way as for tangible assets. Changes in the expected useful life or in the ways in which the future economic benefits of an intangible asset are achieved by the Company are accounted for by suitably adjusting the period or method of amortization, treating them as changes in accounting estimates. The amortization of intangible fixed assets with a definite useful life is charged to income statement in the cost category that reflects the function of the intangible asset concerned. Intangible assets are subjected to impairment testing if there are specific indications that they may be impaired, in accordance with the paragraph below “Impairment of assets”; impairment losses may be reversed in subsequent periods if the reasons for which they were recognized no longer apply. Intangible assets with an indefinite useful life and those that are not yet available for use are subjected to impairment testing on an annual basis, whether or not there are any specific indications that they may be impaired, in accordance with the paragraph below “Impairment of assets”. Impairment losses recognized for goodwill are not reversed. Gains or losses on the disposal of an intangible asset are calculated as the difference between the disposal proceeds and the carrying amount of the asset and recognized in the Income Statement at the time of the disposal. 35 A2A Consolidated financial statements 2021 The following amortization rates are applied to intangible assets with a definite useful life: industrial patents and intellectual property rights ____________________________14.29% \- 33.3% concessions. licenses. trademarks and similar rights_____________________________0.6% \- 40.0% other intangible assets____________________________________________________2.1% \- 33.3% Service concession arrangements IFRIC 12 states that, based on the characteristics of the concession arrangement, the infrastructures used in the provision of public services under concession are to be recognized as intangible assets if the operator has the right to receive a payment from the customer for the service provided, and/or as a financial asset if the operator has the right to receive payment from the public sector entity. Impairment/Reversal of tangible and intangible fixed assets Tangible and intangible assets are subjected to impairment testing if there is any specific indication that there may be an impairment loss. Goodwill, other intangible assets with an indefinite useful life and assets not available for use are tested for impairment at least annually or more frequently if there is any specific indication that they may be impaired. Impairment testing consists of comparing the carrying amount of an asset with its recoverable amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. To determine an asset’s value in use, the entity calculates the present value of the estimated future cash flows on the basis of business plans prepared by management, before tax, applying a pre-tax discount rate which reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset is lower than its carrying amount, a loss is recognized in the Income Statement. If a loss recognized for an asset other than goodwill no longer exists or is reduced, the carrying amount of the asset or cash-generating unit is increased to the new estimate of recoverable value, which may not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset. Reversals of impairment losses are immediately recognized in the income statement. When the recoverable amount of the individual asset cannot be estimated, it is based on the cash generating unit (CGU) or group of CGUs that the asset belongs to and/or to which it may be reasonably allocated. CGUs are identified on the basis of the company’s organizational and business structure as homogeneous aggregations that generate independent cash inflows deriving from the continuous use of the assets allocated to them. Environmental certificates: emission quotas and White Certificates Different accounting policies are applied to quotas or certificates held for own use in the “Industrial Portfolio” and those held for trading purposes in the “Trading Portfolio”. Surplus quotas or certificates held for own use in the “Industrial Portfolio” which are in excess of the Group’s requirements in relation to the obligations accruing at year end are recognized as other intangible assets at the actual cost incurred. Quotas or certificates assigned free of charge are recognized at a zero carrying amount. Given that they are assets for instant use, they are not amortized but subjected to impairment testing. The recoverable amount is the higher of value in use and market value. If, on the other hand, there is a deficit because the requirement exceeds the quotas or certificates in portfolio at the balance sheet date, a provision is recognized for the amount needed to meet the residual obligation, estimated on the basis of any purchase contracts, spot or forward, already signed at the balance sheet date; otherwise on the basis of market prices. Quotas or certificates held for trading in the “Trading Portfolio” are recognized in inventories and measured at the lower of purchase cost and estimated realizable value based on market trends. Quotas or certificates assigned free of charge are recognized at a zero carrying amount. Market value is established on the basis of any sales contracts, spot or forward, already signed at the balance sheet date; otherwise on the basis of market prices. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 36 3 Notes to the Consolidated annual report Shareholdings in subsidiaries, associates and joint ventures Subsidiaries are companies in which the parent company “is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee”, as defined by IFRS 10\. Control is generally assumed to exist when a company holds either directly or indirectly more than half of the exercisable voting rights at an ordinary shareholders’ meeting, also considering potential voting rights, meaning voting rights deriving from convertible financial instruments. Subsidiaries are consolidated on a line-by-line basis. Associates are companies in which the parent has a significant influence over strategic decisions, despite not having control, also considering potential voting rights, meaning voting rights deriving from convertible financial instruments; significant influence is assumed to exist when A2A S.p.A. holds, either directly or indirectly, more than 20% of voting rights exercisable at an ordinary shareholders’ meeting. A joint venture is a contractual agreement whereby two or more parties undertake an income generating activity subject to joint control. Shareholdings in associates and joint ventures are accounted for in the consolidated financial statements using the equity method. Long term construction contracts in progress Construction contracts with durations exceeding one year in progress are valued in accordance with IFRS 15\. In particular, over-the-time revenues are recognized if it can be demonstrated that: a) the customer simultaneously receives and consumes the benefits of the contract in force at the same time as the service is provided b) the service provided improves. Construction contracts currently in progress are measured on the basis of the contractual fees that have accrued with reasonable certainty on the basis of the stage of completion, using the “cost to cost” method, so as to allocate the revenues and net result of the contract to the individual periods to which they belong in proportion to the progress being made on the project. Any difference, positive or negative, between the value of the contracts and advances received is recognized as an asset or a liability respectively. In addition to the contractual fees, contract revenues include variants, price revisions and incentive awards to the extent that it is probable that they represent actual revenues that can be reliably determined. Ascertained losses are recognized independently of the stage of completion of contracts. Inventories Inventories of materials and fuel are measured at the lower of weighted average cost and market value at the balance sheet date. Weighted average cost is determined for the period of reference for each inventory code. Weighted average cost includes any additional costs (such as sea freight, customers charges, insurance and lay or demurrage days in the purchase of fuel). Inventories are constantly monitored and, where necessary, obsolete stocks are written down with a charge to the Income Statement. Financial instruments They include shareholdings (excluding shareholdings in subsidiaries, joint ventures and associates) held for trading (so-called trading shareholdings) or available for sale, non-current receivables and loans and other non-current financial assets, trade and other receivables deriving from company operations and other current financial assets such as cash and cash equivalents. The latter consist of bank and postal deposits, readily negotiable securities used as temporary investments of surplus cash and financial receivables due within three months. Financial instruments also include financial payables (bank loans and bonds), trade payables, other payables and other financial liabilities and derivatives. Financial assets and liabilities are recognized at the time that the contractual rights and obligations forming part of the instrument arise. Financial assets and liabilities are accounted for in accordance with IFRS 9 “Financial Instruments”. 37 A2A Consolidated financial statements 2021 Financial assets Initial recognition Financial assets are classified into two categories alone \- “at fair value” or “at amortized cost”. Classification within the two categories is carried out on the basis of an entity’s business model and the contractual cash flow characteristics of the financial asset. A financial asset is measured at amortized cost if both of the following requirements are met: the objective of the entity’s business model is to hold assets to collect contractual cash flows (and therefore in substance not to earn trading profits) and the characteristics of the cash flows of the asset are solely payments of principal and interest. A financial asset is measured at fair value if it is not measured at amortized cost. All equity instruments – both listed and unlisted – must be measured at fair value. An entity has the option of presenting changes in the fair value of equity instruments that are not held for trading in equity; that option is not permitted for equity instruments that are held for trading. This designation is permitted on initial recognition, may be adopted for each individual instrument and is irrevocable. If an election is made for this option, changes in the fair value of these instruments may never be reclassified from equity to the income statement. Dividends on the other hand continue to be recognized in the income statement. In addition, the method of expected credit losses is modified, moving to an impairment model that leads to the early recognition of forward-looking losses. Subsequent valuation Measurement subsequent to initial recognition depends on which of the following categories the financial instrument falls into: Financial assets at amortized cost (debt instruments); Financial assets at fair value in the Income Statement with reclassification of cumulative gains and losses (debt instruments); Financial assets at fair value in the Income Statement without reversal of cumulative gains and losses at the time of derecognition (equity instruments); Financial assets at fair value in the Income Statement. Financial assets at amortized cost These are valued using the effective interest method and are subject to impairment. Gains and losses are recognized in the income statement when the asset is derecognized, modified or revalued. Investments in equity instruments On initial recognition, the Group may irrevocably choose to classify its equity investments as equity instruments recognized at fair value through profit and loss when they meet the definition of equity instruments pursuant to IAS 32 “Financial instruments: Presentation” and are not held for trading. The classification is determined for each individual instrument. Gains and losses on these financial assets are never reclassified to the income statement. Dividends are recognized as other income in the income statement when the right to payment has been approved, except when the Group benefits from such income as a recovery of part of the cost of the financial asset, in which case such profits are recognized in OCI. Equity instruments recognized at fair value through OCI are not subject to impairment testing. Financial assets measured at fair value through the income statement This category includes assets held for trading, assets designated at the time of initial recognition as financial assets at fair value with changes recognized in the Income Statement, or financial assets that must be measured at fair value. Assets held for trading are all those assets acquired for sale or repurchase in the short term. Derivatives, including those separated, are classified as financial instruments held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not represented solely by principal and interest payments are classified and measured at fair value in the Income Statement, regardless of the business model. Notwithstanding the criteria for debt instruments to be classified at amortized cost or at fair value through OCI, as described above, debt instruments may be recognized at fair value in the Income Statement upon initial recognition if this results in the elimination or significant reduction of an accounting mismatch. Financial instruments at fair value with changes recognized in the Income Statement are recognized in the statement of financial position at fair value and net changes in fair value are recognized in profit/(loss) for the year. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 38 3 Notes to the Consolidated annual report This category includes derivative instruments and listed equity investments that the Group has not irrevocably chosen to classify at fair value through OCI. Dividends on listed equity investments are also recognized as other income in the statement of profit/(loss) for the year when the right to payment is established. The embedded derivative contained in a non-derivative hybrid contract, in a financial liability or in a principal non-financial contract, is separated from the principal contract and accounted for as a separate derivative, if: its economic characteristics and the risks associated with it are not closely correlated with those of the principal contract; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value in the Income Statement. Embedded derivatives are measured at fair value, with changes in fair value recognized in the Income Statement. A restatement occurs only when there is a change in the terms of the contract that significantly changes the cash flows otherwise expected or a reclassification of a financial asset to a category other than fair value in the Income Statement. An embedded derivative included in a hybrid contract that contains a financial asset is not separated from the host contract. The financial asset together with the embedded derivative is classified entirely as a financial asset at fair value in the Income Statement. Derecognition A financial asset is derecognized when: the rights to receive cash flows from the asset no longer apply; the company has transferred to a third party the right to receive cash flows from the asset or has assumed a contractual obligation to transfer them. In substance, the transfer is completed when: the company has transferred all the risks and rewards of ownership of the asset or has transferred control of the asset while maintaining the related risks and rewards. In cases where the company has transferred the rights to receive cash flows from an asset or signed an agreement under which it retains the contractual rights to receive the cash flows from the financial asset but assumes a contractual obligation to pay the cash flows to one or more beneficiaries (pass-through), it assesses whether and to what extent it has retained the risks and rewards of ownership. In the cases in which it has neither transferred nor retained substantially all of the risks and rewards or has not lost control of the asset, it continues to be recognized in the financial statements of the Group to the extent of its continuing involvement in the asset. In this case, the Group also recognizes an associated liability. The transferred asset and the associated liability are valued to reflect the rights and obligations that remain with the Group. When the entity’s continuing involvement is a guarantee of the transferred asset, involvement is measured on the basis of the lower of the amount of the asset and the maximum amount of consideration received that the entity might have to repay. Financial liabilities Financial liabilities are classified, at the time of initial recognition, at fair value in the Income Statement, as mortgages and loans or as derivatives designated as hedges. Directly attributable transaction costs are added to the valuation. The Group’s financial liabilities include trade payables and other payables, mortgages and loans, including current account overdrafts and derivative financial instruments. The subsequent evaluation depends on the classification of the main instrument: financial liabilities at fair value in the Income Statement, typically of a trading nature (settlement and transfer in the short term). This category includes financial derivatives held for trading (speculative); loans and receivables: valued at amortized cost using the effective interest method. Gains and losses are recognized in the Income Statement when the liability is settled, as well as through amortization. A financial liability is derecognized when the obligation underlying the liability is settled or cancelled. Derivative financial instruments and hedge accounting These are initially recognized at fair value on the date the contract is signed and the subsequent measurement is also at fair value. To classify a derivative as a hedge, the company formally designates and documents the hedging relationship, its risk management objectives and the strategy pursued. From January 1, 2018, the following must be identified: a) the hedging instrument b) the nature of the risk being hedged c) the way in which the company will assess the effectiveness of the hedge. 39 A2A Consolidated financial statements 2021 The hedging relationship is effective if: there is an economic relationship between the hedged item and the hedging instrument; the effect of the credit risk does not prevail over the changes in value resulting from the aforementioned economic relationship; the hedging ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge this quantity of hedged item. Transactions that meet the above criteria are accounted for as follows: Fair value hedging If a derivative financial instrument is designated as a hedge against exposure to changes in the fair value of an asset or liability attributable to a specific risk, the gain or loss resulting from subsequent changes in fair value of the hedging instrument is recognized in the Income Statement. The profit or loss deriving from the adjustment to fair value of the item hedged, for the part attributable to the hedged risk, changes the book value of this item and is recognized in the Income Statement. Cash flow hedge \- If a derivative financial instrument is designated to hedge the exposure to the variability of the cash flows of an asset or a liability recognized in the Financial Statements or of a highly probable transaction, the effective portion of the resulting profits or losses deriving from the fair value adjustment of the derivative instrument is recognized in a specific equity reserve. The cumulative profit or loss is reversed from the equity reserve and recorded in the Income Statement in the same years in which the effects of the hedged transaction are recognized in the Income Statement. The gain or loss associated with that part of the ineffective hedge is recognised in the Income Statement immediately. If the hedged transaction is no longer considered probable, the unrealized gains or losses recognized in the equity reserve are immediately recognized in the Income Statement. Cash flow hedges The portion of gain or loss on the hedged instrument relating to the effective portion of the hedge is recognized in other comprehensive income in the cash flow hedge reserve, while the ineffective portion is recognized directly in the Income Statement. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in the fair value of the hedged item. Amounts accumulated under other components of the comprehensive income statement are recorded, depending on the nature of the underlying hedged transaction. If the hedged transaction subsequently results in the recognition of a non-financial component, the accumulated amount in equity is removed from the separate component of equity and included in the cost or other carrying amount of the asset or liability hedged. This is not considered a reclassification of the items recognized in OCI for the period. This also applies in the case of a hedged forecast transaction of a non-financial asset or a non-financial liability that subsequently becomes an irrevocable commitment to which fair value hedge accounting is applied. For any other cash flow hedge, the amount accumulated in OCI is reclassified in the Income Statement as a reclassification adjustment in the same period or periods during which the hedged cash flows impact profit or loss. If the cash flow hedge accounting is discontinued, the accumulated amount in OCI must remain so if the hedged future cash flows are expected to occur. Otherwise, the amount shall be immediately reclassified to profit or loss for the period as a reclassification adjustment. After suspension, once the hedged cash flow occurs, any accumulated amount remaining in OCI must be accounted for depending on the nature of the underlying transaction as described above. Non-current assets held for sale, disposal groups and discontinued operations – IFRS 5 Non-current assets held for sale, disposal groups and discontinued operations whose carrying amount will be recovered principally through sale rather than continuous use are measured at the lower of their carrying amount and fair value less costs to sell. A disposal group is a group of assets to be disposed of together as a group in a single transaction together with the liabilities directly associated with those assets that will be transferred in that transaction. Discontinued operations on the other hand consist of a significant component of the Group such as a separate major line of business or a geographical area of operations or a subsidiary acquired exclusively with a view to resale. In accordance with IFRSs, the figures for non-current assets held for sale, disposal groups and discontinued operations are shown on two specific lines in the balance sheet: non-current assets held for sale and liabilities directly associated with non-current assets held for sale. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 40 3 Notes to the Consolidated annual report Non-current assets held for sale are not depreciated or amortized and are measured at the lower of carrying amount and fair value less costs to sell; any difference between carrying amount and fair value less costs to sell is recognized in the income statement as a write-down. The net economic results arising from discontinued operations, and only discontinued operations, pending the disposal process, any gains or losses on disposal and the corresponding comparative figures for the previous year or period are recognized in a specific line of the Income Statement: “Net result from discontinued operations”. On the other hand any gains or losses recognized as the result of measuring non-current assets (or disposal groups), classified as held for sale within the meaning of IFRS 5, at fair value less costs to sell are presented in a specific line item of the income statement “Result from non-recurring transactions”, as discussed further in the previous section “Format of financial statements”. Employee benefits The employees’ leaving entitlement (TFR) and pension provisions are determined using actuarial methods; the rights accrued by employees during the year are recognized in the Income Statement as “labour costs”, whereas the figurative financial cost that the company would have to bear if it were to ask the market for a loan of the same amount as the TFR is recognized as part of the “financial balance”. Actuarial gains and losses arising from changes in actuarial assumptions are recognized in income statement taking into account the residual average working life of the employees. Following the introduction of Finance Law no. 296 of December 27, 2006, only the portion of accrued employees’ leaving entitlement that remained in the company has been measured in accordance with IAS 19, as amounts are now paid over to a separate entity as they accrue (either to a supplementary pension scheme or to funds held by INPS). As a result of these payments the company no longer has any obligations in connection with the services employees may render in the future. Guaranteed employee benefits paid on or after the termination of employment through defined benefit plans (energy discount, health care or other benefits) or long-term benefits (loyalty bonuses) are recognized in the period when the right vests. The liability for defined benefit plans, net of any plan assets, is determined by independent actuaries on the basis of actuarial assumptions and recognized on an accrual basis in line with the work performed to obtain the benefits. Gains and losses arising from actuarial calculations are recognized in a specific equity reserve. Reverse factoring The Group entered into factoring agreements, typically in the technical form of reverse factoring. On the basis of the contractual structures in place, the supplier has the possibility to sell at its discretion, the receivables from the company to a lending institution. In some cases, the payment terms indicated in the invoice are the subject of further deferments agreed between the supplier and the Group; these deferments can be both burdensome and not burdensome. In the event of extensions, a quantitative analysis is carried out to verify whether or not the contractual terms have been amended. In this context, the relations, for which the primary obligation is maintained with the supplier and the possible deferment, if granted, does not involve a substantial change in payment terms, retain their nature and are therefore classified as trading liabilities. Provisions for risks, charges and liabilities for landfills Provisions for risks and charges regard costs of a determinate nature and of certain or probable existence which at year-end are uncertain in terms of timing or amount. Provisions are recognized when there is a legal or constructive present obligation arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits, and it is possible to make a reasonable estimate of the obligation. Provisions are recognized at the best estimate of the amount that the company would have to pay to settle the liability or to transfer it to third parties at the balance sheet date. If the effect of discounting is significant, provisions are calculated by discounting expected future cash flows at a pre-tax discount rate that reflects the current market assessment of the time value of money. If discounting is used the increase in the provision due to the passage of time is recognized as financial expense. If the liability relates to tangible assets (such as the dismantling and reclamation of industrial sites), the initial provision is recognized as a counter-entry to the assets to which it refers; expense is then charged to income statement as the asset in question is depreciated. 41 A2A Consolidated financial statements 2021 Treasury shares Treasury shares are accounted for as a deduction from equity. In particular, treasury shares are recognized as a negative equity reserve. Grants Grants, both from public entities and from third party private entities, are measured at fair value when there is the reasonable certainty that they will be received and that the Group will be able to comply with the terms and conditions for obtaining them. Grants received to provide support for the cost of specific assets are recognized as a direct deduction from the assets concerned and credited to the income statement over the life of the depreciable asset to which they refer. Revenue grants (given to provide the company with immediate financial support or as compensation for expenses or losses incurred in a previous accounting period) are recognized in their entirety in the income statement as soon as the conditions for recognizing the grants are met. Revenues and costs The recognition of revenues is based on the following five steps: (i) identification of the contract with the customer; (ii) identification of the performance obligations, represented by the contractual promises to transfer goods and/or services to a customer; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations identified on the basis of the stand-alone sale price of each good or service; (v) recognition of the revenue when the relative performance obligation is satisfied, i.e. when the promised good or service is transferred to the customer; the transfer is considered completed when the customer obtains control of the good or service, which can occur continuously over time diluted and extended or at a point in time. Depending on the type of transaction, revenues are recognized on the basis of the following specific criteria: revenues for the sale and transport of electricity and gas are recognized at the time that the energy is supplied or the service rendered, even if invoicing has not yet taken place, and are determined by adding estimates of consumption to amounts resulting from pre- established meter-reading schedules. Where applicable, these revenues are based on the tariffs and related tariff restrictions in force during the year prescribed by the law and the Italian Regulation Authority for Energy Networks and Environment and similar foreign bodies; connection contributions paid by users, if not for costs incurred to extend the network, are recognized in the income statement on collection and presented as “revenues from services”; the revenues billed to users for an extension of the gas network are accounted for as a reduction in the carrying amount of tangible assets and are recognized in the income statement as a reduction in the depreciation charged over the useful life of the cost capitalized to extend the network; the revenues and costs involved in withdrawing quantities that are higher or lower than the Group’s share are measured at the prices envisaged in the related purchase or sale contract; revenues from the provision of services are recognized according to the stage of completion based on the same criteria as for contract work in progress. If it is impossible to calculate revenues on a reliable basis they are recognized up to the amount of the costs incurred providing they are expected to be recovered; revenues from the sale of certificates are recognized at the time of sale. Revenues are stated net of returns, discounts, allowances and rebates, as well as directly related taxes. Expenses relate to goods or services sold or consumed during the year or as a result of systematic allocation; if no future use is envisaged they are recognized directly in the income statement. Result from non-recurring transactions The item “Non-recurring transactions” consists of the gains or losses arising on the disposal of shareholdings in unconsolidated subsidiaries and associates and other non-operating income and expense. Financial income and expenses Financial income is recognized when interest income arises using the effective interest method, i.e. at the rate that exactly discounts expected future cash flows over the expected life of the financial instrument. Financial expense is recognized in the Income Statement on an accrual basis on the basis of the effective interest. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 42 3 Notes to the Consolidated annual report Dividends Dividend income is recognized when it is established that the shareholders have a right to receive payment, and is recognized as financial income in the Income Statement. Income taxes Current taxes Current income taxes are based on an estimate of taxable income in compliance with tax regulations in force or substantially approved at the balance sheet date, bearing in mind any exemptions or tax credits due. Account is also taken of the fact that the Group now files for tax on a consolidated basis. Deferred tax assets and liabilities Deferred tax assets and liabilities are calculated on the temporary differences between the carrying amount of assets and liabilities in the balance sheet and their tax bases, with the exception of goodwill which is not deductible for tax purposes and any differences resulting from investments in subsidiaries which are not expected to reverse in the foreseeable future. The tax rates used are those expected to apply to the period when the temporary differences reverse. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the tax benefit will be realized. The measurement of deferred tax assets takes account of the period for which business plans are available. When transactions are recognized directly in equity, any related current or deferred tax effects are also recognized directly in equity. Deferred taxes on the undistributed profits of Group companies are only provided for if there is the real intention to distribute such profits and, in any case, if the taxation is not offset as the result of filing a Group tax return. Deferred tax assets and liabilities are classified as non-current assets and liabilities. Taxes are only offset when they are levied by the same tax authority, when there is the legal right of set-off and when settlement of the net balance is expected. Use of estimates Preparing the financial statements and notes requires the use of estimates and assumptions in determining certain assets and liabilities and measuring contingent assets and liabilities. The actual results after the event could differ from such estimates. Estimates have been used in assessing the recoverability of assets, to determine certain sales revenues, in provisions for risks and charges, in provisions for receivables and other write-downs, amortization and depreciation, the valuation of derivatives, employee benefits and taxes. The underlying estimates and assumptions are regularly reviewed and the effect of any change is immediately recognized in the income statement. The following are the key assumptions made by management as part of the process of making these accounting estimates. The inherently critical element of such estimates comes from using assumptions or professional opinions on matters that are by their very nature uncertain. Changes in the conditions underlying the assumptions and opinions used could have a material impact on subsequent results. Impairment Test The carrying amount of non-current assets (including goodwill and other intangible assets) and of assets held for sale is reviewed periodically and whenever circumstances or events require a more frequent assessment. If it is considered that the book value of a group of fixed assets has had an impairment loss, it is subject to the application of professional judgement by management and is based on assumptions that include: the identification of the Cash Generating Units, the estimate of the future operating cash flows associated with these CGUs during the reference period of the 2021 \- 2030 business plan, the estimate of the cash flows subsequent to this time horizon, the cash flow deriving from the disposal at the end of useful life of the assets, discount rates used (“Wacc”). These assumptions are complex due to their nature and imply recourse to the opinion of the directors, who are also sensitive to future trends in energy markets, macroeconomic scenarios, and the resolutions of ARERA. For the purpose of preparing the impairment test, the company avails itself of the support of an independent expert, external to the A2A Group. 43 A2A Consolidated financial statements 2021 In the hypothesis in which the recoverable value is lower than the carrying amount, the latter is written down to the extent applicable. Management is of the opinion that the estimates of such recoverable amounts are reasonable, albeit subject to changes in the factors underlying the estimates on which these recoverable amounts have been calculated could produce different measurements. For further details on the way in which impairment testing was carried out and the results of such testing, reference is made to the specific paragraph. Revenue recognition Revenues from sales include the estimate of accrued revenues related to gas and electricity consumed by customers and not yet subject to periodic reading at December 31, 2021 and the estimate of revenues accrued for gas and electricity consumed by customers and not yet billed at December 31, 2020, in addition to the revenues already billed to customers based on the periodic consumption readings made during the year. The processes and methods for evaluating and determining these estimates are based on sometimes complex assumptions that by their nature imply recourse to the opinion of the directors, in particular with regard to recognition of accrued revenues, as the methods used by the A2A Group to estimate the quantities of consumption between the date of the last reading and December 31, and therefore to value the revenues accrued during the year, are based on assumptions and complex calculation algorithms that concern various information systems. Furthermore, the estimate of consumption not subject to periodic reading is made by taking as reference the historical profile of each user, adjusted on the basis of climatic correction factors provided by the Regulation Authority for Energy Networks and the Environment (also “ARERA”), to incorporate other variables that can have an impact on consumption. Provisions for risks and charges In certain circumstances it is not easy to identify whether a legal or constructive present obligation exists. The directors assess these situations case by case, together with an estimate of the economic resources required to settle the obligation. Estimating such provisions is the result of a complex process that involves subjective judgements on the part of company management. When the directors are of the opinion that it is only possible that a liability could arise, the risks are disclosed in the section on commitments and contingent liabilities without making any provision. Liabilities for landfills The liabilities for landfills provision represents the amount set aside to meet the costs which will be incurred for the management of the period of closure and post-closure of landfills currently in use. The future outlays, calculated for each landfill by a specific appraisal updated annually, were discounted in accordance with the provisions of IAS 37\. Bad debts provision The entry into force of IFRS 9 on January 1, 2018 has led to a change in the recognition of credit losses for the Group. The approach adopted is a forward-looking one, focusing on the probability of future losses on receivables, even in the absence of events that would suggest the need to write-down a credit position (Expected Losses). Although the provision is considered adequate, the use of different assumptions or changes in prevailing economic conditions, even more so in this period of recession, could give rise to adjustments to the bad debts provision. Amortization Depreciation and amortization charges are a significant cost for the company. Non-current assets are depreciated or amortized on a straight-line basis over the useful lives of the assets. The useful lives of the company’s non-current assets are established by the directors, with the assistance of expert appraisers, when they are purchased. The company periodically reviews technological and sector changes, dismantling/closure charges and the recovery amount of assets to update their residual useful lives. This periodic update could lead to a change in the period of depreciation or amortization and hence also in the depreciation or amortization charge in future years. Measurement of derivative instruments The derivatives used are measured at fair value based on the forward market curve at the balance sheet date, if the underlying of the derivative is traded on markets that provide official, liquid forward prices. If the market does not provide forward prices, forecast price curves are used based on simulation models developed by Group companies internally. However, the actual results of derivatives could differ from the measurements made. The serious turbulence on markets for the energy commodities traded by the company, as well the fluctuations in exchange and interest rates, could lead to greater volatility in cash flows and in expected results. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 44 3 Notes to the Consolidated annual report Employee benefits The calculations of expenses and the related liabilities, estimated by independent experts, are based on actuarial assumptions. The full effects of any changes in these actuarial assumptions are recognized in a specific equity reserve. Business combinations Accounting for business combinations entails allocating the difference between purchase cost and net carrying amount to the assets and liabilities of the acquired business. For the majority of assets and liabilities this difference is allocated by recognizing the assets and liabilities at fair value. If positive, the unallocated portion is recognized as goodwill. If negative, it is recognized in the income statement. A2A S.p.A. bases its allocations on available information and, for the more significant business combinations, on external appraisals. Current taxes and future recovery of deferred tax assets The uncertainties that exist regarding the way of applying certain tax regulations have led the company to taking an interpretative stance when providing for current taxes in the financial statements; such interpretations could be overturned by official clarifications on the part of the tax authorities. Deferred tax assets are accounted for on the basis of the taxable profit expected to be available in future years. Assessing the expected taxable profit for the purpose of accounting for deferred taxation depends on factors that can vary over time, and may lead to significant effects on the measurement of deferred tax assets. 45 A2A Consolidated financial statements 2021 * The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 3.9 Business Units The A2A Group operates in the production, sale and distribution of gas and electricity, district heating, environmental services and the integrated water cycle. These sectors are in turn attributable to the “Business Units” specified in the following scheme identified following the reorganization made by management: This breakdown into Business Units reflects the organization of financial reports regularly analyzed by management and the Board of Directors in order to manage and plan the Group’s business. Generation and Trading • Thermoelectric, hydroelectric and other renewable plants • Energy Management Market • Sale of Electricity and Gas • Energy efficiency • Electric mobility Waste • Waste collection and street sweeping • Treatment • Disposal and energy recovery Smart Infrastructures* • Electricity networks • Gas networks • Integrated water cycle • District Heating services • Heat management services • Development and management of technological infrastructures for integrated digital services • Public lighting Corporate • Corporate services 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 46 3 Notes to the Consolidated annual report GENERATION AND TRADING MARKET WASTE SMART INFRASTRUCTURES (*) CORPORATE ELIMINATIONS INCOME STATEMENT millions of euro 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated Revenues 8,095 3,861 3,885 2,515 1,260 1,111 1,280 1,136 301 264 (3,272) (2,039) 11,549 6,848 \- of which inter-sector 2,263 1,209 152 105 229 133 367 344 261 248 (3,272) (2,039) Labour costs 85 87 53 49 337 326 105 110 141 131 721 703 Gross operating income \- EBITDA 368 269 214 202 341 282 538 471 (33) (24) 1,428 1,200 % of revenues 4.5% 7.0% 5.5% 8.0% 27.1% 25.4% 42.0% 41.5% (11.0%) (9.1%) 12.4% 17.5% Depreciation, amortization, provisions and write-downs (208) (170) (76) (60) (159) (171) (274) (206) (51) (39) (768) (646) Net operating income \- EBIT 160 99 138 142 182 111 264 265 (84) (63) 660 554 % of revenues 2.0% 2.6% 3.6% 5.6% 14.4% 10.0% 20.6% 23.3% (27.9%) (23.9%) 5.7% 8.1% Result from non-recurring transactions \- \- Financial balance (70) (81) Result before taxes 590 473 Income taxes (36) (99) Result after taxes from operating activities 554 374 Net result from discontinued operations (4) (6) Minorities (46) (4) Group result of the year 504 364 Gross investments (1) 144 76 73 53 273 174 516 389 77 51 (9) (5) 1,074 738 (1) See the items “Capex” in the schedules on tangible and intangible assets presented in Notes 1 and 2 to the balance sheet. It should be noted that the income statement data from January 1 to December 31, 2020 have been reallocated to make them homogeneous to the results by “Business Unit” from January 1 to December 31, 2021. Moreover, the income statement items were reclassified for 2020, in compliance with IFRS5, to the item “Net result from assets sold/held for sale” to make them homogeneous with the values in the 2021 financial statements. (*) The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 3.10 Results sector by sector 47 A2A Consolidated financial statements 2021 GENERATION AND TRADING MARKET WASTE SMART INFRASTRUCTURES (*) CORPORATE ELIMINATIONS INCOME STATEMENT millions of euro 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated 01 01 202112 31 2021 01 01 2020 12 31 2020 Restated Revenues 8,095 3,861 3,885 2,515 1,260 1,111 1,280 1,136 301 264 (3,272) (2,039) 11,549 6,848 \- of which inter-sector 2,263 1,209 152 105 229 133 367 344 261 248 (3,272) (2,039) Labour costs 85 87 53 49 337 326 105 110 141 131 721 703 Gross operating income \- EBITDA 368 269 214 202 341 282 538 471 (33) (24) 1,428 1,200 % of revenues 4.5% 7.0% 5.5% 8.0% 27.1% 25.4% 42.0% 41.5% (11.0%) (9.1%) 12.4% 17.5% Depreciation, amortization, provisions and write-downs (208) (170) (76) (60) (159) (171) (274) (206) (51) (39) (768) (646) Net operating income \- EBIT 160 99 138 142 182 111 264 265 (84) (63) 660 554 % of revenues 2.0% 2.6% 3.6% 5.6% 14.4% 10.0% 20.6% 23.3% (27.9%) (23.9%) 5.7% 8.1% Result from non-recurring transactions \- \- Financial balance (70) (81) Result before taxes 590 473 Income taxes (36) (99) Result after taxes from operating activities 554 374 Net result from discontinued operations (4) (6) Minorities (46) (4) Group result of the year 504 364 Gross investments (1) 144 76 73 53 273 174 516 389 77 51 (9) (5) 1,074 738 (1) See the items “Capex” in the schedules on tangible and intangible assets presented in Notes 1 and 2 to the balance sheet. It should be noted that the income statement data from January 1 to December 31, 2020 have been reallocated to make them homogeneous to the results by “Business Unit” from January 1 to December 31, 2021. Moreover, the income statement items were reclassified for 2020, in compliance with IFRS5, to the item “Net result from assets sold/held for sale” to make them homogeneous with the values in the 2021 financial statements. (*) The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 48 3 Notes to the Consolidated annual report GENERATION AND TRADING MARKET WASTE SMART INFRASTRUCTURES (*) CORPORATE ELIMINATIONS TOTAL GROUP millions of euro 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Tangible assets 2,205 2,099 42 62 1,132 908 2,146 2,010 196 229 (133) (146) 5,588 5,162 Intangible assets 154 85 286 311 125 66 2,205 2,197 125 146 230 (68) 3,125 2,737 Trade receivables and current financial assets 2,428 1,017 1,406 862 384 413 490 451 75 232 (1,483) (934) 3,300 2,041 Trade payables and current financial liabilities 2,529 1,007 952 553 373 354 397 461 864 697 (1,475) (932) 3,640 2,140 It should be noted that the balance sheet data at December 31, 2020 have been reallocated to make them homogeneous to the results by “Business Unit” at December 31, 2021. (*) The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 49 A2A Consolidated financial statements 2021 GENERATION AND TRADING MARKET WASTE SMART INFRASTRUCTURES (*) CORPORATE ELIMINATIONS TOTAL GROUP millions of euro 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Tangible assets 2,205 2,099 42 62 1,132 908 2,146 2,010 196 229 (133) (146) 5,588 5,162 Intangible assets 154 85 286 311 125 66 2,205 2,197 125 146 230 (68) 3,125 2,737 Trade receivables and current financial assets 2,428 1,017 1,406 862 384 413 490 451 75 232 (1,483) (934) 3,300 2,041 Trade payables and current financial liabilities 2,529 1,007 952 553 373 354 397 461 864 697 (1,475) (932) 3,640 2,140 It should be noted that the balance sheet data at December 31, 2020 have been reallocated to make them homogeneous to the results by “Business Unit” at December 31, 2021. (*) The Networks Business Unit has changed its name to the Smart Infrastructures Business Unit, as per the Business Plan of January 28, 2022. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 50 3 Notes to the Consolidated annual report 3.11 Notes to the balance sheet Note that the consolidation perimeter at December 31, 2021 has changed with respect to December 31, 2020 due to the following transactions: acquisition and line-by-line consolidation by LGH S.p.A. (now merged into A2A S.p.A.) of 100% of the shares in Agripower S.r.l., a company specialising in the development and management of power generation plants from biogas; acquisition by A2A Rinnovabili S.p.A. and line-by-line consolidation of 15 companies with 17 plants and 173 MW of installed photovoltaic capacity, previously managed by Octopus Renewables; acquisition and line-by-line consolidation by A2A Rinnovabili S.p.A. of Gash 1 S.r.l. and Gash 2 S.r.l., two project companies with authorization to build two photovoltaic plants; as part of the transaction that led to the acquisition of 27.7% of Saxa Gres S.p.A. by A2A Ambiente S.p.A., Energia Anagni S.r.l. and Bioenergia Roccasecca S.r.l., companies that will manage two OFMSW plants, currently under construction, were acquired and consolidated on a line-by-line basis. As part of the same transaction, A2A Ambiente S.p.A. set up two newco’s with majority stakes: Waldum Tadinum Energia S.r.l. and Bioenergia Gualdo S.r.l., both consolidated on a line-by-line basis; acquisition and consolidation at equity of the investment in Netcity S.r.l., a company operating in the energy efficiency sector; acquisition by A2A Ambiente S.p.A. and line-by-line consolidation of 100% of TecnoA S.r.l., a company operating in the treatment of special waste; acquisition by A2A Ambiente S.p.A. and consolidation at equity of 30% of the investment in F.lli Omini S.p.A., a company specializing in the demolition of industrial plants; incorporation and line-by-line consolidation of Romeo Gas S.p.A.. Finally, the investment held by A2A Energy Solutions S.r.l. in Consul System S.p.A., previously consolidated on a line-by-line basis, has been consolidated at equity following the sale of 26% of its shares at the end of January 2021, and the sale of the investment in Ge.S.I. S.r.l., previously consolidated at equity. 51 A2A Consolidated financial statements 2021 ASSETS NON-CURRENT ASSETS 1) Tangible assets millions of euro Balance at 12 31 2020 First-time consolid. effect Changes Balance at 12 31 2021 Invest. Other changes Disposals and sales Write-downs/Reversal Amort. Total changes Land 127 14 4 (4) 141 Buildings 597 5 11 (37) (2) (30) (58) 544 Plant and machinery 3,788 146 214 110 (2) (8) (340) (26) 3,908 Industrial and commercial equipment 50 17 (3) (9) 5 55 Other assets 122 27 14 (31) 10 132 Landfills 26 6 (7) (1) 25 Construction in progress and advances 226 34 411 (125) (2) 284 544 Leasehold improvements 113 2 30 (1) (20) 9 124 Assets for rights of use 113 16 14 (28) (14) 115 Total 5,162 217 714 (26) (4) (10) (465) 209 5,588 of which: Historical cost 11,703 217 714 160 (91) 783 12,703 Accumulated depreciation (5,717) (186) 87 (465) (564) (6,281) Write-downs (824) (10) (10) (834) “Tangible assets” amounted to 5,588 million euro at December 31, 2021 (5,162 million euro at December 31, 2020) and include the first-time consolidation effect of 217 million euro. The changes for the year, net of the above effect, recorded an increase of 209 million euro as follows: increase of 714 million euro for capex in the year as further described below; net decrease for other changes equal to 26 million euro due to decreases of 54 million euro in application of IFRS5 for assets held for sale of properties located in Milan, increases in the decommissioning provision and landfill closure and post-closure expenses for 26 million euro, increases in rights of use in application of IFRS16 for 17 million euro, decreases in advances and prepayments to suppliers for 4 million euro, reclassifications from tangible assets to intangible assets for 9 million euro, and decrease of 2 million euro due to reclassifications to other items in the financial statements; decrease of 4 million euro arising from disposals in the year under review, net of accumulated depreciation; decrease of 10 million euro due to write-downs in the year; decrease of 465 million euro for the amortization charge for the year. Capex may be analyzed as follows: Capex in the Smart Infrastructures Business Unit totalled 267 million euro and concerned: 156 million euro for the development and maintenance of electricity distribution plants, the extension and reconstruction of the medium and low-voltage network and the installation of new electronic meters; 81 million euro for the development of district heating networks; 8 million euro for work on the fiber optic network and equipment, 5 million euro for interventions on the gas transport network, 15 million euro for the efficiency plan with new LED technology light sources, 1 million euro for the purchase of equipment for the management of the integrated water cycle service, as well as 1 million euro for the installation and development of recharging networks for electric vehicles; Capex in the Waste Business Unit amounted to 265 million euro and refer to: 231 million euro for work on the Group’s waste treatment and disposal plants; 21 million euro for the acquisition of mobile means for waste collection and 13 million euro for the acquisition of collection facilities; Capex in the Generation and Trading Business Unit increased 135 million euro and concerned: 112 million euro capex on thermoelectric plants, 19 million euro capex on hydroelectric plants, and 4 million euro capex on renewable energy plants; 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 52 3 Notes to the Consolidated annual report Capex in the Market Business Unit increased 14 million euro and concerned: 13 million euro for the energy efficiency plan at customer premises and 1 million euro for work on the electric vehicle recharging network; Capex in the Corporate Business Unit amounting to 33 million euro mainly concerned work on buildings in the Milan, Como, Brescia areas and the new Cremona Technology Hub. Tangible assets include “Assets for rights of use” totalling 115 million euro (113 million euro at December 31, 2020), recognized in accordance with IFRS16 and for which the outstanding payable to lessors at December 31, 2021 amounted to 106 million euro (110 million euro at December 31, 2020). Below is a breakdown of “Assets for rights of use” deriving from operating and financial leases at December 31, 2021: Assets consisting of rights of use millions of euro Balance at 12 31 2020 First-time consolid. effect 2021 Changes Balance at 12 31 2021 Other changes Amort. Total changes Land 17 6 3 (7) (4) 19 Buildings 19 6 (7) (1) 18 Plant and machinery 33 10 (3) (1) (4) 39 Industrial, commercial equipment and other goods 28 2 (3) (1) 27 Vehicles 16 6 (10) (4) 12 Total 113 16 14 (28) (14) 115 It is specified that the Group has made use of the option provided for in paragraph 6 of the standard not to apply the provisions of paragraphs 22 to 49 of the standard to the following categories: a) short-term leases; b) leases whose underlying assets are of low value. With regard to large-scale diversion hydroelectric concessions, it is noted that when they are converted into law (Law no. 12/2019) with amendments to Decree Law December 14, 2018, no. 135 (“Competitiveness Decree Law”), the Legislator intervened in article 11-quater with overall review of the regulations governing large-scale diversion hydroelectric concessions (> 3 MW), as explained in greater detail in paragraph “Regulatory Changes and Impacts on the Business Units of the A2A Group \- Energy Business Unit”. The Group is continuing to analyze the impact of regulatory amendments, also in light of the new regulations issued in 2020, and confirms, to date, that the amounts recognized in the financial statements for dry and wet works related to hydroelectric concessions are prudent and recoverable also in accordance with the new regulations. 2) Intangible assets millions of euro Balance at 12 31 2020 First-time consolid. effect Changes Balance at 12 31 2021 Invest. Reclass./Other changes Disposals/Sales Write-downs Amort. Total changes Industrial patents and industrial property rights 40 21 13 (22) 12 52 Concessions, licences, trademarks and similar rights 1,876 237 (84) (2) (2) (144) 5 1,881 Goodwill 426 331 2 (13) (11) 746 Assets in progress 74 83 (37) (1) 45 119 Other intangible assets 321 20 17 4 (35) (14) 327 Total 2,737 351 360 (117) (2) (3) (201) 37 3,125 53 A2A Consolidated financial statements 2021 “Intangible assets” amounted to 3,125 million euro at December 31, 2021 (2,737 million euro at December 31, 2020) and include the first-time consolidation effects of 351 million euro. Through the application of IFRIC 12, from financial year 2010 intangible assets also include assets in concession, which relate to gas distribution. The changes for the year, net of the above effect, recorded an overall increase of 37 million euro as follows: increase of 360 million euro for capex in the year as further described below; net decrease of 117 million euro in other changes, due to a decrease following reclassification to other items in the financial statements of assets held for sale relating to gas networks considered non-strategic for the Group (114 million euro), a decrease in environmental certificates for the industrial portfolio (12 million euro) and an increase due to reclassification from tangible to intangible assets (9 million euro); decrease of 2 million euro arising from disposals in the year, net of accumulated depreciation; decrease of 3 million euro due to write-downs in the year; decrease of 201 million euro for the amortization charge for the year under review. Capex of “Intangible assets” relate to the following: Capex in the Smart Infrastructures Business Unit of 243 million euro are for: development and maintenance work on the plants of the gas distribution segment and the replacement of low and medium pressure underground piping for 117 million euro; work on the water transport and distribution network, on the sewage networks and on the purification plants for 92 million euro; contracting costs for the Heat Plants of the Milan, Brescia and Bergamo areas for 3 million euro, and the implementation of information systems for 31 million euro; for the Market Business Unit, the increase was 56 million euro due to the implementation of information systems for 39 million euro and costs incurred for the new acquisitions and maintenance of the customer portfolio for 11 million euro, the acquisition of the customer portfolio of Yada Energia S.r.l. for 4 million euro, as well as the capitalization of costs incurred to manage customer contracts in accordance with IAS IFRS15 for 2 million euro; for the Corporate Business Unit, the increase was 44 million euro mainly due to the implementation of information systems; for the Generation and Trading Business Unit, the increase was 9 million euro and concerned the implementation of information systems; for the Waste Business Unit, the increase was 8 million euro and mainly concerned the implementation of information systems. The item “Other intangible assets” amounted to 327 million euro at December 31, 2021 (321 million euro at December 31, 2020) and includes: 224 million euro for customer lists related to the acquisition of customer portfolios by Group companies. These values are amortized based on an estimate of the benefits that will arise in future years, taking into account indicators such as the retention rate and churn rate relating to specific types of customers. In particular, the amount in the financial statements is attributable as follows: 98 million euro to the ACSM-AGAM Group, 40 million euro to the AEB Group, 44 million euro to A2A Energia S.p.A., 14 million euro to A2A Recycling S.r.l., 10 million euro to Electrometal S.r.l., 9 million euro to Asm Energia S.p.A., 5 million euro to Yada Energia S.r.l. and 4 million euro to A2A S.p.A., Aprica S.p.A. and LumEnergia S.p.A.; 51 million euro for PPA Società Rinnovabili: the increase in value is linked to the existing agreement with the Energy Services Manager, which allows the affiliated companies to benefit from incentive tariffs for a period of 20 years, which are considerably higher than those existing on the market; 15 million euro for Environmental Certificates: emission quotas and White Certificates (Industrial portfolio); 13 million euro for PPA of the Agripower group: the increase in value is linked to the existing agreement with the Energy Services Manager, which allows the affiliated companies to benefit from incentive tariffs, which are considerably higher than those existing on the market; 24 million euro relating mainly to deferred charges and costs and surface rights and/or easements. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 54 3 Notes to the Consolidated annual report Impairment testing in accordance with IAS 36 on the carrying amount of goodwill and tangible and intangible fixed assets The objective of the impairment test required by IAS 36 is to ensure that the carrying amount of assets does not exceed their recoverable value. Impairment testing is carried out whenever there is an indication that an asset may be impaired, while goodwill, which is not amortized on a systematic basis, must be tested for impairment at least on an annual basis, regardless of whether there is any indication of impairment. A Cash Generating Unit (CGU) is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The definition of a CGU depends essentially on the type of activity carried out by the CGU, the business sector in which it operates and a company’s organizational structure. The impairment test consists of comparing the carrying amount of an asset/cash generating unit (or group of cash generating units) with an estimate of the recoverable value of that asset/cash generating unit (or group of cash generating units). The recoverable value of an asset/cash generating unit (or group of cash generating units) is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell of an asset/cash generating unit (or group of cash generating units) is the amount obtainable from the sale of an asset or cash generating unit in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. The value in use of an asset/cash generating unit (or group of cash generating units) is the present value of the future cash flows expected to be derived from the continuing use of an asset or cash generating unit and from its ultimate disposal. Value in use has been calculated using the discounted cash flow method, which is based on estimating future cash flows and discounting these by applying the appropriate discount rate. Management made a projection of the future cash flows deriving from each asset/cash generating unit (or group of cash generating units) on the basis of reasonable and supportable assumptions which reflect the value of the asset/cash generating unit (or group of cash generating units) in its present condition and with a view to maintaining the normal conditions of business activities. In the impairment assessments carried out for the year ended December 31, 2021, Management, in accordance with accounting standard IAS 361, deemed it more representative to separate the assets relating to the production of energy from natural gas (CCGT plants) and those relating to the production of energy from renewable sources (hydroelectric, photovoltaic and wind power plants) from the Electricity CGU. This decision was dictated by a number of factors, both external (e.g. the evolution of traditional plants \- CCGT \- towards a support function to guarantee the stability and flexibility of the national electricity system towards the evolution of renewable plants that will increasingly be energy suppliers, also with a baseload profile) and internal (e.g. the Group’s increasing commitment to renewable plants, also confirmed by long-term strategic choices). As a result, 3 new CGUs were defined starting with the “Energia Elettrica” CGU: “Generazione Termoelettrica” CGU “Generazione Rinnovabili” CGU “Vendita Energia Elettrica” CGU On January 27, 2022, the A2A Board of Directors approved a long-term plan, which represents an update of the strategy already shown to the markets last year. In particular, the Plan is based on two main trends, Circular Economy and Energy Transition, to which all the Group’s business units contribute: in the coming years, objectives will be pursued mainly aimed at recovering waste heat, reducing water losses, closing the waste cycle, decarbonization and electrification of consumption. 1 IAS 36 at paragraph 72 “Cash-generating units for the same asset or types of assets shall be identified on a uniform basis from period to period, unless the change can be justified.” 55 A2A Consolidated financial statements 2021 The main targets identified in the Strategic Plan are: 18 billion euro capex over 10 years, of which 7 billion euro for the Circular Economy and 11 billion euro for Energy Transition; 90% of capex in line with the UN Sustainable Development Goals; EBITDA more than doubled to 2.9 billion euro at the end of the plan; net profit growth of about 9% on average per year (CAGR 2020-2030); minimum dividends expected to rise steadily; 32% reduction in Group emission factor; strong increase in installed capacity from renewable sources, +3.9GW compared to 2020; strengthening and enhancing the value of gas-fired electricity generation, including through the start-up of one new high-efficiency CCGT plant, already prepared for blending with hydrogen; increased material and energy recovery; 7,000 direct hires; reduction of water losses; recovery of waste heat by connecting the Cassano d’Adda plant to the Milan district heating network; installation of 24,000 charging points for electric vehicles; activation of 200 thousand contracts for recharging services; strong commitment to the production of biomethane and green hydrogen; development of customer base also outside the historical perimeter thanks to auctions and commercial development. For the sole purpose of the impairment test, the 2021-2030 Strategic Plan, in line with the provisions of IAS 36 paragraph 332, has been appropriately amended to exclude the impact of future improvements and optimizations, as described in more detail below. In particular, the calculation of value in use excludes the amounts of EBITDA and CAPEX relating to extraordinary transactions/M&A and developments in the planning stage, such as, for example, the construction of new waste treatment plants, the development of the hydrogen business, the increase in installed renewable capacity. An independent expert was engaged to carry out the impairment testing; among other things, the expert analyzed the components and key assumptions included in the economic and financial projections prepared by the Group’s management, performed comparisons and tests as to the correctness of the sources and assumptions used and developed the assumptions about the growth rate beyond the plan’s horizon to be used for calculating normalized flows through to the end of the useful lives of the plants. Consistently with the indications of IAS 36, the management team will continue to monitor the evolution of the macro-economic and geo-political conditions and all other impairment indicators, promptly incorporating changes in value of the CGUs or assets, as, moreover, has been done in recent years. Finally, the independent expert estimated the discount rate consistent with the cash flows considered, i.e. post-tax weighted average cost of capital (WACC). In detail, the WACC rate used was estimated according to the criteria widely used in valuation practice and in line with last year’s impairment exercise in order to reflect current market valuations with reference to the current value of money, country risk and the specific risks associated with the activity. 2 Which requires “b) basing cash flow projections on the most recent budget/forecast approved by management, however excluding any future cash inflows or outflows estimated to arise from future restructuring or improvements or optimizations in business performance. Projections based on these budgets/forecasts must cover a maximum period of five years, unless a longer time frame can be justified”. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 56 3 Notes to the Consolidated annual report Goodwill At December 31, 2021, goodwill amounted to 746 million euro: millions of euro Balance at 12 31 2020 Changes Balance at 12 31 2021 Reclassific. First-time consolid. acquis. 2021 PPA Effect Write-downs Total changes CGU: A2A Ambiente 269 - 269 A2A Reti Gas 41 - 41 A2A Gas 31 43 43 74 A2A Calore 22 - 22 A2A Vendita Energia Elettrica 7 7 7 A2A Generazione Rinnovabili 1 65 65 66 Total 364 - - 115 - 115 479 First-time consolidation effect AEB Group 50 (50) (50) - Flabrum and Solar Italy V 12 (12) (12) - Octopus 65 (65) - - Agripower Group 10 (10) - - TecnoA 267 267 267 Total 62 - 342 (137) - 205 267 Total Goodwill 426 - 342 (22) - 320 746 In March 2021, the A2A Group completed the acquisition of 15 companies with 17 plants, previously managed by Octopus Renewables, which resulted in the recognition of goodwill of 65 million euro. This acquisition falls under the dictates of IFRS 3 and at December 31, 2021, this goodwill was confirmed by the Purchase Price Allocation (PPA) process and fully allocated to the “Generazione Rinnovabili” CGU. On March 19, 2021, the A2A Group acquired the Agripower Group, which operates in the development and management of power generation plants from biogas. The first-time consolidation resulted in the recognition of provisional goodwill for 10 million euro. In accordance with IFRS 3, the Group concluded the Purchase Price Allocation (PPA) activity by allocating goodwill to other intangible assets. In December 2021, the A2A Group acquired 100% of TecnoA, a leading company in central and southern Italy in the treatment of industrial waste. The effect of the first-time consolidation relating to the acquisition of the company resulted in the provisional recognition of goodwill of 267 million euro pending completion of the Purchase Price Allocation as better described in the paragraph “Other information” 3) Transactions IFRS 3 Revised. In accordance with IFRS 3, the Group, with reference to the acquisition of Flabrum S.r.l. and Solar Italy V S.r.l. in the previous year, completed the Purchase Price Allocation process entirely allocating the goodwill provisionally recognized at December 31, 2020, amounting to 12 million euro. In 2021, the Group allocated to the Electricity Sales CGU (7 million euro) and to the Gas CGU (43 million euro), the residual goodwill arising from the combination of the AEB Group, which took place on November 1, 2020 and for which the Purchase Price Allocation process had already been completed at December 31, 2020. Reference is made to the paragraph “Other information” for further details on acquisitions regulated by IFRS 3 and Purchase Price Allocation processes. Since goodwill does not generate independent cash flows and cannot be sold separately, the impairment testing of recognized goodwill is carried out in a residual manner by referring to the Cash Generating Unit (or group of Cash Generating Units) to which it may be reasonably allocated. 57 A2A Consolidated financial statements 2021 The following table sets out the goodwill allocated to each individual Cash Generating Unit, specifying for each the recoverable value and the discount and growth rates used with comparative figures of the previous year. CGU with Goodwill Value in millions of euro at 12 31 2021 Recoverable Value WACC 2021 post-tax (1) Growth rate g 2021 Balance scenario (2) WACC of reference (3) Growth rate g A2A Ambiente 269 Use value 5.3% 0.0% 10.6% 0.0% A2A Reti Gas 41 Use value 5.2% 0.0% 5.3% 0.0% A2A Gas 74 Use value 5.4% 0.0% 22.8% 0.0% A2A Generazione Rinnovabili 66 Use value 5.6% 0.0% 10.9% 0.0% A2A Calore 22 Use value 4.6% 0.0% 4.6% 0.0% A2A Vendita Energia Elettrica 7 Use value 5.4% 0.0% 12.9% 0.0% Total 479 (1) Nominal post-tax discount rate applied to future cash flows. (2) Rates resulting from the sensitivity assessment made by the expert in order to achieve balance between the use values and carrying amounts subjected to impairment testing. (3) The simulation was performed on the WACC rate of reference, with the simultaneous adjustment of the terminal flow rate (if applicable). CGU with Goodwill Value in millions of euro at 12 31 2020 Recoverable Value WACC 2021 post-tax (1) Growth rate g 2020 Balance scenario (2) WACC of reference (3) Growth rate g A2A Ambiente 269 Use value 6.0% 1.0% 9.9% 1.0% A2A Reti gas 41 Use value 5.6% 0.0% 5.8% 0.0% A2A Gas 31 Use value 6.2% 0.0% 25.3% 0.0% A2A Calore 22 Use value 5.3% 1.0% 5.5% 1.0% A2A Vendita Energia Elettrica 1 Use value 6.4% 0.0% 6.4% 0.0% Total 364 (1) Nominal post-tax discount rate applied to future cash flows. (2) Rates resulting from the sensitivity assessment made by the expert in order to achieve balance between the use values and carrying amounts subjected to impairment testing. (3) The simulation was performed on the WACC rate of reference, with the simultaneous adjustment of the terminal flow rate (if applicable). With reference to the CGU included in the scope of consolidation of the A2A Group at December 31, 2021, and precisely “A2A Calore” CGU, “A2A Reti Gas” CGU, “A2A Reti Elettriche” CGU, “A2A Ambiente” CGU, “A2A Gas” CGU, “Vendita Energia Elettrica” CGU and “Generazione Rinnovabili” CGU, the analysis conducted allowed achieving the estimated recoverable value at December 31, 2021 calculated using the financial method. In particular, the analysis regarding the maintenance of the value of the CGUs was carried out as follows: for the “A2A Calore”, “A2A Ambiente” and “A2A Reti Elettriche” CGUs, it was conducted by comparing the recoverable value determined as fair-weighted average of the values in use of the definite useful life scenario (consistent with the average duration of the concessions in place) and the indefinite useful life scenario; for the “A2A Reti Gas” CGU, the analysis was conducted by comparing the recoverable value for the definite useful life scenario only; for the “A2A Gas” CGU, the “Generazione Rinnovabili” CGU and the “Vendita Energia Elettrica” CGU, the analysis was conducted by comparing the recoverable value for the indefinite useful life scenario only. Further analyses and sensitivity analyses were conducted considering the potential effects of the changes in the reference parameters of the WACC, which showed no particular criticality for all the CGUs subject to impairment testing. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 58 3 Notes to the Consolidated annual report “A2A Ambiente” Cash Generating Unit The “A2A Ambiente” Cash Generating Unit operates in the solid urban waste segment and in the special and hazardous waste segment, performs collection and street sweeping activities in the municipalities of Milan, Brescia, Bergamo, Lodi and Como and in a number of municipalities of the relative provinces, is the owner of waste-to-energy and industrial plants (in the municipalities of Milan, Brescia, Bergamo, Filago, Corteolona, Cremona, Parona and Como) and manages the Acerra waste-to-energy plant. It also has several waste treatment plants and a number of landfills. The A2A Group’s consolidated financial statements at December 31, 2021 include goodwill of 269 million euro associated with this CGU, which has been impairment tested as required by IAS 36\. Of this goodwill, 227 million euro arises from the acquisition of the Ecodeco Group between 2005 and 2008 (the former Ecodeco Cash Generating Unit) and 5 million euro from the merger between ASM Brescia S.p.A. (subsequently incorporated into AEM S.p.A., with simultaneous change of its name into A2A S.p.A.) and BAS S.p.A., 30 million euro as the residual value of the goodwill of the LGH Group at the end of the PPA process for the acquisition of 51% of the Group, 2 million euro to the allocation to the CGU in 2019 of a residual portion of the goodwill recorded following the consolidation of the ACSM-AGAM Group and 5 million euro as residual goodwill at the conclusion of the PPA activity for the acquisition of the company Electrometal S.r.l.. In determining the value in use, an average of a scenario with indefinite useful life and one with definite useful life was considered, the time horizon of which was calculated on the residual useful life of the plants. No impairment loss was noted during the impairment testing as the recoverable value exceeds the net capital employed including the value of goodwill recorded. The sensitivity analyses carried out have shown that, all other factors being equal, an increase of 0.1% in WACC confirms recoverable values that are higher than carrying amounts, and therefore do not show impairment losses as defined by IAS 36. “A2A Reti Gas” Cash Generating Unit The “A2A Reti Gas” CGU includes the Group’s gas distribution and metering activities. In particular, it deals with the design and construction of gas networks, their operation and maintenance, as well as the management of requests for connection and quality control and continuity of service. The goodwill of 41 million euro associated to the “A2A Reti Gas” CGU arises from various acquisitions made by A2A Reti Gas S.p.A. (now Unareti S.p.A.) over the last few years, relating to companies operating as gas distributors in about 200 Italian municipalities (the activity is mainly concentrated in Lombardy and Piedmont) for 38 million euro as well as 3 million euro to the allocation to the CGU in 2019 of a portion of the goodwill recorded following the consolidation of the ACSM-AGAM Group. The recoverable value of goodwill attributed to the “A2A Reti Gas” Cash Generating Unit was calculated by referring to its value in use. In determining the value in use, an average between a scenario based on the RAB as of December 31, 2021 and a scenario with a time horizon corresponding to the weighted average useful life of the existing concessions was considered. No impairment loss was noted during the impairment testing as the recoverable value exceeds the net capital employed including the value of goodwill recorded. The sensitivity analyses carried out have shown that, all other factors being equal, a 0.1% increase in WACC does not indicate a significant impairment losses (impairment of about -2 million euro). “A2A Gas” Cash Generating Unit The goodwill arising from the consolidation of the “A2A Gas” Business Unit, amounting to 74 million euro, refers to the area involved in selling gas to end customers (residential and business) and wholesalers and was impairment tested. It should be noted that the “A2A Gas” CGU consists of the portion of goodwill arising from the merger between BAS S.p.A. and A2A S.p.A. for 7 million euro, for 24 million euro to the allocation to the CGU in 2019 of a portion of the goodwill recorded following the consolidation of the ACSM-AGAM Group and for 43 million euro of a portion of goodwill allocated to the CGU following the consolidation of the AEB Group. The recoverable value of the goodwill attributed to the CGU during the impairment test, was determined by considering an indefinite useful life scenario. No impairment loss was noted during the impairment testing as the recoverable value exceeds the net capital employed including the value of goodwill recorded. The sensitivity analyses carried out have shown that, all other factors being equal, an increase of 0.1% in WACC confirms recoverable values that are higher than carrying amounts, and therefore do not show impairment losses as defined by IAS 36. 59 A2A Consolidated financial statements 2021 “A2A Calore” Cash Generating Unit The goodwill arising from the consolidation of the “A2A Calore” Business Unit, amounting to 22 million euro, is held by a number of companies of the A2A Group active in the production, distribution and sale of district heating. In particular, the CGU in question includes 18 million euro, a part of the goodwill arising from the merger between BAS S.p.A. and A2A S.p.A., and 1 million euro to the allocation to the CGU in 2019 of a portion of the goodwill recorded following the consolidation of the ACSM-AGAM Group. The recoverable value of the goodwill attributed to the “A2A Calore” CGU during the impairment test was determined as the average of a scenario with indefinite useful life and definite useful life the time horizon of which was calculated over the remaining useful life of the plants. No impairment loss was noted during the impairment testing as the recoverable value exceeds the net capital employed including the value of goodwill recorded. The sensitivity analyses carried out have shown that, all other factors being equal, a 0.1% increase in WACC does not confirm recoverable values higher than carrying amounts, resulting in an impairment loss of about -12 million euro. “Generazione Rinnovabili’’ Cash Generating Unit The activity of the “Generazione Rinnovabili’’ Cash Generating Unit relates to the management of the Group’s hydroelectric, photovoltaic and wind power plants and the consequent production of electricity. The total installed capacity is about 2.2 GW. The goodwill arising from the consolidation of the “Generazione Rinnovabili’’ Cash Generating Unit, amounting to 66 million euro, refers for 65 million euro to the allocation of goodwill generated by the acquisition of the Octopus Renewables portfolio, not subject to Impairment test as the transaction was completed in 2021, and for the remaining part to the allocation to the CGU of a portion of the goodwill recorded as a result of the consolidation of the ACSM-AGAM Group, carried out in 2019. The recoverable value of the goodwill attributed to the CGU during the impairment test, was determined by considering an indefinite useful life scenario. No impairment loss was noted during the impairment testing as the recoverable value exceeds the net capital employed including the value of goodwill recorded. The sensitivity analyses carried out have shown that, all other factors being equal, an increase of 0.1% in WACC confirms recoverable values that are higher than carrying amounts, and therefore do not show impairment losses as defined by IAS 36. “Vendita Energia Elettrica” Cash Generating Unit The “Vendita Energia Elettrica” Cash Generating Unit is active in the retail sale of electricity to customers in the free market and does not include the activities of the Greater Protection service*.3 The goodwill arising from the consolidation of the “Vendita Energia Elettrica” Cash Generating Unit, amounting to 7 million euro, refers to the allocation to the CGU of a portion of the goodwill recorded following the consolidation of the AEB Group, the results of which were consolidated in 2020. The recoverable value of the goodwill attributed to the CGU during the impairment test, was determined by considering an indefinite useful life scenario. No impairment loss was noted during the impairment testing as the recoverable value exceeds the net capital employed including the value of goodwill recorded. The sensitivity analyses carried out have shown that, all other factors being equal, an increase of 0.1% in WACC confirms recoverable values that are higher than carrying amounts, and therefore do not show impairment losses as defined by IAS 36. * The Greater Protection service applies to customers with low-voltage domestic utilities, utilities for other non-domestic uses and public lighting (in other words, small businesses connected to a low voltage supply, with less than 50 employees and annual turnover < 10 million euro). This category includes all users who selected the so-called Free Market and ended up without a supplier. The Protected Category service guarantees the supply of electricity at prices established by ARERA (Regulation Authority for Energy Networks and Environment). 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 60 3 Notes to the Consolidated annual report CGU without Goodwill 12 31 2021 Recoverable Value WACC 2021 post tax (1) Balance scenario (2) WACC of reference (3) CGU Reti Elettriche Use value 4.9% 4.9% CGU Generazione Termoelettrica Use value 5.9% 5.9% CGU Monfalcone Use value 5.9% n.s. CGU San Filippo del Mela Use value 5.9% 5.9% CGU without Goodwill 12 31 2020 Recoverable Value WACC 2020 post tax (1) Balance scenario (2) WACC of reference (3) CGU Reti Elettriche Use value 5.3% 5.3% CGU Generazione Termoelettrica Use value 6.4% 6.4% CGU Monfalcone Use value 6.4% n.s. CGU San Filippo del Mela Use value 6.4% 6.4% (1) Nominal post-tax discount rate applied to future cash flows. (2) Rates resulting from the sensitivity assessment made by the expert in order to achieve balance between the use values and carrying amounts subjected to impairment testing. (3) The simulation was performed on the WACC rate of reference, with the simultaneous adjustment of the terminal flow rate (if applicable). “A2A Reti Elettriche” Cash Generating Unit The “A2A Reti Elettriche” CGU includes the Group’s electricity distribution and metering activities. In particular, it deals with the design and construction of electricity networks, their operation and maintenance, as well as the management of requests for connection and quality control and continuity of service. The value in use of this CGU was determined as the average of the values in use obtained from two scenarios: one based on an estimate of definite useful life (equal to the expiration of the existing concession) and the other based on an estimate of indefinite useful life (i.e., assuming that the concession would be renewed in perpetuity). No impairment loss was identified during the impairment test as the recoverable value is higher than the net capital employed. The sensitivity analyses carried out have shown that, all other factors being equal, a 0.1% increase in WACC does not indicate a significant impairment losses (impairment of about -2 million euro). “Generazione Termoelettrica” Cash Generating Unit The activity of the “Generazione Termoelettrica” Cash Generating Unit is aimed at the production of electricity from gas-fired thermoelectric power plants (CCGT). The A2A Group operates CCGT plants with a total installed capacity of 5,233 MW. The value in use of this CGU was determined from a single indefinite useful life scenario. For the purposes of the Impairment Test on the carrying amount of tangible assets relating to the Generazione Termoelettrica CGU, the Enterprise Value of the assets (Value in Use) was compared with the relative Carrying Amount at December 31, 2021. No impairment loss was identified during the impairment test as the difference between the recoverable value and the net invested capital is not material. The sensitivity analyses carried out have shown that, all other factors being equal, a 0.1% increase in WACC does not confirm recoverable values higher than carrying amounts, resulting in an impairment loss of about -10 million euro. “Monfalcone” Cash Generating Unit The Monfalcone CGU includes the Monfalcone coal-fired power plant. The value in use of this CGU was determined on the basis of a definite useful life scenario, the time horizon of which was set equal to the expiry of the existing AIA and the expected coal phase-out. No impairment loss was identified during the impairment test as the recoverable value is in line with the net capital employed, deemed recoverable. 61 A2A Consolidated financial statements 2021 “San Filippo del Mela” Cash Generating Unit The power plant in San Filippo del Mela includes two plants: SFM 150 kV (group 1) and SFM 220 kV (groups 2, 5 and 6). With Resolution no. 803/2016 of December 28, 2016, the Authority recognized the San Filippo del Mela plant as one of the essential plants eligible for the reintegration of costs for the period of contracting with Terna, which will concern the five-year period 2017-2021; from the point of view of plants, the Group’s request for admission to reintegration concerned only the 220 kV plant (UP SF2, UP SF5, UP SF6) with the provision of the 150 kV (UP SF1) plant as reserve of UP SF2. During 2020, by way of Resolution 269/2020, ARERA granted the application for recognition of essentiality of the plant in 2022\. The value in use of this CGU was determined on the basis of a definite useful life scenario, the time horizon of which was set equal to the expiry of the existing AIA. No impairment loss was identified during the impairment test as the recoverable value is in line with the net capital employed. 3) Shareholdings and other non-current financial assets millions of euro Balance at 12 31 2020 First-time consolid. effect acquisitions 2021 Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Shareholdings carried according to equity method 17 16 33 \- \- Other non-current financial assets 36 2 26 64 21 24 Total shareholdings and other non-current financial assets 53 2 42 97 21 24 The following table provides details of the changes in the value of “Shareholdings carried according to equity method”: Shareholdings carried according to equity method millions of euro TOTAL Balance at December 31, 2020 17 First-time consolidation effect acquisitions 2021 \- Changes during the year: \- acquisitions and capital increases 7 \- valuations at equity 2 \- write-downs - \- dividends received from shareholdings in companies carried at equity (3) \- sales - \- other changes 1 \- reclassifications 9 Total Changes 16 Balance at December 31, 2021 33 The increase of 16 million euro in “Shareholdings carried according to equity method” is due to the change in the consolidation method used for Consul System S.p.A., which led to a net increase, net of dividends collected, for 7 million euro, to the acquisition of 30% of the investment in F.lli Omini for 6 million euro, to the acquisition of 49% of the investment in NetCity S.r.l. for 1 million euro and other increases for 2 million euro referring to the valuations for the year. The details of the shareholdings are provided in annex no. 4 “List of shareholdings in companies carried at equity”. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 62 3 Notes to the Consolidated annual report At December 31, 2021, “Other non-current financial assets” showed a balance of 64 million euro, an increase of 28 million euro compared with the figure at December 31, 2020, of which 2 million euro is attributable to the effects of the initial consolidations, 14 million euro to the reclassification under non-current assets, following the request to deposit in a specific account, the amounts seized by the Court of Taranto as part of the proceedings underway against the subsidiary Linea Ambiente S.r.l., 11 million euro referring to investments made in innovative start-ups through Corporate Venture Capital projects, 4 million euro to financial assets towards third parties relating to a non-interest bearing loan granted during the year to the company Sinergie Italiane S.r.l. in liquidation and other decreases of 1 million euro. At December 31, 2021, “Other non-current financial assets” include, in addition to the above, 24 million euro in medium/long-term financial receivables, of which 11 million euro relating to loans to third parties, 4 million euro from the Municipality of Brescia, relating to the management of public lighting in application of IFRIC 12, 7 million euro deriving from the management of the Cedrasco biocube plant by the subsidiary Bioase in application of IFRIC 12 and 2 million euro in other financial assets. This item also includes 7 million euro for equity investments in other companies, details of which are provided in Annex 5 “List of equity investments in other companies”. 4) Deferred tax assets millions of euro Balance at 12 31 2020 First-time consolidation effect acquisitions 2021 Net Changes Balance at 12 31 2021 Deferred tax assets 265 - 159 424 “Deferred tax assets” amounted to 424 million euro (265 million euro at December 31, 2020) and showed an increase of 159 million euro. The change includes the release of deferred tax liabilities, following the exercise of the realignment option pursuant to DL 104/2020, exercised by some Group companies, which allows the realignment of the differences between higher statutory values and lower values for tax purposes on tangible assets and the consequent deduction of higher tax amortization starting from the current year, as well as the release of a part of deferred IRAP tax assets as the Group considered their recoverability to be unreasonable. The impact of the release of deferred/tax assets/liabilities was equal to 168 million euro. The item includes the net effect, as detailed in the table below to which reference is made, of deferred tax liabilities and deferred tax assets for IRES and IRAP on changes and provisions made solely for tax purposes. The recoverability of “Deferred tax assets” recorded in the financial statements is considered likely, as the future plans envisage taxable income sufficient to use the deferred tax assets. At December 31, 2021, the amounts relative to deferred tax assets/deferred tax liabilities have been expressed as net (“offsetting”) as per IAS 12 standards. 63 A2A Consolidated financial statements 2021 The following tables sets out the main deferred tax assets and liabilities. Consoli-dated financial statements 12 31 2020 First-time consolid. effect Accruals (A) Uses (B) Adjust. Rates (C) Total (A+B+C) IFRS 9 at Equity Net IAS 19 Revised at Equity Net Other changes /Reclass. Deferred tax assets/liabilities and Assets and liabilities held for sale Consoli-dated financial statements 12 31 2021 Detail of deferred tax assets/liabilities Deferred tax liabilities Measurement differences for tangible assets 491 - - (170) - (170) - - - (11) 310 Application of the financial instrument standard (IFRS 9) - - - - - - - - - - - Measurement differences for intangible assets 79 - - (16) - (16) - - - - 63 Deferred capital gains - - - - - - - - - - Employee leaving entitlement (TFR) 2 - - - - - - - - 2 Goodwill 6 - - - - - - - - 6 Other deferred tax liabilities 2 5 - - - - - 1 - - 8 Total deferred tax liabilities (A) 580 5 - (186) - (186) - 1 - (11) 389 Deferred tax assets Taxed risk provisions 111 - 14 (13) - 1 - 9 - - 121 Measurement differences for tangible assets 526 - 7 (49) - (42) - - - (6) 478 Application of the financial instrument standard (IFRS 9) (5) - - - - - (14) - - - (19) Bad debt provision 11 - 10 - - 10 - - - - 21 Measurement differences for intangible assets 5 - 3 - - 3 - - - - 8 Grants 16 - - - - - - - - - 16 Goodwill 173 - 18 (16) - 2 - - - - 175 Other deferred tax assets 8 5 1 (1) - - - - - - 13 Total deferred tax assets (B) 845 5 53 (79) - (26) (14) 9 - (6) 813 NET EFFECT DEFERRED TAX ASSETS/LIABILITIES (B-A) 265 - 53 107 - 160 (14) 8 - 5 424 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 64 3 Notes to the Consolidated annual report 5) Other non-current assets millions of euro Balance at 12 31 2020 First-time consolid. effect acquisitions 2021 Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Other non-current assets 28 - (3) 25 - - Total other non-current assets 28 - (3) 25 - \- “Other non-current assets” decreased 3 million euro over December 31, 2020 and consist of security deposits and costs already incurred, however pertaining to future years. CURRENT ASSETS 6) Inventories millions of euro Balance at 12 31 2020 First-time consolidation effect acquisitions 2021 Changes Balance at 12 31 2021 \- Materials 77 9 10 96 \- Material obsolescence provision (20) (2) (22) Total materials 57 9 8 74 \- Fuel 73 49 122 \- Others 9 (1) 8 Raw and ancillary materials and consumables 139 9 56 204 Third-party fuel - - - - Total inventories 139 9 56 204 Inventories amounted to 204 million euro (139 million euro at December 31, 2020), net of the related obsolescence provision for 22 million euro (20 million euro at December 31, 2020). Inventories, net of the first-time consolidation effects of 9 million euro, showed an overall increase of 56 million euro, as detailed below: 49 million euro related to the increase in inventories of fuels reflecting the fuels prices trend (which include the inventories of fuels for the production of electricity, as well as the gas inventories for the sale and storage thereof); 8 million euro related to the increase in inventories of materials, including the allocation to the material obsolescence provision; 3 million euro related to the increase in inventories of trading white certificates; other decreases amounting to 4 million euro. 7) Trade receivables millions of euro Balance at 12 31 2020 First-time consolidation effect acquisitions 2021 Changes Balance at 12 31 2021 Trade receivables \- invoices issued 831 9 284 1,124 Trade receivables \- invoices to be issued 1,329 971 2,300 (Bad debts provision) (130) (3) (133) Total trade receivables 2,030 9 1,252 3,291 65 A2A Consolidated financial statements 2021 As of December 31, 2021 the “Trade receivables” amounted to 3,291 million euro (2,030 million euro at December 31, 2020), with an increase of 1,261 million euro. In detail, the changes were as follows: for 1,247 million euro, the increase in trade receivables from customers, which at December 31, 2021, showed a balance of 3,163 million euro (1,916 million euro at December 31, 2020); for 22 million euro, the increase in receivables from associates, which had a balance of 51 million euro (29 million euro at the end of the previous year); for 9 million euro, the decrease in receivables from the Municipalities of Milan and Brescia; this item had an overall balance of 76 million euro (85 million euro in the previous year). The change in trade receivables is primarily due to the increase in tariffs for the sale of electricity and gas in the last quarter of the year and in turn determined by the increase in the price of commodities. The “Bad debts provision”, calculated in compliance with IFRS 9, amounted to 133 million euro and showed a net increase of 3 million euro compared to December 31, 2020\. This provision is considered adequate to cover the risks to which it relates. The changes in the Bad debts provision are outlined in the following table: millions of euro Balance at 12 31 2020 First-time consolidation effect acquisitions 2021 Provisions Uses Other changes Balance at 12 31 2021 Bad debts provision 130 - 33 (29) (1) 133 The losses on receivables incurred in 2021 are not significantly different from those recorded in previous years. Consequently, the Group has allocated to the bad debts provision an amount of 33 million euro (31 million euro at December 31, 2020). It should be noted that the Group, taking into account the impact of the tariff increase in the last quarter of the year when assessing the risks of expected losses on receivables as at December 31, 2021, as provided for by IFRS 9, deemed it appropriate to introduce a “expected credit losses” adjustment of 12 million euro. The following is the aging of trade receivables: millions of euro 12 31 2021 12 31 2020 Trade receivables of which: 3,291 2,030 Current 840 588 Past due of which: 284 241 \- Past due up to 30 days 90 55 \- Past due from 31 to 180 days 69 51 \- Past due from 181 to 365 days 32 40 \- Past due over 365 days 93 95 Invoices to be issued 2,300 1,331 Bad debts provision (133) (130) The increase in commodity prices noted especially in the last quarter of 2021 and continued in the early months of 2022, resulted in an increase in sales and, consequently, in the amount of trade receivables. The valuation of trade receivables and their recoverability is carried out in accordance with IFRS 9. Given the high quality of customers, largely subject to credit check-in during the contract activation phase, and the significant proportion of bills paid by direct debit, amounting to 58% of the total, despite the increase in trade receivables, there was no significant deterioration in payment performance on the part of customers. In fact, the collection time detected in the first two months of 2022 is on average 3 days less than in the same period of 2021 and in line with what was detected in the pre-pandemic period. In conclusion, considering the high energy prices, it is reasonable to expect some difficulties from customers. However, for the reasons described above, the Group does not expect any significant deterioration in payment performance. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 66 3 Notes to the Consolidated annual report 8) Other current assets millions of euro Balance at 12 31 2020 First-time consolid. effect acquisitions 2021 Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Current derivatives (commodity derivatives) 426 3,311 3,737 \- \- Other current assets of which: 259 10 45 314 - receivables from Cassa per i Servizi Energetici e Ambientali 112 (17) 95 - advances to suppliers 27 15 42 - receivables from employees 1 \- 1 - tax receivables 53 5 (6) 52 - receivables related to future years 24 2 - 26 - receivables from Ergosud 2 - 2 - receivables from social security entities 2 - 2 - stamp office 1 - 1 - receivables for damage compensation 3 - 3 - receivables for COSAP advances 2 (1) 1 - receivables for security deposits 3 34 37 - receivables for RAI fee 3 - 3 \- credit transfer Gesi \- 2 2 - other sundry receivables 26 3 18 47 Total other current assets 685 10 3,356 4,051 \- \- “Other current assets” showed a balance of 4,051 million euro compared to 685 million euro at December 31, 2020, highlighting, net of the first-time consolidations of 10 million euro, an increase of 3,356 million euro. “Current derivative instruments” increased by 3,311 million euro due to significant differentials between subscription prices and forward prices, which were affected by price volatility in the markets of raw materials, despite a significant reduction in the overall volumes handled during the year. “Other current liabilities” include 3,708 million euro in “Current derivatives”. Receivables from Cassa per i Servizi Energetici e Ambientali, amounting to 95 million euro (112 million euro at December 31, 2020), mainly refer to receivables for equalizations pertaining to both 2021 and to outstanding receivables for equalizations pertaining to previous years and receivables for tariff components, net of collections made in the current year. Tax receivables, amounting to 52 million euro, mainly relate to tax receivables from the tax authorities for withholding taxes, VAT and excise. Other sundry receivables include 21 million euro in receivables for works to upgrade and improve energy efficiency in condominiums and third parties, for which tax benefits will be available under the building bonus scheme. 9) Current financial assets millions of euro Balance at 12 31 2020 First-time consolid. effect acquisitions 2021 Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Other financial assets 11 - (2) 9 11 9 Total current financial assets 11 - (2) 9 11 9 “Current financial assets” amounted to 9 million euro (11 million euro at December 31, 2020). This item mainly refers to financial receivables from minority shareholders and third parties. 67 A2A Consolidated financial statements 2021 10) Current tax assets millions of euro Balance at 12 31 2020 First-time consolidation effect acquisitions 2021 Changes Balance at 12 31 2021 Current tax assets 76 - (8) 68 At December 31, 2021, this item amounted to 68 million euro (76 million euro at December 31, 2020) and refers to IRES and IRAP receivables for amounts requested for reimbursement on payments of previous years, and the remaining credit for Robin Tax paid in previous years and that will be recovered in subsequent years. 11) Cash and cash equivalents millions of euro Balance at 12 31 2020 First-time consolid. effect acquisitions 2021 Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Cash and cash equivalents 1,012 27 (75) 964 1,012 964 “Cash and cash equivalents” at December 31, 2021 represent the sum of the Group’s bank and postal asset balances. The increase related to the effect of the first-time consolidation of acquisitions in 2021 amounted to 27 million euro. Bank deposits include interest accrued even if it was not credited by the end of the financial year under review. 12) Non-current assets held for sale millions of euro Balance at 12 31 2020 First-time consolid. effect acquisitions 2021 Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Non-current assets held for sale 28 - 134 162 - - At December 31, 2021, “Non-current assets held for sale” amounted to 162 million euro (28 million euro at December 31, 2020) and refer for 117 million euro to the reclassification of some assets relating to gas distribution referring to ATEM deemed non-strategic for the Group and for 45 million euro to the reclassification of three properties located in Milan sold in February 2022\. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 68 3 Notes to the Consolidated annual report EQUITY AND LIABILITIES EQUITY Equity, which amounted to 4,303 million euro at December 31, 2021 (4,116 million euro at December 31, 2020), is set out in the following table: millions of euro Balance at 12 31 2020 Changes Balance at 12 31 2021 Equity pertaining to the Group: Share capital 1,629 \- 1,629 (Treasury shares) (54) 54 0 Reserves 1,598 29 1,627 Group result of the year 364 140 504 Total equity pertaining to the Group 3,537 223 3,760 Minority interests 579 (36) 543 Total equity 4,116 187 4,303 The change of the Shareholders’ equity was overall positive for 187 million euro. The net profit for the year generated a positive effect of 504 million euro, offset by the distribution of 248 million euro in dividends. In the second quarter of 2021 was the share buyback program authorized by the Shareholders’ Meeting on April 29, 2021, resulting in an increase in treasury shares held in portfolio of 109 million euro. The Group subsequently acquired the remaining 49% of the share capital of LGH S.p.A. by means of a merger by incorporation into A2A S.p.A., through the assignment, in favour of the minority shareholders, of the total number of treasury shares in portfolio, amounting to 163 million euro, including 54 million euro of treasury shares already held at December 31, 2020. Lastly, the net fair value gain of cash flow hedge derivatives and the IAS 19 reserves for a total of 7 million euro and the net decrease in minority interests for 36 million euro also affected shareholders’ equity. 13) Share capital “Share capital” amounted to 1,629 million euro and consists of 3,132,905,277 ordinary shares each of nominal value 0.52 euro. 14) Treasury shares “Treasury shares” had no value at December 31, 2021 (54 million euro at December 31, 2020). At December 31, 2020 treasury shares held by the parent A2A S.p.A. were 23,721,421, equivalent to 54 million euro. During the second quarter of 2021, the parent A2A S.p.A. purchased treasury shares for a value of 109 million euro, by virtue of the share buyback program initiated on May 13, 2021 and concluded on June 24, 2021, thus coming to hold 86,154,895 treasury shares, equal to 2.75% of the share capital. The Group then proceeded to acquire 49% of the share capital of LGH S.p.A. through the assignment of these treasury shares to minority shareholders. 69 A2A Consolidated financial statements 2021 15) Reserves millions of euro Balance at 12 31 2020 Changes Balance at 12 31 2021 Reserves 1,598 29 1,627 of which: \- Change in the fair value of cash flow hedge derivatives and fair value bonds (7) 47 40 \- Tax effect 1 (13) (12) Cash flow hedge reserves (6) 34 28 Change in the IAS 19 Revised reserve \- Employee Benefits (66) (38) (104) Tax effect 17 11 28 IAS 19 Revised reserve \- Employee Benefits (49) (27) (76) Reserves, which amounted to 1,627 million euro (1,598 million euro at December 31, 2020), consist of the legal reserve, extraordinary reserves, and the retained earnings of subsidiaries. This item also includes the cash flow hedge reserve, positive for 28 million euro, which refers to the period-end measurement of derivatives qualifying for hedge accounting, and the fair value measurement of the Bonds in foreign currency net of the tax effect. The balance also includes negative reserves of 76 million euro arising from the adoption of IAS 19 Revised “Employee Benefits” which requires actuarial profits and losses to be recognized directly in an equity reserve. The item includes the equity reserve deriving from the first application of IFRS 9, and in particular the impairment of trade receivables according to the expected losses model. Reconciliation between the result of the year of A2A S.p.A. and the Group result of the year millions of euro 2021 2020 Result of the year A2A S.p.A. 485 546 Intra-group dividends eliminated from the consolidated financial statements (444) (452) Result of subsidiaries, associates and joint ventures not included in the financial statements of A2A S.p.A. 532 433 Reversal of impairment of subsidiary shareholdings in A2A S.p.A.’s financial statements 2 - Other consolidation adjustments (71) (163) Group result of the year 504 364 Reconciliation between the equity of A2A S.p.A. and equity pertaining to the Group millions of euro 12 31 2021 12 31 2020 Equity pertaining to A2A S.p.A. 3,332 3,177 \- Elimination of the portion of the equity reserve resulting from profit on intra-group operations for the transfer of business units (378) (386) \- Retained earnings (losses) 579 736 \- Intra-group dividends eliminated from the consolidated financial statements (444) (452) \- Result of subsidiaries not included in the financial statements of A2A S.p.A. 532 433 \- Reversal of impairment of subsidiary shareholdings in A2A S.p.A.’s financial statements 2 - \- Other consolidation adjustments 137 29 Equity pertaining to the Group 3,760 3,537 16) Result of the year Positive result for 504 million euro. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 70 3 Notes to the Consolidated annual report 17) Minority interests millions of euro Balance at 12 31 2020 Changes Balance at 12 31 2021 Minority interests 579 (36) 543 “Minority interests” amounted to 543 million euro (579 million euro at December 31, 2020) and mainly represent the portions of capital, reserves and result pertaining to minority shareholders related to third-party shareholders. The decrease was due to the effect of the purchase of 49% of LGH S.p.A., as better described in the paragraph “Treasury shares”, net of the result for the period attributable to minority interests. LIABILITIES NON-CURRENT LIABILITIES 18) Non-current financial liabilities millions of euro Balance at 12 31 2020 First-time consolid. effect acquisitions 2021 Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Non-convertible bonds 2,690 - 490 3,180 2,690 3,180 Payables to banks 928 40 (117) 851 928 851 Financial payables for non-current rights of use 89 10 (10) 89 89 89 Payables to other lenders 202 88 (88) 202 202 202 Total non-current financial liabilities 3,909 138 275 4,322 3,909 4,322 “Non-current financial liabilities” amounted to 4,322 million euro (3,909 million euro at December 31, 2020), with an increase of 275 million euro, net of the first-time consolidation effect of the year for 138 million euro. “Non-convertible bonds” amounting to 3,180 million euro (2,690 million euro at December 31, 2020) relate to the following bonds, which are accounted for at amortized cost: 300 million euro, Private Placement maturing in December 2023 and coupon of 4.00%, the nominal value of which is equal to 300 million euro; 300 million euro, Private Placement maturing in March 2024 and coupon of 1.25%, the nominal value of which is equal to 300 million euro; 299 million euro, maturing in February 2025 and coupon of 1.75%, the nominal value of which is equal to 300 million euro; 297 million euro, maturing in October 2027 and coupon of 1.625%, the nominal value of which is equal to 300 million euro; 107 million euro, Private Placement in yen maturing in August 2036 and fixed rate of 5.405%, the nominal value of which is equal to 14 billion yen; 395 million euro, maturing in July 2029 and coupon of 1.00%, the nominal value of which is equal to 400 million euro; 493 million euro, maturing in October 2032 and coupon of 0.625%, the nominal value of which is equal to 500 million euro; 495 million euro, maturing in July 2031 and coupon of 0.625%, the nominal value of which is equal to 500 million euro; 494 million euro, maturing in November 2033 and coupon of 1%, the nominal value of which is equal to 500 million euro. The increase in the non-current component of “Non-convertible bonds” of 490 million euro compared to December 31, 2020 was due to the counter effect of the subscription of the new bonds maturing in 2031 and 2033 (both with nominal value 500 million euro recorded net of amortized cost), partly offset by the reclassification to “Current financial liabilities” of the bond maturing in 2022 (499 million euro) and the decrease in the ECB exchange rate applied to the yen bond. 71 A2A Consolidated financial statements 2021 Non-current “Payables to banks” amounted to 851 million euro, the effect of the first-time consolidation brought an increase of 40 million euro. These payables were repaid early. During the year, the further decrease of 117 million euro is attributable to the payment of ordinary instalments due during the year, with the consequent reclassification to current liabilities of the capital portions due within the following year. “Payables to other lenders” increased 88 million euro due to the effect of the first-time consolidation. These payables were subsequently settled during the year. The following table shows the comparison, for each long-term debt category, between the book value and the fair value, including the portion falling due in the next 12 months. For listed debt instruments, the fair value is determined using stock prices, while for unlisted securities the fair value is determined using valuation models for each category of financial instrument and using market data relating to the closing date of the financial year, including the credit spreads of the A2A Group. millions of euro Nominal value Book value Current portion Non-current portion Fair value Bonds 3,698 3,713 533 3,180 3,762 Loans from banks and other lenders 1,244 1,243 190 1,053 1,250 Total 4,942 4,956 723 4,233 5,012 19) Employee benefits At December 31, 2021, the balance on this item amounted to 294 million euro (278 million euro at December 31, 2020) with changes as follows: millions of euro Balance at 12 31 2020 First-time consolid.effect acquisitions 2021 Accruals Uses Other changes Balance at 12 31 2021 Employee leaving entitlement (TFR) 148 1 35 (16) (32) 136 Employee benefits 130 - - (7) 35 158 Total employee benefits 278 1 35 (23) 3 294 The change during the year is attributable for 35 million euro to provisions for the year, for 23 million euro to the decrease due to disbursements and for 34 million euro to the net decrease related to payments to pension funds. In addition, actuarial valuations for the year include the increase resulting from actuarial gains/losses for a total of 37 million euro, mainly due to the increase in electricity costs. Technical valuations were carried out on the basis of the following assumptions: 2021 2020 Discount rate from -0.17% to 0.98% from -0.3% to 0.3% Annual inflation rate 1.75% 0.8% Annual seniority bonus increase rate 2.0% 2.0% Annual additional months increase rate 0.0% 0.0% Annual cost of electricity increase rate 2.0% 2.0% Annual cost of gas increase rate 0.0% 0.0% Annual salary increase rate 1.0% 1.0% Annual TFR increase rate 2.8% 2.1% Average annual increase rate of supplementary pensions 1.1% 1.1% Annual turnover frequencies from 2.0% a 5.0% from 4.0% a 5.0% Annual TFR advance frequencies from 2.0% a 2.5% from 2.0% a 2.5% 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 72 3 Notes to the Consolidated annual report It is noted that: the discount rate used by the Group varies from company to company on the basis of the average financial term of the bond. The discount rate used is that corresponding to Iboxx Corporate AA; the annual rate of salary increase applied exclusively to companies with fewer than 50 employees on average in 2006 was determined on the basis of the reference data communicated by Group companies; the annual rate of TFR increase, according to art. 2120 of the Civil Code, is equal to 75% of inflation plus 1.5 percentage points; the annual advance and turnover frequencies are derived from historical experiences of the Group and the frequencies arising from the experience of the Actuary on a significant number of similar companies; for the demographic technical bases, it is noted that: for “death”, the tables AS62 (Electricity and gas discount), RG48 (TFR and other plans) and TG62 (Premungas) were used; for “inability”, the INPS tables divided by age and gender were used; for “retirement”, the 100% parameter was used upon reaching the requirements of AGO (Obligatory General Insurance); for the “probability of leaving the family”, the table in the INPS model was used for projections to 2010; for the “frequency of the various structures of surviving nuclei and average age of members”, the table in the INPS model was used for projections to 2010. 20) Provisions for risks, charges and liabilities for landfills millions of euro Balance at 12 31 2020 First-time consolid.effect acquisitions 2021 Provisions Releases Utilizations Other changes Balance at 12 31 2021 Decommissioning provisions 301 3 10 (13) 26 327 Landfill closing and post-closing expense provisions 184 19 (9) 19 213 Tax provisions 48 7 (1) 54 Personnel lawsuits and disputes provisions 48 6 (1) (1) 52 Other risk provisions 171 24 (8) (6) (30) 151 Provisions for risks, charges and liabilities for landfills 752 3 66 (10) (29) 15 797 At December 31, 2021, provision for risks, charges and liabilities for landfills amounted to 797 million euro and showed an increase of 45 million euro. “Decommissioning provisions”, which amounted to 327 million euro, include charges for costs of dismantling and recovery of production sites mainly related to thermoelectric plants and waste-to-energy plants. The changes for the period concerned uses for 13 million euro, to cover the expenses incurred during the reporting year, allocations for 10 million euro and other increases for 26 million euro, due to the update of the discount rates used to estimate the future costs of dismantling and restoration of the sites having “Tangible assets” as balancing entry and the update of the appraisals. The first-time consolidation effects amounted to 3 million euro. The “Landfill closing and post-closing expense provisions”, which amounted to 213 million euro, refer to all the costs that will have to be incurred in the future for the sealing of the landfills in cultivation at the reporting date and for the subsequent post-operative management, as required by current regulations. Changes in the year included utilizations of 9 million euro, which represent actual disbursements during the period, allocations of 19 million euro related to adjustments to the provisions for landfills following the update of the appraisals, inflation and discount rates, and other increases of 19 million euro. “Tax Provisions”, which amounted to 54 million euro, refer to provisions for pending or potential litigation with the tax authorities or territorial entities for direct and indirect taxes, levies and excises. This item increased compared to December 31, 2020 by 6 million euro as a result of provisions for the year. “Personnel lawsuits and disputes provisions”, which totalled 52 million euro, refer to litigation with third parties for 47 million euro and employees for 3 million euro to cover liabilities that may arise from pending litigation, and lawsuits with Social Security Institutions for 2 million euro related to social security contributions that the Group believes it will not be required to pay and are the subject of specific disputes. 73 A2A Consolidated financial statements 2021 “Other provisions for risks”, which amounted to 151 million euro, refer to provisions relating to public water derivation fees for 55 million euro, to the mobility provision for the costs arising from the corporate restructuring plan, for 2 million euro, as well as other provisions for 94 million euro, which also include the provision related to the dispute over the Grottaglie landfill. The main components of these provisions are net allocations of 16 million euro, of which 10 million euro related to additional charges for hydroelectric derivation surcharges, uses of 6 million euro and other decreases of 30 million euro. 21) Other non-current liabilities millions of euro Balance at 12 31 2020 First-time consolid. effect acquisitions 2021 Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Other non-current liabilities 127 1 (10) 118 31 - Non-current derivatives 19 1 (9) 11 19 11 Total other non-current liabilities 146 2 (19) 129 50 11 At December 31, 2021, this item decreased by 17 million euro compared to the balance at the end of the previous year. “Other non-current liabilities”, which showed a balance of 118 million euro, refer to security deposits from customers, for 92 million euro, to liabilities pertaining to future years for 13 million euro, to medium/long-term payables to suppliers for 3 million euro, as well as other non-current liabilities for 10 million euro. “Non-current derivatives” amounted to 11 million euro and showed a negative change of 9 million euro deriving from the fair value valuation of financial instruments at the end of the current year, net of the impact of first-time consolidation in the first half of 2021 for 1 million euro. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 74 3 Notes to the Consolidated annual report CURRENT LIABILITIES 22) Trade payables and other current liabilities “Trade receivables and other current liabilities” amounted to 7,381 million euro (2,418 million euro at December 31, 2020), representing an increase of 4,963 million euro. “Trade receivables” amounted to 2,894 million euro and compared to the closing of the previous year, represent an increase of 1,329 million euro, excluding the first-time consolidation effects of the period for 13 million euro. “Payables to social security institutions” amounted to 46 million euro, up 2 million euro compared to December 31, 2020 and relate to the Group’s debt position with social security and pension institutions. “Current derivative instruments” amounted to 3,708 million euro (403 million euro at December 31, 2020) and refer to the fair value valuation of commodity derivatives. The increase is the period under review is due to the significant differentials between subscription prices and forward prices, influenced by price volatility in commodity markets despite a significant reduction in overall volumes traded during the year. “Other current assets” included 3,737 million euro in “Current derivatives”. millions of euro Balance at 12 31 2020 First-time consolid. effect acquisitions 2021 Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Advances 3 5 8 Payables to suppliers 1,549 13 1,324 2,886 Total trade payables 1,552 13 1,329 2,894 \- \- Payables to pension and social security institutions 44 2 46 Current derivatives (commodity derivatives) 403 1 3,304 3,708 Other current liabilities of which: 419 8 306 733 - Payables to personnel 96 1 (4) 93 - Payables to Cassa per i Servizi Energetici e Ambientali 81 62 143 - Tax payables 45 39 84 - Payables for tax transparency 7 \- 7 - Payables for energy tariff components 66 (66) \- - Payables for A.T.O. 3 (1) 2 - Payables to customers for work to be performed 15 3 18 - Payables to customers for interest on security deposits 2 \- 2 - Payables to third-party shareholders 1 - 1 - Payables for the purchase of equity investments 20 11 31 31 \- Payables for liabilities of subsequent years 18 258 276 - Payables for auxiliary services 15 2 17 - Payables for collections to be allocated 11 4 15 - Payables to insurance companies 5 (1) 4 - Payables for environmental compensation 3 1 4 - Payables for RAI fee 8 (1) 7 - Sundry payables 23 7 (1) 29 Total other current liabilities 866 9 3,612 4,487 \- 31 Total trade payables and other current liabilities 2,418 22 4,941 7,381 - 31 75 A2A Consolidated financial statements 2021 “Other current liabilities” mainly refer to: payables to employees for 93 million euro (96 million euro at December 31, 2020), relating to payables to employees for the productivity bonus accrued during the period, as well as the expense for holidays accrued but not taken at December 31, 2021; payables to the CSEA \- Cassa per i Servizi Energetici e Ambientali for 143 million euro (81 million euro at December 31, 2020) regarding the payable for the tariff components, invoiced and not yet paid, as well as the payable for equalization liabilities related both to prior years and the period under review. This item includes the payable for energy tariff components of 53 million euro (66 million euro at December 31, 2020) reclassified from the corresponding detailed item at the end of the previous year as the collection of these charges was transferred from the GSE to the CSEA; tax payables of 84 million euro (45 million euro at December 31, 2020), referring to payables to the tax authorities for excise duties, withholding taxes and VAT, with a significant change compared to the previous year attributable primarily to the 20 million euro increase in excise duties payable and the 15 million euro increase in payables for water derivation fees; payables relating to advance collections of electricity and gas futures contracts, the economic effect of which will be seen in the following year, amounting to 276 million euro (18 million euro at December 31, 2020); payables for the purchase of shareholdings of 31 million euro (20 million euro at December 31, 2020) relating to the purchases concluded in the previous years in the photovoltaic sector. 23) Current financial liabilities “Current financial liabilities” amounted to 746 million euro (588 million euro at December 31, 2020) and, net of the first-time consolidation effects of 45 million euro in the year, showed an increase of 113 million euro. millions of euro Balance at 12 31 2020 First-time consolid. effect acquisitions 2021 Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Non-convertible bonds 398 - 135 533 398 533 Payables to banks 168 17 4 189 168 189 Current financial payables for rights of use 21 2 \- 23 21 23 Payables to other lenders 1 26 (26) 1 1 1 Total current financial liabilities 588 45 113 746 588 746 “Non-Convertible Bonds” amount to 533 million euro, an increase of 135 million euro, as the net effect of the decrease in the principal repaid for the bonds that matured during the year and the reclassification of the bond maturing in January 2022 from “Non-current financial liabilities”. Current “Payables to banks” amount to 189 million euro, representing an increase of 4 million euro compared with the end of the previous year, net of first-time consolidations of 17 million euro. 24) Tax payables millions of euro Balance at 12 31 2020 First-time consolidation effect acquisitions 2021 Changes Balance at 12 31 2021 Tax payables 5 - 16 21 Tax payables amounted to 21 million euro (5 million euro at December 31, 2020) representing an increase of 16 million euro over the previous year-end. This item includes, net of the payments made during the year, 21 million euro in substitute taxes recognized following the release of deferred taxes in connection with the realignment option provided for by DL 104/2020 exercised by the Group as better described in note 4) Deferred tax assets. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 76 3 Notes to the Consolidated annual report 25) Liabilities directly associated with non-current assets held for sale millions of euro Balance at 12 31 2020 First-time consolid. effect acquisitions 2021 Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Liabilities directly associated with non-current assets held for sale 14 - 1 15 - - At December 31, 2021, “Liabilities directly associated with non-current assets held for sale” had a value of 15 million euro. The item at December 31, 2021 refers to the reclassification of some liabilities related to the gas distribution networks business unit referring to ATEMs considered non-strategic for the Group. 77 A2A Consolidated financial statements 2021 3.12 Net debt 26) Net debt (pursuant to Communication ESMA/31-62-1426) The following table provides details of net debt: millions of euro Note 12 31 2021 First-time consolid. effect acquisitions 2021 12 31 2020 Restated (*) 12 31 2020 Published Bonds \- non-current portion 18 3,180 2,690 2,690 Bank loans \- non-current portion 18 851 40 928 928 Non-current financial payables for rights of use 18 89 9 89 89 Non-current payables to other lenders 18 202 88 202 202 Other non-current liabilities 21 11 1 50 19 Total medium/long-term debt 4,333 138 3,959 3,928 Non-current financial assets \- related parties 3 (5) (4) (4) Non-current financial assets 3 (19) (2) (17) (17) Total medium/long-term financial receivables (24) (2) (21) (21) Total non-current net debt 4,309 136 3,938 3,907 Bonds \- current portion 23 533 398 398 Bank loans \- current portion 23 189 17 168 168 Current financial payables for rights of use 23 23 2 21 21 Current amounts due to other providers of finance 23 1 26 1 1 Current financial liabilities \- related parties 22 31 1 Total short-term debt 777 46 588 588 Other current financial assets 9 (8) (11) (11) Current financial assets \- related parties 9 (1) \- \- Total short-term financial receivables (9) - (11) (11) Cash and cash equivalents 11 (964) (27) (1,012) (1,012) Total current net debt (196) 19 (435) (435) Net debt 4,113 155 3,503 3,472 (*)The amount restated at December 31, 2020 implements guidance ESMA/31-62-1426 on balance sheet items to be included in the Net Financial Position. The Group net financial position was 4,113 million euro. The application of the new ESMA guidelines on the representation of financial debt led to a worsening of the net financial position of 31 million euro, corresponding to deferred prices arising from M&A tran-sactions concluded in previous years. Insofar as the disclosure about indirect financial debt is concerned, the Group has identified financial commitments due within one year in connection with employee benefits, decommissioning provisions and liabilities for landfills, tax disputes and reverse factoring, amounting to about 77 million euro. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 78 3 Notes to the Consolidated annual report Pursuant to IAS 7 “Cash Flow Statement”, the following are the changes in financial assets and liabilities: millions of euro 12 31 2020 Cash flow Non-cash flow 12 31 2021 First-time consolid. effect acquisitions 2021 Change in fair value Other changes Bonds 3,088 635 - (3) (7) 3,713 Financial payables 1,409 (260) 183 - 23 1,355 Other liabilities 19 (1) 2 (8) 30 42 Financial assets (32) (1) (2) - 2 (33) Net liabilities deriving from financing activities 4,484 373 183 (11) 48 5,077 Cash and cash equivalents (1,012) 75 (27) - - (964) Net debt 3,472 448 156 (11) 48 4,113 79 A2A Consolidated financial statements 2021 3.13 Notes to the income statement For changes in the scope of consolidation as of December 31, 2021, please refer to the “Notes to the Balance Sheet Items” section of these Notes. Moreover, the economic figures at December 31, 2021 are not consistent with the previous year due to the following extraordinary transactions in 2020: line-by-line consolidation of the AEB Group as of November 1, 2020\. acquisition by A2A Rinnovabili S.p.A. and line-by-line consolidation of 100% of Flabrum S.r.l. and Solar Italy V S.r.l., companies operating in the sector of power generation from renewable sources; acquisition by LGH S.p.A. (now merged into A2A S.p.A.) and line-by-line consolidation of Agritre S.r.l., Tre Stock S.r.l. (merged already in December 2020 into LGH S.p.A.) and Fragea S.r.l., companies operating in the biomass generation sector. It should be noted that some income statement items, referring to non-current assets held for sale (three buildings located in Milan sold in February 2022 and assets concerning gas distribution referring to ATEMs considered non-strategic for the Group) in compliance with the provisions of IFRS 5, were reclassified to the item “Net result from non-current assets held for sale”. As a result, the values as of December 31, 2020 have been restated. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 80 3 Notes to the Consolidated annual report 27) Revenues Revenues for the year amounted to 11,549 million euro (6,848 million euro at December 31, 2020), which was therefore an increase of 4,701 million euro (+68.6%). Details of the more significant items are as follows: Revenues millions of euro 12 31 2021 12 31 2020 Restated Change % 2021/2020 Revenues from the sale of goods 10,129 5,538 4,591 82.9% Revenues from services 1,223 1,117 106 9.5% Total revenues from the sale of goods and services 11,352 6,655 4,697 70.6% Other operating income 197 193 4 2.1% Total revenues 11,549 6,848 4,701 68.6% The increase was in wholesale energy markets primarily due to the extraordinary increase in electricity and gas prices recorded in 2021\. Revenues in the retail market were also up thanks to higher unit prices and higher quantities sold to customers in the gas and electricity market. Finally, new companies contributed to the aforementioned positive change, acquired in 2020 (AEB Group, consolidated on a line-by-line basis from November 2020, Agritre, Fragea, Tre Stock S.r.l. and Flabrum) and in 2021 (Octopus, Agripower). Further details of the main items are as follows: millions of euro 12 31 2021 12 31 2020 Restated Change % 2021/2020 Sale and distribution of electricity 6,572 3,290 3,282 99.8% Sale and distribution of gas 2,814 1,783 1,031 57.8% Sale of heat 220 175 45 25.7% Sale of materials 75 41 34 82.9% Sale of water 90 83 7 8.4% Sales of environmental certificates 323 136 187 n.s. Connection contributions 35 30 5 16.7% Total revenues from the sale of goods 10,129 5,538 4,591 82.9% Services to customers 1,223 1,117 106 9.5% Total revenues from services 1,223 1,117 106 9.5% Total revenues from the sale of goods and services 11,352 6,655 4,697 70.6% Reintegration of costs plant S. Filippo del Mela (plant essential Unit) 15 51 (36) (70.6%) Damage compensation 9 10 (1) (10.0%) Contributions \- Cassa Servizi Energetici ed Ambientali 8 5 3 60.0% Rents receivable 4 4 \- 0.0% Contingent assets 50 34 16 47.1% Incentives for production from renewable sources (feed-in tariff) 74 59 15 25.4% Other revenues 37 30 7 23.3% Other operating income 197 193 4 2.1% Total revenues 11,549 6,848 4,701 68.6% Revenue from heat sales increased by 45 million euro mainly as a result of the increase in prices and quantities sold in the year under review compared to 2020. 81 A2A Consolidated financial statements 2021 The increase in revenues from the sale of environmental certificates, amounting to 187 million euro, is primarily due to the increase in the CO2price linked to the reference scenario. “Other operating income” increased by 4 million euro mainly due to higher revenues related to incentives on net production from renewable sources of 15 million euro, higher other revenues of 7 million euro and higher contingent assets of 16 million euro partially offset by lower revenues for the reinstatement of generation costs incurred for the San Filippo del Mela power plant (Essential Plant) pursuant to Resolution 803/2016 of 36 million euro. Further details on the reasons for the performance of revenues relating to the various Business Units can be found in the paragraph “Result by sector”. 28) Operating expenses “Operating expenses” amounted to 9,400 million euro (4,945 million euro at December 31, 2020), therefore representing an increase of 4,455 million euro. The main components of this item are as follows: Operating expenses millions of euro 12 31 2021 12 31 2020 Restated Change % 2021/2020 Costs for raw materials and consumables 7,563 3,406 4,157 n.s. Costs for services 1,525 1,281 244 19.0% Total costs for raw materials and services 9,088 4,687 4,401 93.9% Other operating expenses 312 258 54 20.9% Total operating expenses 9,400 4,945 4,455 90.1% “Costs for raw materials and services” amounted to 9,088 million euro (4,687 million euro at December 31, 2020), representing an increase of 4,401 million euro, of which 231 million euro, attributable to the consolidation of the AEB Group, and of which 21 million euro deriving from the first-time consolidation of the companies acquired in 2021. This increase was due to the combined effect of the following factors: an increase of 4,257 million euro in the purchase of raw materials and consumables, due to an increase in costs for the purchase of power and fuel of 3,876 million euro, an increase in the costs relating to the purchase of environmental certificates of 355 million euro, an increase in purchase of materials of 29 million euro, an increase in water purchases for 1 million euro and a net decrease of 4 million euro arising from hedging gains and losses on operating derivatives; an increase of 244 million euro in costs for delivery, subcontracted work and services; the decrease in inventories of fuel and materials for 100 million euro. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 82 3 Notes to the Consolidated annual report For further information, the following table sets out details of the more significant components: millions of euro 12 31 2021 12 31 2020 Restated Change % 2021/2020 Purchases of power and fuel 6,869 2,993 3,876 n.s. Purchases of materials 158 129 29 22.5% Purchases of water 3 2 1 50.0% Hedging losses on operating derivatives 4 9 (5) (55.6%) Hedging gains on operating derivatives (12) (13) 1 (7.7%) Purchases of emission certificates and allowances 596 241 355 n.s. Total expenses for raw materials and consumables 7,618 3,361 4,257 n.s Delivery and transmission costs 808 663 145 21.9% Maintenance and repairs 203 177 26 14.7% Other services 514 441 73 16.6% Total expenses for services 1,525 1,281 244 19.0% Change in inventories of fuel and materials (55) 45 (100) n.s. Total expenses for raw materials and services 9,088 4,687 4,401 93.9% Leasehold improvements 118 99 19 19.2% Concession fees 102 85 17 20.0% Contributions to territorial entities, consortia and ARERA 12 10 2 20.0% Taxes and duties 36 35 1 2.9% Damages and penalties 5 3 2 66.7% Contingent liabilities 19 10 9 90.0% Other costs 20 16 4 25.0% Other operating expenses 312 258 54 20.9% Total operating expenses 9,400 4,945 4,455 90.1% Trading margin The following table sets out the results arising from the trading portfolio, including the effect of changes in derivative instruments, these figures relate to trading in electricity, gas and environmental certificates. Trading margin millions of euro Note 12 31 2021 12 31 2020 Change Revenues 27 247 1,368 (1,121) Operating expenses 28 (221) (1,358) 1,137 Total trading margin 26 10 16 The “Trading margin” was up by 16 million euro compared to December 31, 2020\. Thanks to the persistence of significant volatility in the commodity market and exceptional price levels especially in the second half of 2021, systematic trading activity contributed steadily to margin growth during the year. The scarcity of price liquidity combined with high volatility over a sufficiently large period created an ideal context for operating in Market Making mode. 83 A2A Consolidated financial statements 2021 29) Labour costs Excluding capitalized costs, labour costs at December 31, 2021 totalled 721 million euro (703 million euro at December 31, 2020), of which 38 million euro related to the consolidation of the AEB Group, and of which 3 million euro related to the first-time consolidation of the companies acquired in 2021\. “Labour costs” may be analysed as follows: Labour costs millions of euro 12 31 2021 12 31 2020 Restated Change % 2021/2020 Wages and salaries 562 531 31 5.8% Social security charges 189 179 10 5.6% Employee leaving entitlement (TFR) 35 31 4 12.9% Other costs 35 44 (9) (20.5%) Total labour costs before capitalizations 821 785 36 4.6% Capitalized labour costs (100) (82) (18) 22.0% Total labour costs 721 703 18 2.6% The table below shows the average number of employees by category: 12 31 2021 12 31 2020 Change Managers 206 203 3 Middle Managers 786 765 21 White-collar workers 5,729 5,499 230 Blue-collar workers 6,455 6,440 15 Total 13,176 12,907 269 At December 31, 2021, the average labour cost per capita amounted to 54.72 thousand euro. In the previous year, it was 56.79 thousand euro. At December 31, 2021, the Group had 13,267 employees, of whom 721 related to the consolidation of the AEB Group. At December 31, 2020, the Group had 12,978 employees. Other personnel costs include less than 1 million euro (2 million euro at December 31, 2020) costs relating to the total cost of the company’s restructuring plan related to future staff leaving for redundancy. 30) Gross operating income As a result of the above movements, consolidated “Gross operating income” at December 31, 2021 amounted to 1,428 million euro (1,200 million euro at December 31, 2020), of which 63 million euro arising from the consolidation of the AEB Group and 16 million euro from the first-time consolidation of the companies acquired in 2021\. Further details may be found in the section “Results sector by sector”. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 84 3 Notes to the Consolidated annual report 31) Depreciation, amortization, provisions and write-downs “Depreciation, amortization, provisions and write-downs” totalled 768 million euro (646 million euro at December 31, 2020), of which 41 million euro from the consolidation of the AEB Group and 15 million euro from the first-time consolidation of the companies acquired in 2021, representing an increase of 122 million euro. The following table provides details of the individual items: Depreciation, amortization, provisions and write-downs millions of euro 12 31 2021 12 31 2020 Restated Change % 2021/2020 Amortization of intangible assets 201 136 65 47.8% Depreciation of tangible assets 465 411 54 13.1% Net write-downs of fixed assets 13 5 8 n.s. Total amortization, depreciation and write-downs 679 552 127 23.0% Provisions for risks 56 64 (8) (12.5%) Bad debt provision on receivables recognized as current assets 33 30 3 10.0% Total depreciation, amortization, provisions and write-downs 768 646 122 18.9% “Depreciation, amortization and write-downs” totalled 679 million euro (552 million euro at December 31, 2020), of which 38 million euro from the consolidation of the AEB Group, recording an overall increase of 127 million euro. Amortization of intangible assets amounted to 201 million euro (136 million euro at December 31, 2020). The item shows higher amortization and depreciation of 65 million euro, of which 11 million euro deriving from the consolidation of the AEB Group, 4 million euro relating to the consolidation of Flabrum and Agripower, 24 million euro relating to the recovery of amortization relating to the gas distribution network in ATEM Milan1, 20 million euro relating to the implementation of IT systems and 6 million euro relating to the integrated water service and gas distribution and metering. Depreciation of tangible assets show an increase of 54 million euro compared to December 31, 2020 and includes: higher depreciation of 9 million euro, relating to the consolidation of the AEB Group; higher depreciation of 12 million euro relating to the consolidation, from 2021, of Agripower and Octopus; higher depreciation of 2 million euro, relating to the plan for replacement of electricity meters; higher depreciation of 2 million euro for rights of use; higher depreciation of 5 million euro following the new appraisals on landfills; higher depreciation of 9 million euro relating to the decommissioning of some plants; higher depreciation of 7 million euro relating to the increased operating hours of the turbogas plants; higher depreciation of 8 million euro mainly relating to the investments which went into production after December 31, 2020. With regard to large-scale diversion hydroelectric concessions, reference should be made to note 1) Tangible assets for further information about the regulatory developments in the sector. Write-downs for the year amounted to 13 million euro, of which 9 million euro deriving from consolidation of the AEB Group, 1 million euro from write-downs of the Asrab and Cavaglià landfills, 1 million euro from write-downs of the electrical network and abandoned gas pipes and 2 million euro from write-downs of electronic equipment no longer used in the Group’s operations. The balance of “Provisions for risks” shows a net effect of 56 million euro (64 million euro at December 31, 2020) due to allocations in the year of 66 million euro, offset by the surpluses of 10 million euro since some ongoing disputes have ceased to exist. Allocations for the year included 13 million euro allocation for public water diversion fees, 7 million euro allocation to tax provisions, 29 million euro allocation to provisions for landfill closure and post-closure expenses and decommissioning, 6 million euro allocation to personnel lawsuits and disputes provisions and 11 million euro other provisions for ongoing disputes. Surpluses in provisions for risks amounted to 10 million euro and include 3 million euro for the release of provisions for additional fees paid for hydroelectric power plants, 2 million euro for the release of provisions for legal and tax disputes and other releases for 5 million euro. 85 A2A Consolidated financial statements 2021 For further information, reference is made to note 20) Provisions for risks, charges and liabilities for landfills. The “Bad debts provision” showed a balance of 33 million euro (30 million euro at December 31, 2020), of which 1 million euro deriving from the consolidation of the AEB Group, determined by the allocation for the year. 32) Net operating income “Net operating income” amounted to 660 million euro (554 million euro at December 31, 2020). 33) Result from non-recurring transactions The Result from non-recurring transactions was nil at December 31, 2021 (nil at December 31, 2020). 34) Financial balance The “Financial balance” closed with net expense of 70 million euro (net expense of 81 million euro at December 31, 2020). Details of the more significant items are as follows: Financial balance millions of euro 12 31 2021 12 31 2020 Restated Change % 2021/2020 Financial income 17 12 5 41.7% Financial expenses (89) (93) 4 (4.3%) Affiliates 2 \- 2 n.s Total financial balance (70) (81) 11 (13.6%) “Financial income” amounted to 17 million euro (12 million euro at December 31, 2020) and may be analyzed as follows: Financial income millions of euro 12 31 2021 12 31 2020 Restated Change % 2021/2020 Gains on disposals of financial assets 2 - 2 n.s. Other financial income of which: 15 12 3 25.0% - Financial income from the Municipality of Brescia(IFRIC 12) 6 6 \- 0.0% - Foreign exchange gains 3 1 2 n.s. - Other income 6 5 1 20.0% Total financial income 17 12 5 41.7% 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 86 3 Notes to the Consolidated annual report “Financial expense”, which amounted to 89 million euro, decreased by 4 million euro over the balance at December 31, 2020, and may be analyzed as follows: Financial expenses millions of euro 12 31 2021 12 31 2020 Restated Change % 2021/2020 Interest on bond loans 63 73 (10) (13.7%) Interest charged by banks 4 3 1 33.3% Realized on financial derivatives 3 6 (3) (50.0%) Decommissioning costs 2 - 2 n.s. Other financial expenses of which: 17 11 6 54.5% - Discounting charges 3 2 1 50.0% - Financial expenses (IFRS 16) 1 1 - 0.0% - Financial expenses (IFRIC 12) 2 3 (1) (33.3%) - Foreign exchange losses 2 2 - 0.0% - Other expenses 9 3 6 n.s. Total financial expenses before capitalizations 89 93 (4) (4.3%) Capitalized financial expenses \- \- - (0.0%) Total financial expenses 89 93 (4) (4.3%) The decrease of 10 million euro in interest on bonds is due mainly to the refinancing of bonds that matured with the issuance of newer, more recent bonds at lower rates. The Equity Method valuation of shareholdings was positive for 2 million euro (nil at December 31, 2020), and was mainly attributable to the positive valuation of the shareholdings held in the companies Consul System and Metamer. 35) Income taxes Income taxes millions of euro 12 31 2021 12 31 2020 Change Current IRES 166 130 36 Current IRAP 35 28 7 Effect of differences \- taxes of previous years (5) (56) 51 Total current taxes 196 102 94 Deferred tax assets 22 39 (17) Deferred tax liabilities (182) (42) (140) Total losses/gains for income taxes 36 99 (63) “Income taxes” for the year amounted to 36 million euro (99 million euro at December 31, 2020). The parent A2A has determined the IRAP taxes for 2021 on the basis of the application of art. 5 of Legislative Decree no. 446 of December 15, 1997\. The parent A2A has determined IRAP at a rate of 4.20% since, pursuant to art. 162-bis of Presidential Decree no. 917 of December 22, 1986, in 2021 it does not qualify as a so-called “industrial holding”. The reduction in taxes with respect to the previous year reflects the release of deferred tax liabilities following the realignment option pursuant to DL 104/2020, exercised by some Group companies, which allowed the realignment of the differences between higher statutory values and lower values for tax purposes on tangible assets and the consequent deduction of higher tax amortization starting from the current year, as well as the release of a part of deferred IRAP tax assets as the Group considered their recoverability to be unreasonable. The impact of the release of deferred tax assets/liabilities amounted to 168 million euro, while the recognition of a substitute tax following the realignment option pursuant to DL 104/2020 was equal to 23 million euro. 87 A2A Consolidated financial statements 2021 The reconciliation between the tax burden posted in the Consolidated Financial Statements and theoretical tax liabilities, calculated on the basis of theoretical rates applicable in Italy, is as follows: millions of euro 2021 2020 Restated Pre-tax result 590 473 Net write-downs of fixed assets 13 5 Pre-tax result adjusted by write-downs and the result of assets held for sale 603 478 Theoretical rates based on applicable tax rates (1) 145 115 Tax effect of write-downs (3) (1) Adjustment of prior year taxes (5) (56) Reversal of deferred tax liabilities/assets (168) - Substitute tax for realignment 23 - Permanent differences 9 14 Total taxes charged to Income statement (excluding IRAP) 1 72 Current IRAP 35 28 Total taxes charged to Income statement 36 100 (1) Taxes have been calculated considering a theoretical IRES rate of 24% 36) Net result from discontinued operations The “Net result from discontinued operations” is negative and equal to 4 million euro (negative for 6 million euro at December 31, 2020) and refers to the reclassification of revenues, costs and amortization relating to some assets concerning gas distribution referring to ATEMs considered non-strategic for the Group and three properties in the Milan area which, in compliance with IFRS5, at December 31, 2021 were reclassified under “Assets held for sale”. 37) Result of minorities The “Result of minorities” is negative for the Group for 46 million euro and mainly includes the portion attributable to minority interests of the ACSM-AGAM Group and the AEB Group. In the previous year, the item showed a negative balance for the Group for 4 million euro. 38) Group result of the year The “Group result of the year” was positive for 504 million euro (positive for 364 million euro at December 31, 2020). 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 88 3 Notes to the Consolidated annual report 3.14 Earnings per share 39) Earnings per share 01 01 2021 12 31 2021 01 01 2020 12 31 2020 Earnings (loss) per share (in euro) \- basic 0.1639 0.1170 \- basic, from continuing operations 0.1651 0.1175 \- basic, from assets held for sale (0.0012) (0.0005) \- diluted 0.1639 0.1170 \- diluted, from continuing operations 0.1651 0.1175 \- diluted, from assets held for sale (0.0012) (0.0005) Weighted average number of outstanding shares for the calculation of earnings (loss) per share \- basic 3,073,686,277 3,109,183,856 \- diluted 3,073,686,277 3,109,183,856 89 A2A Consolidated financial statements 2021 3.15 Note on related party transactions 40) Note on related party transactions The definition of “related parties” is included in the international accounting standard describing the disclosures which must be made for related party transactions in financial statements (revised IAS 24). Relationships with parent companies and their subsidiaries On October 5, 2007, the Municipalities of Milan and Brescia signed a Shareholders’ Agreement to regulate the ownership structure of A2A S.p.A.; this gave the Municipalities joint control over the company. Specifically, the merger effective January 1, 2008, regardless of the legal structure established, was considered a joint venture, whose joint control was exercised by the Municipalities of Milan and Brescia, each of which owned a share equal to 27.5%. On June 13, 2014, the Shareholders’ Meeting modified the company’s governance system, passing from the original two-tier system, adopted in 2007, to a “traditional” system of management and control through the appointment of the Board of Directors. In December 2014, the Municipalities of Milan and Brescia sold a total shareholding of 0.51% of A2A S.p.A., while in the first two months of 2015, the Municipalities of Milan and Brescia sold an additional shareholding of 4.5% of A2A S.p.A.. On October 4, 2016, the Municipalities of Milan and Brescia renewed for another three years, with effect from January 1, 2017, the Shareholders’ Agreement signed on December 30, 2013, concerning 1,566,452,642 ordinary shares representing 50% plus two shares of the share capital of A2A S.p.A.. On May 20, 2016, the two Municipalities had proceeded to sign an appendix to the Agreement, whichenvisaged reducing from six months to three months the term of the agreement, during which it is possible to terminate the same. On October 26, 2016, the Municipality of Milan received from the Municipality of Brescia the proposal, approved by the Council of said Municipality on October 25, 2016, to partially amend the shareholders’ agreement relating to A2A S.p.A. existing between the two Municipalities. In particular, said proposal requires the commitment of the two Municipalities to maintain syndicated and bound, in the new agreement, a number of shares held by them in equal measure, equal to 42% of the share capital of A2A S.p.A.. On November 4, 2016, the Council of the Municipality of Milan, after having favourably examined the proposal of the Municipality of Brescia of a partial amendment to the shareholders’ agreement, submitted to the Municipal Council the proposal of the new shareholders’ agreement for the final determinations of competence. On January 23, 2017, the Milan City Council approved the new Shareholders’ Agreement between the Municipality of Milan and the Municipality of Brescia regarding the shareholding in A2A S.p.A. and has undertaken the commitment not to proceed with the disposal of any shares owned by the Municipality of Milan. On August 2, 2019, the Municipality of Milan, also on behalf of the Municipality of Brescia, announced that the aforementioned Shareholders’ Agreement was not subject to termination. Consequently, the agreement is to be considered renewed with effect from February 1, 2020 to January 31, 2023. At the date of approval of these Consolidated financial statements at December 31, 2021, the two shareholders held a shareholding of 50% plus two shares that enables the two municipalities to maintain control over the Company. The A2A Group companies and the Municipalities of Milan and Brescia routinely entertain commercial relationships related to the supply of electricity, gas, heat, and potable water, management of public lighting systems and street lights, management of water purification and sewers, garbage collection and street sweeping and video surveillance. Similarly, the A2A Group companies entertain commercial relationships with the companies directly and indirectly controlled by the Municipalities of Milan and Brescia, for example, Metropolitana Milanese S.p.A., ATM S.p.A., Brescia Mobilità S.p.A., Brescia Trasporti S.p.A. and Centrale del Latte di Brescia S.p.A., supplying them with electrical energy, gas, heat, water purification and sewer service at market rates appropriate to the supply conditions and providing the services required. Note that these companies are considered related parties in the preparation of the financial statement schedules pursuant to Consob Resolution 17221 of March 12, 2010. The relationships between the Municipalities of Milan and Brescia and the A2A Group, in relation to granting the services associated with public lighting, street lights, management and supply of electricity, gas, heat, and water purification and sewer service are regulated by special conventions and specific contracts. The relationships between the companies controlled by the Municipalities of Milan and Brescia, which refer to the supply of electricity, are at arm’s length conditions. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 90 3 Notes to the Consolidated annual report On April 12, 2017, Amsa S.p.A., a subsidiary of A2A S.p.A., signed a contract with the Municipality of Milan for the management of environmental protection services for the period January 1, 2017 \- February 8, 2021, extended until April 30, 2022\. On December 30, 2021, the Municipality of Milan sent to the Republic of Italy Official Journal the call for tenders for the European open procedure for the contracting of the municipal waste management service with reduced environmental impact from a life-cycle perspective, pursuant to the action plan for the environmental sustainability of consumption in the public administration sector (PAN GPP) and the Decree of the Ministry of the Environment and Protection of Land and Sea of February 13, 2014\. The call for tenders stipulated that bids had to be submitted by the deadline of July 11, 2022; therefore, it is foreseeable in any case that the Municipality of Milan will extend the technical extension for the time necessary to reach final awarding of the tender. Furthermore, the Municipality of Milan has communicated through the official channels where the tender is notified that, by means of Orders no. 264/2022 and no. 265/2022, published on March 2, 2022, the Lombardy Regional Administrative Court, Milan, Section I, granted the precautionary requests submitted by two economic operators and, as a result, suspended the tender procedure, setting the public hearing on November 9, 2022 for discussion of the merits of the appeal. Pending the deadlines and the suspension, Amsa is preparing documentation for participation in the call. Relationships with subsidiaries and affiliates The parent company A2A S.p.A., operates like a centralized treasury for the majority of the subsidiaries. Relations between the companies are regulated through current accounts between the parent company and the subsidiaries, on which rates are applied, at market conditions, based on variable Euribor, with specific spreads for companies. For the financial year 2021, A2A S.p.A. and its subsidiaries have adopted the VAT procedure of the Group. Note that for IRES purposes, A2A S.p.A. files for tax on a consolidated basis, together with its main subsidiaries, in accordance with arts. 117-129 of DPR 917/86. To this end, with each of the subsidiaries joining, a special contract was drawn up to regulate the tax advantages/disadvantages transferred, with specific reference to the current entries. These contracts also govern the transfer of any excess of ROL as set forth by prevailing legislation. The parent company provides the subsidiaries and affiliates with administrative, fiscal, legal, management and technical services in order to optimize the resources available in the company and to use the existing expertise in terms of economic convenience. These services are governed by specific service contracts stipulated annually. A2A S.p.A. also makes office space and operating areas at its own premises available to subsidiaries and associates, as well as associated services. These are provided at market conditions. The companies A2A gencogas S.p.A. and A2A Energiefuture S.p.A., for a monthly fee related to the actual availability of the thermoelectric plants, provide to the Parent Company the power generation service. As of July 1, 2018, the ACSM-AGAM Group’s related-party transactions with related parties of the A2A Group are shown as related parties. As of November 1, 2020, the AEB Group’s related-party transactions with related parties of the A2A Group are shown as related parties. Lastly, in compliance with the requirements of the “Regulation on provisions relating to related party transactions” adopted by Consob with Resolution no. 17221 of March 12, 2010 and subsequently amended by Resolution no. 17389 of June 23, 2010, by way of a resolution of November 11, 2010 the Management Board approved, following the favorable opinion of the Internal Control Committee, the prescribed procedure for identifying the rules and controls designed to ensure the transparency and substantial and procedural correctness of the related party transactions carried out by A2A S.p.A. directly or through its subsidiaries. The aforementioned Procedure was applied effective January 1, 2011 and subsequently amended on August 1, 2012, November 7 and December 18, 2013 and June 22, 2015. Following a periodic review, the Procedure was subsequently amended/supplemented and approved by the Board of Directors on June 20, 2016, subject to the favourable opinion of the Audit and Risks Committee and then updated on June 22, 2017, in view of Consob Resolution no. 19925 of March 22, 2017 and on December 16, 2019, in view of the amendments to art. 192-quinquies of Legislative Decree February 24, 1998, no. 58 (“TUF”) (art. 4 of Legislative Decree May 10, 2019, no. 49). Lastly, by resolution of the Board of Directors on June 25, 2021, subject to the favourable opinion of the Related Parties Committee established by board resolution of May 13, 2021, the Procedure was amended \- effective as of July 1, 2021 \- to comply with the Related Parties Regulation, as amended by Consob resolution no. 21624 of December 10, 2020, in implementation of the so-called “Shareholders’ Rights II” Directive. The aforementioned Procedure can be found on the website 91 A2A Consolidated financial statements 2021 Below are the tables with detail of the related party transactions, in accordance with the Consob Resolution no. 17221 of March 12, 2010: Balance sheet thousands of euro Total 12 31 2021 Of which with related parties Companies associated and subsidiaries of associates Companies related Municipality of Milan Subsidiaries direct and indirect Municipality of Milan Municipality of Brescia Subsidiaries direct and indirect Municipality of Brescia Related parties individuals Total related parties % effect on the balance sheet item TOTAL ASSETS OF WHICH: 18,008 51 47 67 12 14 \- \- 191 1.1% Non-current assets 9,259 2 41 \- \- 4 \- \- 47 0.5% Shareholdings 33 2 31 33 100.0% Other non-current financial assets 64 10 4 14 21.9% Current assets 8,587 49 6 67 12 10 \- \- 144 1.7% Trade receivables 3,291 49 5 67 12 9 142 4.3% Other current assets 4,051 1 1 0.0% Current financial assets 9 1 1 11.1% TOTAL LIABILITIES OF WHICH: 13,690 72 1 2 1 7 \- \- 83 0.6% Non-current liabilities 5,542 \- \- \- \- \- \- \- \- 0.0% Current liabilities 8,148 72 1 2 1 7 \- \- 83 1.0% Trade payables 2,894 65 1 2 1 7 76 2.6% Other current liabilities 4,487 7 7 0.2% Income statement thousands of euro Total 12 31 2021 Of which with related parties Companies associated and subsidiaries of associates Companies related Municipality of Milan Subsidiaries direct and indirect Municipality of Milan Municipality of Brescia Subsidiaries direct and indirect Municipality of Brescia Related parties individuals Total related parties % effect on the balance sheet item REVENUES 11,549 54 23 315 43 40 3 \- 478 4.1% Revenues from the sale of goods and services 11,352 54 23 315 43 40 3 478 4.2% OPERATING EXPENSES 9,400 64 5 2 8 8 \- \- 87 0.9% Expenses for raw materials and services 9,088 5 8 13 0.1% Other operating expenses 312 64 2 8 74 23.7% LABOUR COSTS 721 \- \- \- \- \- \- 2 2 0.3% FINANCIAL BALANCE (70) - (5) - - 6 - - 1 (1.4%) Financial income 17 6 6 35.3% Financial expenses 89 7 7 7.9% Affiliates 2 2 2 100.0% The complete financial statements are included in the section “Consolidated financial statements” of this report pursuant to Consob Resolution no. 17221 of March 12, 2010. It should be noted that during the year, the A2A Group made grants totalling 3 million euro to foundations that have been included on a voluntary basis among related parties. Specifically, these involve: Fondazione AEM, Fondazione ASM, Comitato Banco dell’Energia Onlus, Fondazione Teatro alla Scala and Fondazione Brescia Musei. * * * With regard to the compensation paid to the corporate governance bodies, reference shall be made to the document “Remuneration Report – 2022” available on the website 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 92 3 Notes to the Consolidated annual report 3.16 Consob Communication no. DEM/6064293of July 28, 2006 41) Consob Communication no. DEM/6064293 of July 28, 2006 On December 31, 2021 the merger by incorporation of LGH S.p.A. into A2A S.p.A. became effective. It should also be noted that some Group companies have exercised the realignment option, as provided for by Decree Law 104/2020, which makes it possible to realign the differences between higher statutory values and lower values for tax purposes on tangible assets by releasing deferred tax liabilities as better specified in note 4) Deferred tax assets. 93 A2A Consolidated financial statements 2021 3.17 Guarantees and commitments with third parties millions of euro 12 31 2021 12 31 2020 Guarantees received 966 918 Guarantees provided 1,509 1,265 Guarantees received Guarantees received amounted to 966 million euro (918 million euro at December 31, 2020) and included 392 million euro for sureties and security deposits issued by subcontractors to guarantee the proper execution of the work assigned and 517 million euro for sureties and security deposits received from customers to guarantee the regularity of payments and guarantees received by the ACSM-AGAM Group for 43 million euro and guarantees received by the AEB Group for 14 million euro. Guarantees provided and commitments with third parties Guarantees provided amounted to 1,509 million euro (1,265 million euro at December 31, 2020), of which for obligations undertaken in the loan agreements of 60 million euro. These guarantees have been issued by banks for 1,178 million euro, insurance companies for 57 million euro and the parent company A2A S.p.A., as parent company guarantee, for 274 million euro and guarantees provided by the ACSM-AGAM Group for 82 million euro and guarantees provided by the AEB Group for 53 million euro. * * * Group companies hold third party assets under concession, relating mainly to the integrated water cycle, amounting to 66 million euro. * * * As described in greater detail in paragraph 8) Update of the main legal and tax disputes still pending, Linea Ambiente S.r.l. \- Grottaglie landfill, part of the shares held by Linea Ambiente S.r.l. in Lomellina Energia S.r.l. are subject to judicial seizure. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 94 94 3 Notes to the Consolidated annual report 3.18 Other information 1) Significant events for the Group after December 31, 2021 For a description, reference is made to the paragraph “Significant events after December 31, 2021” of the Report on operations. 2) Information on treasury shares At December 31, 2021, A2A S.p.A. had no treasury shares. In the second quarter of 2021 was the share buyback program authorized by the Shareholders’ Meeting on April 29, 2021, resulting in an increase in treasury shares held in portfolio of 109 million euro. The Group subsequently completed the purchase of the remaining 49% of the share capital of LGH S.p.A., which was then merged by incorporation into A2A S.p.A., by means of the allocation, in favour of the minority shareholders, of the total number of treasury shares in portfolio, amounting to 163 million euro, including 54 million euro of treasury shares already held at December 31, 2020. At December 31, 2021, no treasury shares were held through subsidiaries, finance companies or nominees. 3) Transactions as per IFRS 3 revised In 2021, the A2A Group completed the following acquisitions of investments, which fall within the provisions of IFRS 3: acquisition and line-by-line consolidation of 100% of the shares in Agripower S.r.l., a company specialising in the development and management of power generation plants from biogas; acquisition by A2A Rinnovabili S.p.A. and line-by-line consolidation of 15 companies with 17 plants and 173MW of installed photovoltaic capacity, previously managed by Octopus Renewables; acquisition and line-by-line consolidation by A2A Rinnovabili S.p.A. of Gash 1 S.r.l. and Gash 2 S.r.l., two project companies with authorization to build two photovoltaic plants; acquisition and full consolidation by A2A Ambiente S.p.A. of TecnoA S.r.l., a special waste processing company. Moreover, in 2021, the Purchase Price Allocation process resulting from the acquisitions completed by A2A Rinnovabili in 2020 and 2021 was concluded, a description of which is provided in the paragraphs below. The transactions summarized above are classified as business combinations in accordance with international standard IFRS 3 “Business Combinations”; the Group fully consolidated the companies through the application of the acquisition method prescribed by IFRS 3, by virtue of the control obtained on the entities acquired. IFRS 3 requires all business combinations to be accounted for using the acquisition method within twelve months from acquisition. The acquirer must therefore recognize all the identifiable assets, liabilities and contingent liabilities relating to the acquisition at their fair values at the acquisition date and highlight the eventual recognition of goodwill. The fee transferred in a business combination is determined at the date of acquisition of control and is equal to the fair value of assets transferred, liabilities incurred, and any equity instruments issued by the acquirer. Costs directly attributable to the transaction are recognized in the income statement when incurred. At the date of acquisition of control, the net equity of the investee companies is determined by attributing to individual assets and liabilities their fair value, except in cases where the IFRS provisions provide a different valuation criterion. Any residual difference with respect to the purchase cost, if positive, is recognized under the item “Goodwill” (hereinafter also goodwill); if negative, it is recognized in the income statement. Business Combinations Agripower Group On March 19, 2021, LGH S.p.A. (subsequently merged into A2A S.p.A.) completed the acquisition of the Agripower Group, which is active in the development and management of electricity generation plants from biogas. The acquisition was completed by public auction for a consideration of 10.2 million euro. The price was fully settled at the closing of the transaction. On closing, the transaction generated goodwill of 9.9 million euro. In compliance with the provisions of IFRS 3, the Group concluded the Purchase Price Allocation (PPA) activity by allocating 13.7 million euro to other intangible assets (GSE Agreement) and the related deferred taxes of 3.8 million euro. 95 A2A Consolidated financial statements 2021 Business Combinations Rinnovabili Group Flabrum S.r.l. In November 2020, A2A Rinnovabili completed the acquisition of 100% of the company Flabrum S.r.l., which owns a wind farm with a nominal capacity of 8.2 MW. The acquisition was concluded for a value of 13.9 million euro, of which 11.9 million euro for the purchase of the shareholding and 2 million euro for the entry of the loan of the former shareholders. The price was fully settled at the closing of the transaction. On closing, the transaction generated goodwill of 11.2 million euro, which, in accordance with IFRS 3, the Group has repaid via the Purchase Price Allocation process. This process was completed with the allocation of the higher value to intangible assets (GSE agreement) amounting to 12.6 million euro, to tangible assets (wind plant) amounting to 2.9 million euro, as well as the recognition of deferred taxes amounting to 4.3 million euro. Octopus Group In March 2021, A2A Rinnovabili completed the acquisition of 100% of a photovoltaic portfolio consisting of 17 plants, previously managed by Octopus Renewables. The acquisition was completed for 229 million euro, including 117 million euro for the purchase of equity investments, 89 million euro to take over former shareholders’ loan, 21 million euro to repay bank loans and 2 million euro in trade payables paid to the previous owners. The price was fully settled at the closing of the transaction. At the time of closing, the transaction generated goodwill of 65 million euro, confirmed by the Purchase Price Allocation process that was concluded within the timeframe provided for by IFRS 3. Gash 1 S.r.l. and Gash 2 S.r.l. In April 2021, A2A Rinnovabili completed the acquisition of 100% of the shareholdings in Gash 1 S.r.l. and Gash 2 S.r.l., companies holding authorizations for the construction of photovoltaic parks of approximately 2 MW. The transaction closed for a total of 0.4 million euro, generating insignificant goodwill allocated directly to other intangible assets. Business combination TecnoA S.r.l. On December 12, 2021, A2A Ambiente S.p.A., a company wholly owned by A2A S.p.A., acquired 100% of the investment in TecnoA S.r.l., a special waste processing company. The agreement was reached for a value, fully paid at transaction closing, equal to 276 million euro. The acquisition of the shareholding generated goodwill of 267 million euro, which will be allocated through the Purchase Price Allocation process within the time frame required by IFRS 3. 4) Information on non-current assets and liabilities held for sale and discontinued operations (IFRS 5) The items “Non-current assets held for sale” and “Liabilities directly associated with non-current assets held for sale” at December 31, 2021 include the reclassification of certain assets and the associated liabilities relating to gas distribution referring to ATEM considered non-strategic for the Group, the reclassification of assets owned by the parent A2A S.p.A. referring to three properties located in Milan that were sold in February 2022 and the reclassification of the shareholding in Sviluppo Turistico Lago Iseo S.p.A. for which A2A S.p.A. exercised the right of withdrawal. At December 31, 2020, the item included 25 million euro for the assets of the subsidiary Consul System S.p.A., following the sale of a 26% shareholding, finalized on January 28, 2021, and 3 million euro for the reclassification of the shareholding in Ge.S.I. S.r.l. following the exercise of the sale option of the entire shareholding in September 2021. Summarized figures relating to these assets and liabilities are as follows. millions of euro Gas distribution assets Immobili A2A S.p.A. Total Non-current assets 114 45 159 Current assets 3 3 Total assets 117 45 162 Non-current liabilities 10 10 Current liabilities 5 5 Total liabilities 15 \- 15 The impact on the Income Statement of the reclassification of revenues, operating costs and amortization and depreciation amounts to 4 million euro. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 96 96 3 Notes to the Consolidated annual report 5) Rules on public funding (Compliance with art. 1, paragraphs 125 et seq. of Law 124/17) Pursuant to art. 1, paragraphs 125 et seq. of Law 124/17, considering that the Group companies have not received “subsidies, grants, advantages, contributions or aid, whether in cash or in kind, not general and with no consideration, remuneration or compensation”, this note is negative. It is understood that other information is (also in line with the principle set out in art. 18 of Law 241/1990) available elsewhere, including the State Aid Register, also under the criterion set out in paragraph 127 of the same art. 1 of Law 124/17, which prescribes to “avoid the accumulation of irrelevant information”. It should also be noted that the companies of the A2A Group operate (for the most part) in regulated sectors. Therefore, some sums are recognized by public bodies, but not as subsidies/contributions, but as recognition of the activities they provide or as forms of compensation for costs incurred to meet specific regulatory obligations and in any case by virtue of a general regime (e.g. energy incentives). Also all these forms of payment have not been indicated: also in compliance with both the literal aspect of the regulations and with the interpretation criteria that the Group companies have identified (see above). 6) Financial risk management The A2A Group operates in the electricity, natural gas and district heating industry and is exposed to various financial risks in performing its activity: a) commodity risk; b) interest rate risk; c) exchange rate risk not related to commodities; d) liquidity risk; e) credit risk; f) equity risk; g) default and covenant non-compliance risk. The commodity price risk, related to the volatility of energy commodity prices (gas, electricity, fuel oil, coal, etc.) and prices of environmental securities (EUA/ETS emission rights, green certificates, white certificates, etc.), consists of the possible negative effects that a change in the market price of one or more commodities may have on the cash flows and income prospects of the company, including the exchange rate risk related to the same commodities. Interest rate risk is the risk of additional financial costs as the result of an unfavourable change in interest rates. Currency risk not related to commodities is the risk of higher costs or lower revenues because of an unfavourable change in exchange rates between currencies. Liquidity risk is the risk that financial resources will not be sufficient to meet established financial and business obligations in a timely manner. Credit risk is the exposure to potential losses deriving from non-performance of commitments by commercial, trading and financial counterparties. Equity risk is the possibility of incurring losses due to an unfavourable change in the price of shares. Default and covenant non-compliance risk represent the possibility that loan agreements or bond regulations to which one or more Group companies are party contain provisions allowing the counterparties, banks or bondholders, to ask the debtor for immediate reimbursement of the amounts lent if certain events take place. Details on the risks to which the A2A Group is exposed are provided below. a. Commodity risk a.1) Commodity price risk and exchange rate risk involved in commodity activities The Group is exposed to price risk, including the related currency risk, on all of the energy commodities that it handles, namely electricity, natural gas, heat, coal, fuel oil and environmental certificates; the results of production, purchases and sales are similarly affected by fluctuations in the prices of such energy commodities. These fluctuations act both directly and indirectly, through formulas and indexing in the pricing structure. 97 A2A Consolidated financial statements 2021 To stabilize cash flows and to assure the Group’s economic and financial stability, A2A S.p.A. has an Energy Risk Policy that sets out clear guidelines to manage and control the above risks, based on guidance by the Committee of Chief Risk Officers Organizational Independence and Governance Working Group (CCRO) and the Group on Risk Management of Eurelectric. Reference was also made to the Accords of the Basel Committee on bank supervision and the requirements laid down in international accounting standards on how to recognize the volatility of commodity price and financial derivatives in the income statement and balance sheet. In the A2A Group, assessment of this kind of risk is centralized at the holding company, which has established a Group Risk Management Organizational Unit as part of the Planning, Finance and Control Organizational Unit. This unit has the task to manage and monitor market and commodity risks, to create and evaluate structured products, to propose financial energy risk hedging strategies, and to support senior management in defining the Group’s energy risk management policies. Each year, the Board of Directors of A2A S.p.A. sets the Group’s commodity risk limits approving the PaR and VaR proposed (prepared in the Risk Committee) in conjunction with approval of the Budget/Business Plan; Group Risk Management supervises the situation to ensure compliance with these limits and proposes to senior management the hedging strategies designed to bring risk within the set limits, if exceeded. The activities that are subject to risk management include all of the positions on the physical market for energy products, both purchasing/production and sales, and all of the positions in the energy derivatives market taken by Group companies. For the purpose of monitoring risks, industrial and trading portfolios have been separated and are managed in different ways. The industrial portfolio consists of the physical and financial contracts directly relating to the Group’s industrial operations, namely where the objective is to enhance production capacity also through the wholesaling and retailing of gas, electricity and heat. The trading portfolio comprises all contracts, both physical and financial, entered into to supplement the profits made from the industrial activities, i.e. all contracts that are ancillary though not strictly necessary to the industrial activity. In order to identify trading activity, the A2A Group follows the Capital Adequacy Directive and the definition of assets held for trading provided by International Accounting Standard (IFRS) 9: namely assets held for the purpose of short-term profit taking on market prices or margins, without being for hedging purposes, and designed to create a high-turnover portfolio. Given that they exist for different purposes, the two portfolios have been segregated and are monitored separately with specific tools and limits. More specifically, the trading portfolio is subject to particular risk control and management procedures as laid down in Deal Life Cycle documents. Senior management is systematically updated on changes in the Group’s commodity risk by the Group Risk Management Unit, which controls the Group’s net exposure. This is calculated centrally on the entire asset and contract portfolio and monitors the overall level of economic risk assumed by the industrial and trading portfolios (Profit at Risk \- PaR, Value at Risk \- VaR, Stop Loss). a.2) Commodity derivatives, analysis of transactions Derivatives of the industrial portfolio considered hedges The hedging of price risk by means of derivatives focuses on protecting against the volatility of energy prices on the power exchange (IPEX-EEX), stabilizing electricity price margins on the wholesale market with particular attention being paid to fixed price energy sales and purchases and stabilizing price differences deriving from various indexing mechanisms for the pricing of gas and electricity. To that end, hedging contracts were executed during the year on electricity purchase and sale agreements and on contracts to hedge the fee for the use of electricity transport capacity between the areas of the IPEX market (CCC contracts); hedging contracts were also concluded for the purchase and sale of gas so as to protect sales margins and at the same time keep the risk profile to within the limits set by the Group’s Energy Risk Policy. As part of the optimization of the portfolio of greenhouse gas emission allowances (see Directive 2003/87/EC), the A2A Group has stipulated Future contracts on the ICE ECX (European Climate Exchange) price. These are considered hedging transactions from an accounting point of view in the event of demonstrable surplus/deficit quotas. The fair value at December 31, 2021 was 60.1 million euro (24.0 million euro at December 31, 2020). 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 98 98 3 Notes to the Consolidated annual report Derivatives of the industrial portfolio not considered hedges Again with a view to optimising the Industrial Portfolio, Future contracts have been entered into on the ICE ECX (European Climate Exchange) stock exchange price. These do not qualify as hedging transactions from an accounting point of view as they fail to meet the requirement set out in the accounting standards. The fair value at December 31, 2021 was 0.3 million euro (-0.5 million euro at December 31, 2020). Derivatives of the Trading Portfolio As part of its trading activity, the A2A Group has taken out Future contracts on major European energy stock exchanges (EEX, ICE) and Forward and Option contracts on the price of electricity with delivery in Italy and neighboring countries such as France, Germany and Switzerland. The Group has also stipulated Future contracts on the ICE ECX (European Climate Exchange) stock exchange price. Also as part of trading activities, both Future and Forward contracts were also stipulated for the market price of gas (ICE-Endex CEGH, PEGAS). The fair value at December 31, 2021 was -31.6 million euro (-0.6 million euro at December 31, 2020). a.3) Energy Derivatives, risk assessment of Industrial Portfolio derivatives PaR1or Profit at Risk, is used to assess the impact that fluctuations in the market price of the underlying have on the financial derivatives taken out by the A2A Group that are attributable to the industrial portfolio. It is the change in the value of a financial instruments portfolio within set probability assumptions as the result of a shift in the market indices. The PaR is calculated using the Montecarlo Method (at least 10,000 trials) and a 99% confidence level. It simulates scenarios for each relevant price driver depending on the volatility and correlations associated with each one, using as the central level the forward market curves at the balance sheet date, if available. By means of this method, after having obtained a distribution of probability associated with changes in the result of outstanding financial contracts, it is possible to extrapolate the maximum change expected over a time horizon given by the accounting period at a set level of probability. Based on this method, over the time horizon of the accounting period and in the event of extreme market movements and at a 99% confidence level, the expected maximum negative change in financial derivatives outstanding at December 31, 2021 was 310.036 million euro (54.970 million euro at December 31, 2020). The following are the results of the simulation with the related maximum variances: The A2A Group therefore expects, with a 99% probability, not to have changes compared to the fair value at December 31, 2021 exceeding 310.036 million euro of its entire portfolio of financial instruments due to commodity price fluctuations in the 12 months following. The increase over the prior year is attributable to the combined effect of higher prices and volatility of energy commodities that occurred at the end of 2021\. If there are any negative changes in the fair value of hedge derivatives, these would be compensated by changes in the underlying physical. a.4) Energy Derivatives, risk assessment of Trading Portfolio derivatives VaR2(Value at Risk)is used to assess the impact that fluctuations in the market price of the underlying have on the financial derivatives taken out by the A2A Group that are attributable to the trading portfolio. It is the negative change in the value of a financial instruments portfolio within set probability assumptions as the result of an unfavourable shift in the market indices. VaR is calculated using the RiskMetrics method with a holding period of 3 days and a confidence level of 99%. Alternative methods are used for contracts where it is not possible to perform a daily estimate of VaR such as stress test analysis Based on this method, in the case of extreme market movements, with a confidence level of 99% and a holding period of 3 days, the maximum estimated loss on the derivatives in question was 1.673 million euro at December 31, 2021 (0.315 million at December 31, 2020). In order to ensure closer monitoring of activities, VaR and Stop Loss (the sum of VaR, P&L Realized and P&L Unrealized) limits are also set. 1 Profit at Risk: statistical measurement of the maximum potential negative deviation of the margin of an asset portfolio in case of unfavourable market changes over a given time horizon and with a defined confidence interval. 2 Value at Risk: statistical measurement of the maximum potential drop in the fair value of an asset portfolio in the event of unfavourable movements in the market with a given time horizon and confidence level. millions of euro 12 31 2021 12 31 2020 Profit at Risk (PaR) Worst case Best case Worst case Best case Confidence level 99% (310.036) 468.517 (54.970) 74.029 99 A2A Consolidated financial statements 2021 The following are the results of the assessments: b. Interest rate risk The volatility of financial expenses associated to the performance of interest rates is monitored and mitigated through a policy of interest rate risk management aimed at identifying a balanced mix of fixed-rate and variable rate loans and the use of derivatives that limit the effects of fluctuations in interest rates. The book value and type of gross debt at December 31, 2021 are shown in the table below: millions of euro 12 31 2021 12 31 2020 Before hedging After hedging % after hedging Before hedging After hedging % after hedging Fixed rate 3,844 4,005 79% 3,143 3,333 74% Variable rate 1,255 1,094 21% 1,355 1,165 26% Total 5,099 5,099 100% 4,498 4,498 100% At December 31, 2021, the following are the hedging instruments for interest rate risk: millions of euro 12 31 2021 12 31 2020 HEDGING INSTRUMENT HEDGED ASSET Fair value Notional Fair value Notional IRS Floating rate loan subsidiaries (0.1) 13.8 (0.3) 16.4 Collar Floating rate loan A2A (1.6) 38.1 (3.5) 57.1 Total (1.7) 51.9 (3.8) 73.5 With reference to the accounting treatment, hedging derivatives for interest rate risk can be classified as follows: millions of euro ACCOUNTING TREATMENT TYPE OF DERIVATIVES FINANCIAL ASSETS FINANCIAL LIABILITIES NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE at 12/31/2021 at 12/31/2020 at 12/31/2021 at 12/31/2020 at 12/31/2021 at 12/31/2020 at 12/31/2021 at 12/31/2020 Cash flow hedge IRS - - - - 13.8 16.4 (0.1) (0.3) Cash flow hedge Collar - - - - 38.1 57.1 (1.6) (3.5) Total - - - - 51.9 73.5 (1.7) (3.8) millions of euro 12 31 2021 12 31 2020 Value at Risk (VaR) VaR Stop Loss VaR Stop Loss Confidence level 99%, holding period 3 days (1.673) (1.673) (0.315) (0.315) 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 100 100 3 Notes to the Consolidated annual report Derivatives on interest rates at December 31, 2021 in cash flow hedge refer to the following loans: Loan Derivative Accounting A2A S.p.A. variable rate bank loan, maturity November 2023, residual debt at December 31, 2021 of 38.1 million euro. Collar on 100% of the amount of the loan until maturity thereof. At December 31, 2021, the fair value was negative for 1.6 million euro. The loan is measured at amortized cost. The collar is a cash flow hedge, with 100% recognized in a specific equity reserve. ACSM AGAM variable rate bank loan, maturity December 2025, residual debt at December 31, 2021 of 8.9 million euro. IRS on 100% of the amount of the loan until maturity thereof. At December 31, 2021, the fair value was positive for 32 thousand euro. The loan is measured at amortized cost. The IRS is a cash flow hedge, with 100% recognized in a specific equity reserve. ACSM AGAM variable rate bank loan, maturity June 2023, residual debt at December 31, 2021 of 3.0 million euro. IRS on 100% of the amount of the loan until maturity thereof. At December 31, 2021, the fair value was negative for 23 thousand euro. The loan is measured at amortized cost. The IRS is a cash flow hedge, with 100% recognized in a specific equity reserve. Donna Rica variable rate financial lease, maturity June 2027, residual debt at December 31, 2021 of 1.9 million euro. IRS on 100% of the amount of the lease until maturity thereof. At December 31, 2021, the fair value was negative for 123 thousand euro. The loan is measured at amortized cost. The IRS is a cash flow hedge, with 100% recognized in a specific equity reserve. The A2A Group performs sensitivity analysis by estimating the effects on the value of financial statement items relating to the portfolio of financial instruments deriving from changes in the level of interest rates. In particular, the sensitivity analysis measures the potential impact on the Income Statement and shareholders’ equity of different market scenarios that would determine the change in fair value of derivative financial instruments and the change in financial expenses related to the portion of gross debt not hedged. These market scenarios are obtained by shifting the reference interest rate curve at the reporting date up and down in parallel. Keeping all other variables constant, the pre-tax result would be influenced by changes in the level of interest rates as follows: millions of euro Effect on the Income Statement (before tax) Effect on Equity (before tax) -50 bps +50 bps -50 bps +50 bps Change in financial expenses on gross variable-rate debt after hedging - (2.4) - - Change in fair value of derivative financial instruments classified as non-hedge - - - - Change in fair value of derivative financial instruments classified as hedge (excluding BCVA as per IFRS 13): Cash flow hedge - - (0.2) (0.2) Fair value hedge - - - - c. Exchange rate risk not related to commodities In relation to exchange rate risk other than that included in the price of commodities, the hedging instrument at December 31, 2021 is as follows: millions of euro 12 31 2021 12 31 2020 HEDGING INSTRUMENT HEDGED ASSET Fair value Notional Fair value Notional Cross Currency IRS Fixed rate bond in foreign currency (9.0) 98.0 (14.7) 98.0 Total (9.0) 98.0 (14.7) 98.0 With regard to the accounting treatment, it is specified that the hedging derivative above is in cash flow hedge with full recognition in the equity reserve. 101 A2A Consolidated financial statements 2021 In particular, the underlying of the Cross Currency IRS derivative refers to the bond at fixed rate of 14 billion yen with maturity 2036 bullet issued in 2006. A cross currency swap contract was stipulated for the entire duration of this loan, which converts the principal and interest payments from yen into euro. At December 31, 2021, the fair value of the hedge was negative for 9.0 million euro. The fair value and, as a consequence, the effect on equity, would improve by 17.8 million euro in the event of a 10% increase in the forward curve of the euro/yen exchange rate with an appreciation of the yen, while it would worsen by 4.3 million euro in the event of a 10% drop in the forward curve of the euro/yen exchange rate with a depreciation of the yen. The sensitivity analysis was performed with the aim of calculating the effect of changes in the forward curve of the euro/yen exchange rate on the fair value ignoring any impact on the adjustment due to the bCVA. d. Liquidity risk Liquidity risk is the risk that the Group is unable to meet its obligations in a timely manner or that it is able to do so under unfavourable economic conditions. The profile of the Group’s gross debt maturities is as follows: millions of euro Accounting Balance 12 31 2021 Portions maturing within 12 months Portions maturing beyond 12 months Portions maturing by 12 31 2023 12 31 2024 12 31 2025 12 31 2026 After Bonds 3,713 533 3,180 300 300 299 - 2,281 Financial payables for rights of use (*) 112 23 89 15 13 11 9 41 Loans from banks and other lenders 1,274 221 1,053 146 78 85 67 677 Total 5,099 777 4,322 461 391 395 76 2,999 (*) Including finance leases. The risk management policy is realized through (i) a debt management strategy diversified by funding sources and maturities, and (ii) maintenance of financial resources sufficient to meet scheduled and unexpected commitments over a given time horizon. At December 31, 2021, the Group had a total of 2,089 million euro, as follows: (i) committed revolving credit lines of 1,100 million euro, of which 600 million euro maturing in 2023 and 500 million euro maturing in 2026, unused; (ii) unused long-term EIB loans for a total of 25 million euro; (iii) cash and cash equivalents totaling 964 million euro, including 886 million euro at the Parent Company level. A2A also maintains a Bond Issue Program (Euro Medium Term Note Programme) of 6 billion euro, of which 2,400 million euro available at December 31, 2021. The following table analyzes the worst case for financial liabilities (excluding payables for rights of use and including trade payables), in which all of the amounts shown are non-discounted future nominal cash flows determined on the basis of residual contractual maturities for both principal and interest. The undiscounted nominal flows of derivative contracts on interest rates are also included. Finally, any revocable financial lines used and current accounts payable are due within the next financial year. 12 31 2021 millions of euro 1-3 MONTHS 4-12 MONTHS AFTER 12 MONTHS TOTAL Bonds 530 35 3,474 4,039 Loans from banks and other lenders 77 148 1,096 1,321 Total financial flows 607 183 4,570 5,360 Payables to suppliers 567 28 8 603 Total trade flows 567 28 8 603 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 102 102 3 Notes to the Consolidated annual report e. Credit risk 12 31 2020 millions of euro 1-3 MONTHS 4-12 MONTHS AFTER 12 MONTHS TOTAL Bonds 397 27 2,947 3,371 Loans from banks and other lenders 61 111 1,148 1,320 Total financial flows 458 138 4,095 4,691 Payables to suppliers 476 19 2 497 Total trade flows 476 19 2 497 Credit risk relates to the possibility that a counterparty, commercial or trading, may be in default, or fail to respect its commitment in the manner and timing provided by contract. This type of risk is managed by the Group through specific procedures (Credit Policy, Energy Risk Management procedure) and appropriate mitigation actions. This risk is overseen by both the Credit Management function allocated centrally (and the corresponding functions of the operating companies) and the Group Risk Management Organizational Unit responsible for supporting the Group companies with reference to both commercial and trading activities. Risk mitigation is through the prior assessment of the creditworthiness of the counterparty and the constant verification of compliance with exposure limit as well as through the request for adequate guarantees. The credit terms granted to customers as a whole have a variety of deadlines, in accordance with applicable law and market practice. In cases of delayed payment, default interest is charged as explicitly prescribed by the underlying supply contracts or by current law (application of the default rate as per Legislative Decree 231/2002). Trade receivables are stated in the balance sheet net of any write-downs; the amount shown is considered to be a correct reflection of the realizable value of the receivables portfolio. For the aging of trade receivables, reference is made to note “Trade receivables”. f. Equity risk At December 31, 2021, the A2A Group was not exposed to equity risk. In particular, it is noted that the parent A2A S.p.A. does not hold any treasury shares at December 31, 2021, as described in greater detail in note 14) Treasury shares of these Notes to the balance sheet. As prescribed by IAS/IFRS, treasury shares do not constitute an equity risk as their purchase cost is deducted from equity, and even if they are sold any gain or loss on the purchase cost does not have any effect on income statement. g. Covenants compliance risk Bonds, loans, leases and committed revolving bank lines present Terms and Conditions in line with the market for each type of instrument. In particular, they envisage: (i) negative pledge clauses under which the parent company undertakes not to pledge, with exceptions, guarantees on its assets or those of its directly held subsidiaries over and above a specific threshold; (ii) cross- default/acceleration clauses which entail immediate reimbursement of the loans in the event of serious non-performance; and (iii) clauses that provide for immediate repayment in the event of declared insolvency on the part of certain Group companies. Bonds include (i) 3,600 million euro nominal (book value of 3,604 million euro at December 31, 2021) issued as part of the EMTN Programme, which provide to investors a Change of Control Put in the event of a change of control of the company resulting in a rating downgrade at sub-investment grade level in the following 180 days (if within said 180 days, the company’s rating should return to investment grade, the option may not be exercised); (ii) 98 million euro nominal (book value at December 31, 2021 109 million euro) relating to the private bond in yen with maturity 2036 with a Put right clause in favour of the investor in the event that the rating is lower than BBB- or equivalent level (sub-investment grade). The loans stipulated with the European Investment Bank, with nominal debt and book value of 759 million euro, of which 377 million with maturity beyond 5 years, contain a Credit Rating clause (if rating below BBB- or equivalent level to sub-investment grade), and include a change of control clause of the parent company, with the right for the bank to invoke, upon notice to the company containing indication of the reasons, the early repayment of the loan. 103 A2A Consolidated financial statements 2021 A loan of the subsidiary Fragea, whose residual debt at December 31, 2021 was 2.5 million euro, is secured by collateral on the property and plant financed. Some ACSM-AGAM bank loans include financial covenants, as shown in the relevant table below. The committed revolving bank lines available, for a total of 1,100 million euro, provide a Change of Control clause which, in the event of a change of control of the parent company causing a Material Adverse Effect, allows the banks to request the facility to be extinguished and any amounts drawn down to be repaid. At December 31, 2021, there was no situation of non-compliance with the covenants of the A2A Group companies. A2A Group \- Financial covenants at December 31, 2021 COMPANY LENDER LEVEL OF REFERENCE LEVEL RECOGNIZED DATE OF RECOGNITION ACSM-AGAM BEI Available cash flow/net financial debt => 14.0% Financial debt/equity <= 75.0% Net financial debt/Ebitda <= 3.0 29.3% 39.0% 2.18 12/31/2021 12/31/2021 12/31/2021 ACSM-AGAM Unicredit Debt Service Coverage Ratio <=3.0 Gearing <= 1.0 2.18 0.17 12/31/2021 12/31/2021 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 104 104 3 Notes to the Consolidated annual report Analysis of forward transactions and derivatives Tests were performed to determine whether these transactions qualify for hedge accounting in accordance with International Accounting Standard IFRS 9\. In particular: 1) transactions qualifying for hedge accounting under IFRS 9: can be analyzed between transactions to hedge cash flows (cash flow hedges) and transactions to hedge fair value of assets and liabilities (fair value hedges). For the cash flow hedges, the accrued result is included in gross operating margin when realized on commodity derivatives and in the financial balance for interest rate and currency derivatives, whereas the future value is shown in equity. For fair value hedge transactions, the impacts in the Income Statement are recorded within the same line of the financial statements; 2) transactions not considered as hedges for the purposes of IFRS 9, can be: a. margin hedges: for all hedging transactions of cash flows or the market value in line with internal risk policies, the accrued result and future value are included in gross operating margin for commodity derivatives and in the financial balance for interest rate and currency derivatives; b. trading transactions: the accrued result and future value are recognized above gross operating margin for commodities transactions and in financial income and expense for interest rate and currency transactions. The use of derivatives in the A2A Group is governed by a coordinated set of procedures (Energy Risk Policy, Deal Life Cycle) which are based on industry best practices and designed to limit the risk of the Group being exposed to commodity price fluctuations, based on a cash flow hedging strategy. The derivatives are measured at fair value based on the forward market curve at the balance sheet date, if the asset underlying the derivative is traded on markets with a forward pricing structure. In the absence of a forward market curve, fair value is measured on the basis of internal estimates using models that refer to industry best practices. The A2A Group uses “continuous-time” discounting to measure fair value. As a discount factor, it uses the interest rate for risk-free assets, identified in the Euro Overnight Index Average (EONIA) rate and represented in its forward structure by the Overnight Index Swap (OIS) curve. The fair value of the cash flow hedges has been classified on the basis of the underlying derivative contracts in accordance with IFRS 9. In compliance with the provisions of IFRS 13, the fair value of an over-the-counter (OTC) financial instrument is determined taking into account the non-performance risk. To quantify the fair value adjustment attributable to this risk, A2A has, in line with best market practices, developed a proprietary model called the “bilateral Credit Value Adjustment” (bCVA), which takes into account changes in the creditworthiness of the counterpart as well as the changes in its own creditworthiness. The bCVA has two addends, calculated by considering the possibility that both counterparties go bankrupt, known as the Credit Value Adjustment (CVA) and the Debit Value Adjustment (DVA): the CVA is a negative component and contemplates the probability that the counterparty will default and at the same time that A2A has a receivable due from the counterparty; the DVA is a positive component and contemplates the probability that A2A will default and at the same time that the counterparty has a receivable due from A2A. The bCVA is therefore calculated with reference to the exposure, measured on the basis of the market value of the derivative at the time of the default, the Probability of Default (PD) and the Loss Given Default (LGD). This latter item, which represents the non- recoverable portion of the receivable in the case of default, is measured on the basis of the IRB Foundation Methodology as stated in the Basel 2 accords, whereas the PD is measured on the basis of the rating of the counterparties (internal rating based where not available) and the historic probability of default associated with this and published annually by Standard & Poor’s. Applying the above method did not result in significant changes in fair value measurements. 105 A2A Consolidated financial statements 2021 Instruments outstanding at December 31, 2021 A) On interest and exchange rates The following analyses show the notional amounts of derivative contracts stipulated and not expired at the reporting date, by maturity: millions of euro Notional value (a) Balance sheet value (b) Progressive effect to the Income statement at 12 31 2021 (c) Due within 1 year Due in 1 to 5 years Due over 5 years to be received to be paid to be received to be paid to be received to be paid Interest rate risk management cash flow hedges as per IFRS 9 23.6 27.9 0.4 (1.7) not considered hedges as per IFRS 9 Total derivatives on interest rates - 23.6 - 27.9 - 0.4 (1.7) - Exchange rate risk management considered hedges as per IFRS 9 \- on commercial transactions \- on non-commercial transactions 98.0 (9.0) not considered hedges as per IFRS 9 \- on commercial transactions \- on non-commercial transactions Total derivatives on exchange rates - - - - - 98.0 (9.0) - (a) Represents the sum of the notional value of the elementary contracts that derive from any dismantling of complex contracts. (b) Represents the net receivable (+) or payable (-) recognized in the balance sheet following the measurement of derivatives at fair value. (c) Represents the adjustment of derivatives to fair value recognized over time in the Income Statement from stipulation of the contract to the present date. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 106 106 3 Notes to the Consolidated annual report B) On commodities The following is an analysis of the commodity derivative contracts outstanding at the balance sheet date set up for the purpose of managing the risk of the fluctuations in the market prices of commodities. Energy product price risk management Volume by Maturity Notional Value Fair Value Due within 1 year Due within two years Due within five years Balance sheet value (*) Progressive effect to Income statement (**) Unit of measurement Quantity Millions of euro A. Cash flow hedges as per IFRS 9 of which: 60.1 \- \- Electricity TWh 5.4 0.1 0.1 498.4 (17.8) \- Oil Bbl \- \- Coal Tons \- \- Natural Gas TWh 4.5 429.8 59.3 \- Natural Gas Millions of cubic metres - \- Exchange rate Millions of dollars \- \- Emission rights Tons 766,000 43.1 18.6 B. considered fair value hedges as per IFRS 9 - \- C. not considered hedges as per IFRS 9 of which: (31.3) (30.2) C.1 hedge margin 0.3 0.7 \- Electricity TWh \- Oil Bbl \- Natural Gas Degrees day \- Natural Gas TWh \- CO2emission rights Tons 183,000 13.4 0.3 0.7 \- Exchange rate Millions of dollars C.2 trading transactions (31.6) (30.9) \- Electricity TWh 29.5 4.5 0.3 4,296.3 (1.6) 3.2 \- Natural Gas TWh 101.9 18.6 3.1 5,001.8 (29.6) (33.7) \- CO2emission rights Tons 716,000 140,000 49.4 (0.4) (0.4) \- Environmental Certificates MWh \- Environmental Certificates Tep Total 28.8 (30.2) (*) Represents the net receivable (+) or payable (-) recognized in the balance sheet following the measurement of derivatives at fair value. (**) Represents the adjustment of derivatives to fair value recognized over time in the Income Statement from stipulation of the contract to the present date. 107 A2A Consolidated financial statements 2021 Financial and operating results for derivative transactions at December 31, 2021 Effects on the balance sheet The following table shows the balance sheet figures at December 31, 2021, for derivative transactions. millions of euro NOTE TOTAL ASSETS NON-CURRENT ASSETS - Other non-current assets \- Derivatives 5 - CURRENT ASSETS 3,737 Other current assets \- Derivatives 8 3,737 TOTAL ASSETS 3,737 LIABILITIES NON-CURRENT LIABILITIES 11 Other non-current liabilities \- Derivatives 21 11 CURRENT LIABILITIES 3,708 Trade payables and other current liabilities \- Derivatives 22 3,708 TOTAL LIABILITIES 3,719 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 108 108 3 Notes to the Consolidated annual report Effect on the income statement The following table sets out the income statement figures at December 31, 2021 arising from the management of derivatives. millions of euro Note Realised during the year Change in fair value during the year Amounts recognized in the income statement REVENUES 27 REVENUES FROM THE SALE OF GOODS Energy product price risk management and exchange rate risk management on commodities \- considered hedges as per IFRS 9 515 - 515 \- not considered hedges as per IFRS 9 122 (2,341) (2,219) Total revenues from the sale of goods 637 (2,341) (1,704) OPERATING EXPENSES 28 Expenses for raw materials and services Energy product price risk management and exchange rate risk management on commodities \- considered hedges as per IFRS 9 6 - 6 \- not considered hedges as per IFRS 9 (124) 2,311 2,187 Total costs for raw materials and services (118) 2,311 2,193 Total recognized in Gross operating income (*) 519 (30) 489 FINANCIAL BALANCE 34 Financial income Interest rate risk management and equity risk management Income on derivatives \- considered hedges as per IFRS 9 - - - \- not considered hedges as per IFRS 9 - - - Total - - - Total financial income - - - Financial expenses Interest rate risk management and equity risk management Expenses on derivatives \- considered hedges as per IFRS 9 (2) - (2) \- not considered hedges as per IFRS 9 - - - Total (2) - (2) Total financial expenses (2) - (2) TOTAL RECOGNIZED IN FINANCIAL BALANCE (2) - (2) (*) The figures do not include the effect of the net presentation of the negotiation margin of trading activities. 109 A2A Consolidated financial statements 2021 Classes of financial instruments To complete the analyses required by IFRS 7 and IFRS 13, the following table sets out the various types of financial instrument that are to be found in the various balance sheet items, with an indication of the accounting policies used and, in the case of financial instruments measured at fair value, an indication of where changes are recognized (income statement or equity). The last column of the table shows the fair value of the instrument at December 31, 2021, where applicable. millions of euro Criteria to measure the reported amount of financial instruments Note Financial instruments measured at fair value with changes recognized in: Financial instruments measured at amortized cost Amount as stated in the Consolidated balance sheet at 12 31 2021 Fair value at 12 31 2021 (*) Income statement Equity (1) (2) (3) (4) ASSETS Other non-current financial assets Financial assets measured at fair value of which: \- unlisted 40 40 n.a. \- listed - - Financial assets held to maturity 1 1 1 Other non-current financial assets 23 23 23 Total other non-current financial assets 3 64 Other non-current assets 5 25 25 25 Trade receivables 7 3,291 3,291 3,291 Other current assets 8 3,581 156 314 4,051 4,051 Current financial assets 9 9 9 9 Cash and cash equivalents 11 964 964 964 LIABILITIES Financial liabilities Non-current and current bonds 18 and 23 109 3,604 3,713 3,713 Other non-current and current financial liabilities 18 and 23 1,355 1,355 1,355 Other non-current liabilities 21 11 118 129 129 Trade payables 22 2,894 2,894 2,894 Other current liabilities 22 3,612 96 779 4,487 4,487 (*) The fair value has not been calculated for receivables and payables not related to derivative contracts and loans as the corresponding carrying amount is a good approximation to this. (1) Financial assets and liabilities measured at fair value with the changes in fair value recognized in the income statement. (2)Cash flow hedges. (3)Financial assets available for sale measured at fair value with profit/loss recognized in equity. (4) Loans and receivables and financial liabilities measured at amortized cost. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 110 110 3 Notes to the Consolidated annual report Fair value hierarchy IFRS 7 and IFRS 13 require that fair value classification of financial instruments to be based on the quality of the input source used to calculate the fair value. In particular, IFRS 7 and IFRS 13 set out three levels of fair value: level 1: this level consists of financial assets and liabilities for which fair value is based on (unadjusted) prices for identical assets or liabilities quoted on active official or over-the-counter markets; level 2: this level consists of financial assets and liabilities for which fair value is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly; level 3: this level consists of financial assets and liabilities for which fair value is based on unobservable market data. This level includes instruments measured on the basis of internal estimates made using proprietary methods based on best sector practice. An analysis of the assets and liabilities included in the three fair value levels is set out in the following fair value hierarchy table. Sensitivity analysis for financial instruments included in level 3 As required by IFRS 13, the following table sets out the effects arising from changes in the unobservable parameters used in calculating fair value for financial instruments included in level 3 of the hierarchy. FINANCIAL INSTRUMENT PARAMETER PARAMETER CHANGE SENSITIVITY (MILLIONS OF EURO) Commodity Derivatives Probability of Default (PD) 1% 0.02 Commodity Derivatives Loss Given Default (LGD) 25% 0.00 Commodity Derivatives Underlying interconnection capacity zonal Italy (CCC) 1% 0.06 millions of euro NOTE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Assets measured at fair value 3 - 1 4 5 Other current assets 8 3,712 - 25 3,737 TOTAL ASSETS 3,712 1 29 3,742 Non-current financial liabilities 18 107 - - 107 Other non-current liabilities 21 - 11 - 11 Other current liabilities 22 3,692 - 16 3,708 TOTAL LIABILITIES 3,799 11 16 3,826 111 A2A Consolidated financial statements 2021 7) Main regulatory provisions regarding concessions and agreements in the sectors of activity in which the A2A Group operates Large hydroelectric derivation concessions The national legislation on large-scale hydroelectric concessions (i.e. plants with a nominal power greater than or equal to 3 MW) was originally dictated by R.D. December 11, 1933, no. 1775, which was based on the granting of concessions by the state in a long-term logic. Said regulatory framework was subsequently superseded first by electricity sector nationalization Law no. 1643/1962, which resulted in Enel taking over the majority3of hydroelectric concessions with the relative recognition of an unlimited duration, and then by the liberalisation of the electricity market as a result of Legislative Decree no. 79/1999(implementing Directive 96/92/EC), which introduced with art. 12 (and subsequent amendments) the principles of: the temporariness of the concessions, establishing a validity period (2029) for concessions without expiration because they are owned by Enel and assigning the term of December 31, 2010 for concessions that have already expired or are expiring by that date; contestability of concessions in the event of expiration, forfeiture or renunciation, providing, no later than 5 years before the expiration, the call for tenders by the competent administration (i.e. the Region) for the allocation of the same for consideration. Pending the reallocation of concessions, Legislative Decree 79/1999 (article 12, paragraph 8bis) provides that the outgoing concession holder is to continue to operate the concession under the same conditions as those laid down in the regulations and specifications in force. In this stalemate, some Regions have enacted laws aimed at regulating the “temporary continuation of operations” for expired concessions, also providing for the imposition of an additional fee. Article 11-quater of Law no. 12/2019 has, in part, further amended the rules governing large derivation hydroelectric concessions. The new rules provide that the Regions shall regulate with their own laws by March 31, 2020 (deadline extended to October 31, 2020 by the Cura Italia Decree Law, and to date not respected by many Regions) methods, procedures and criteria for the allocation of concessions, which may be entrusted to economic operators identified through a tender, or to public/private joint ventures with selection of the private partner through a tender, or through forms of partnership under Legislative Decree 50/2016. The procedure for awarding the contract must be started within 2 years of the entry into force of the individual Regional Laws and, in any case, no later than October 31, 2022 (D.L. 18/2020). The duration of the new concessions will have to be between 20 and 40 years, with the possibility of extending the maximum period by a further 10 years depending on the complexity of the project proposal and the amount of investment. The new rule also provides that a specific regional measure (after consulting ARERA) will define: a State fee to be paid on a six-monthly basis to the Regions, comprising a fixed component linked to the average nominal power of the concession and a variable calculated as a percentage of normalized revenues; the possible obligation for the concessionaires to supply annually and free of charge 220 kWh per kW of concession power for at least 50% destined to public services of the provincial territories involved in the derivation. For concessions expired or expiring before July 31, 2024, which are temporarily continued, an additional fee is also charged. In terms of compensation to outgoing operators, the rule prescribes: • for wet works: the transfer without compensation of ownership to the Regions, except for the compensation only of investments not yet amortized; • for dry works: the recognition of a residual value derived from accounting records or certified appraisal. In the event of non-inclusion in the project of the incoming concessionaire, removal and disposal of movable property is envisaged at the expense of the proposer, while immovable property remains the property of the entitled parties. In compliance with the provisions of the legislative framework in force and in line with the provisions of ARERA Resolution 490/2019/I/eel (“Guidelines for the issue of non-binding opinions on draft regional laws on state fees”4), the Lombardy Region, with article 31 of R.L. 23/2019 di Assestamento al Bilancio 3 With the exception of derivations in the ownership of self-producers, municipal companies and local authorities. 4 The variable component of the fee should be equal to a percentage, in any case defined by the Regions, of the sum of the products between the hourly quantity of electricity fed into the grid and the corresponding hourly zonal price recorded on the Day-Ahead Market (MGP), while the fixed component should derive from environmental and/or water-use-rela-ted assessments that are outside the Authority’s competence. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 112 112 3 Notes to the Consolidated annual report (Budget Reconciliation) 2020-22, has defined, starting from 2020, the obligation to supply free energy to the Region by all holders of concessions of large derivation (220 kWh for each kW of concession power), whether they are exercised before or after expiry, providing both the physical delivery and its monetization (even in full) to be calculated on the basis of an average hourly zonal price weighted on the quantity of electricity fed into the grid by the plant. Moreover, in April 2020, the Lombardy Region approved Regional Law no. 5/2020 (recently amended with Regional Law no. 19/2021), which regulates the procedures for assigning concessions for large hydroelectric derivations and determines the state fee based on the new two-component structure5, in addition to the additional fee payable by the outgoing concessionaire for the temporary continuation of expired concessions until the award procedures are completed (and, in any case, no later than July 31, 2024), determined on a reconnaissance basis at 20 €/kW. The Law also defines the criteria for the acquisition of assets pertaining to the concession (see dry works and wet works) by the Region and the reconnaissance activity aimed at the subsequent putting out to tender. The large-scale derivation hydroelectric concessions held by A2A S.p.A. located in Valtellina (with a nominal concession capacity of over 200 MW) have for the most part expired: the Lombardy Region with Regional Council Resolution (D.G.R.) no. X/5823 of December 29, 2021 allowed the temporary continuation of the year until December 31, 2022, establishing the payment of an additional fee and the non-application of the partial exemption from the state fee on the Premadio 1, Grosio, Lovero and Stazzona plants (both forecasts challenged by the company6). Other A2A S.p.A. concessions (plants in Mese, Udine and Calabria with a total nominal concession capacity of about 345 MW), originally owned by Enel, expire in 2029\. The three large-scale derivations of Linea Green S.p.A. (Resio, expired and under temporary continuation until December 31, 2022, Mazzuno and Darfo not yet expired), as well as the concession of Gravedona of AEVV Impianti S.r.l. (ACSM-AGAM Group) with an expiry date of 2029. Concessions for thermoelectric power plants As far as concessions for thermoelectric power plants are concerned, the relevant regulations have evolved in a very heterogeneous manner. For example, with reference to concessions for the derivation of public water for industrial use, the discipline was initially defined by Law no. 2644 of August 10, 1884 and by Royal Decree 1775/1933 to subsequently have an outline on a more local basis also through agreements with specific consortia of reclamation and irrigation. The granting bodies may be identified alternatively in the Region and in the Province for concessions for the derivation of public water and for those relating to the occupation of state-owned areas and in the Port Authorities for concessions relating to the occupation of maritime state-owned areas. A2A Energiefuture S.p.A. and A2A gencogas S.p.A. hold the following types of concessions for the operation of their own thermoelectric power plants: concessions for the derivation of public water: (i) for the cooling of thermoelectric power plants; (ii) for industrial use; (iii) for other uses; concessions for the occupation of: (i) state-owned areas; (ii) maritime state-owned areas. Concessions for the natural gas distribution and metering service The regulations governing concessions for the distribution of natural gas through local networks, initially contained in the deeds of award stipulated with the municipalities in implementation of laws of principle dated back to the early 1900s, have been revised by articles 14 and 15 of Legislative Decree 164/2000 (transposing Directive 98/30/EC), which defined the criteria for standardizing the sector. Specifically, the following was determined: (i) a maximum duration of 12 years for concessions, (ii) the award of the service by local authorities through a public tender and that (iii) the relationship with the operator is regulated by a specific standard contract approved by ministerial decree containing, in particular, the procedures for performing the service, the quality objectives, the economic aspects and the conditions for early termination of the authority for failure by the operator. Subsequently, in implementation of Law Decree 159/2007, according to which the tenders for the award of the gas distribution service must no longer be carried out by individual municipalities but by Minimum Territorial Areas (ATEM), the Ministerial Decree MiSE of January 19, 2011 identified 177 ATEM, while the subsequent Ministerial Decree of October 18, 2011 defined the municipalities belonging to each ATEM. The reform process was completed with the entry into force of Ministerial Decree 226 of November 12, 2011, which over the years has been subject to numerous innovations extended also to Legislative Decree 5 With reference to the fixed component, the Council Resolution provided for 35 €/kW from 2021. 6 For further information, reference should be made to the section entitled “Update of the main legal and tax disputes still pending”. 113 A2A Consolidated financial statements 2021 164/2000, which defined the tender criteria and procedures, as well as the methods for determining the residual industrial value (VIR) of existing plants dedicated to providing the service. Ministerial Decree 226/2011 also indicated for each ATEM the terms within which the Contracting Authority has the obligation to start the tender procedure. The Municipality acts as the granting body of the concession, which continues even if it ceases as a result of the aforementioned early termination, until the full performance of the tenders for ATEM7. Also in view of the very modest start-up of sector tenders in recent years, the Annual Market and Competition Law 2022, whose parliamentary approval process is still in progress, provides for regulations aimed at increasing the level of competition in the sector and, at the same time, speeding up the procedures for carrying out these tenders. By way of example only, this includes the valorization at VIR of the distribution and metering networks and plants owned by the local authority or one of its asset companies that wish to sell these assets during the tenders. As far as the A2A Group is concerned, the natural gas distribution concessions are held by the companies Unareti S.p.A., Azienda Servizi Valtrompia S.p.A., LD Reti S.p.A. (LGH Group), Lereti S.p.A.8, Reti Valtellina Valchiavenna S.r.l. and Serenissima Gas S.p.A. (three companies of the ACSM-AGAM Group) and RetiPiù S.r.l.9(AEB Group). The main contracts relate to the ATEM of Milan 1 \- City and Plant of Milan (in which Unareti S.p.A., assignee of the service following a tender launched pursuant to Ministerial Decree 226/2011, will start the management of the area, also for tariff purposes, starting from March 2022) and the provincial capitals of Brescia, Bergamo, Varese, Cremona, Lodi, Lecco, Sondrio and Monza-Brianza (as well as numerous municipalities, located mainly in the provinces of Brescia, Bergamo, Chieti, Como, Cremona, Lecco, Monza-Brianza, Piacenza, Pavia, Salerno, Trento, Treviso, Udine, Varese and Venice). Concessions for the electricity distribution and metering service Electricity distribution and metering activities are carried out under a thirty-year concession granted by the MiSE (Ministry of Economic Development) for each municipal area, pursuant to art. 9 of Legislative Decree 79/1999. As far as the A2A Group is concerned, the electricity distribution and metering concessions all expire in 2030 and are held by Unareti S.p.A., Camuna Energia S.r.l., LD Reti S.p.A. (LGH Group) and Reti Valtellina Valchiavenna S.r.l. (ACSM-AGAM Group) and RetiPiù S.r.l. (AEB Group) and concern the municipalities of Milan, Rozzano, Brescia, Cremona, Sondrio and Seregno, in addition to numerous municipalities in the province of Brescia and Sondrio. Integrated Water Service (IWS) Assignments In accordance with the provisions of Legislative Decree 152/2006, the IWS is organized on the basis of Optimal Territorial Ambits (OTA) defined by the Regions and, as a rule, coinciding with the provincial territory. In compliance with the scope plan and the principle of a single management, the Ambit Government Entity (AGE) decides on the form of management (award by tender, mixed public-private company and in house providing) and, consequently, provides for the award, for 30 years, of the IWS in compliance with national regulations on the organization of local public services to networks of economic importance. The direct award may be made to entirely public companies that meet the requirements of European law and are in any case owned by the local authorities covered by the OTA. Art. 34 of Law Decree 179/12 supplemented by Law no. 115 of July 29, 2015, art. 8, paragraph 1, which establishes mandatory principles for local authorities for the award of services and regulates the transitional period of pre-existing awards validly absent is applied to IWS. In particular, it is envisaged that the award of services provided by listed companies and subsidiaries of listed companies (such as those held by subsidiaries of A2A S.p.A.) will cease upon expiry of the service contract or other acts governing the relationship. LD 133/2014 (Unlock Italy Decree) provided that, at the time of first application, the AGE, in order to ensure the achievement of the principle of single management within the OTA, provide for the award to the single manager of the area at the end of the existing management, operating on the basis of an award approved in accordance with the legislation pro tempore in force and not declared ceased pursuant to law. 7 When the ATEM tenders will be completed, the granting body can be identified alternatively in: 1) provincial capital (in the case of ATEM with capital), 2) most populous municipality (in the case of ATEM without capital), 3) network asset company (in the case of ATEM whose municipalities have decided to set it up). 8 The company was created on January 1, 2020 from the merger between ACSM-AGAM Reti Gas Acqua S.p.A. and Lario Reti Gas S.r.l.. 9 Following the industrial integration with the A2A Group, the municipalities present in the ATEMs of Milan 4, Bergamo 1, Bergamo 2, Bergamo 3 and Bergamo 5 (around 78,000 PdR) were sold by Unareti S.p.A. to RetiPiù S.r.l., with effect from November 1, 2020. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 114 114 3 Notes to the Consolidated annual report The legislator provided for certain exceptions to the establishment of the single operator by the AGE: in particular, in the event that the OTA coincides with the regional territory, it is allowed to award the IWS in territorial areas, however, not less than the territory corresponding to the provinces or metropolitan cities. The A2A Group carries out the IWS, through its subsidiaries and safeguarded in accordance with Legislative Decree 152/2006, in Brescia and in several municipalities of the province by mean of A2A Ciclo Idrico S.p.A. and Azienda Servizi Valtrompia S.p.A.. And by mean of Lereti S.p.A. (ACSM-AGAM Group) in Varese and Como and their provinces. District heating In Italy, there is no comprehensive legislative framework defining the way in which the district heating service is to be awarded, since neither the national legislator nor the administrative case-law in its rulings have unambiguously considered district heating as a local public service. In Lombardy, an initial discipline is dictated by Regional Law 26/2003. In such a poorly defined regulatory context, the local authority that considers this service as a local public service regulates district heating using licensing schemes and, in previous years, also authorizers. In other cases, the municipalities do not assume district heating as a public service and, therefore, regulate different aspects such as the use of the subsoil. In cases where district heating is used as a public service, the relationship between the municipality and the service operator is governed by agreements or service contracts with which the granting body has awarded the management of the service within the municipality, providing for a fee and certain rules for the provision of the service, for a period that is ordinarily long in view of the underlying investments, also conferring exclusive management. As far as the A2A Group is concerned, the service is managed by the companies A2A Calore & Servizi S.r.l., Linea Green S.p.A. (LGH Group), Como Calor S.p.A. and Varese Risorse S.p.A. (ACSM-AGAM Group) and Gelsia S.r.l. (AEB Group) in Bergamo, Brescia, Milan, Cremona (as well as in some municipalities in the relevant provinces), Lodi, Varese, Como, Monza, Seregno and Giussano. Public lighting Even for public lighting, as for district heating, there is no detailed regulatory framework. Local authorities that also identify this service as a local public service of economic importance must comply with art. 34 of LD 179/2012 and subsequent amendments and, therefore, award the service in accordance with EU principles. The public lighting service includes the management of systems (operation, maintenance and periodic checks) as well as the supply of electricity to supply the lighting points, as well as the implementation of modernization and energy requalification interventions. As highlighted by the Annex to Ministerial Decree of March 28, 2018 that disciplines the “Minimum environmental criteria of public lighting services” (CAM), in implementation of a general principle of the law, the duration of the service to be awarded must be commensurate with the activities included in the contract, the degree of economic exposure envisaged and, therefore, the time needed to amortize the investment plan. The A2A Group manages the public lighting service10through A2A Illuminazione Pubblica S.p.A. (AEB Group), in Milan and in nine municipalities of its province, in Brescia and in Bergamo, in addition to the municipalities of Bisignano, Busto Arsizio, Carbonara al Ticino, Casalmaggiore, Cassano Magnago, Castelletto sopra Ticino, Crevoladossola, Fiorenzuola d’Arda, Melissano, Sant’Arsenio, Stradella, Villanova D’Ardenghi and Volpiano. Through a number of ACSM-AGAM Group companies, the service is managed in the municipalities of Bovisio Masciago, Cantello, Castiglione Olona, Costa Masnaga, Melzo, Nova Milanese, Pero, Robbiate, Zibido San Giacomo and Messina (Varese Risorse S.p.A.), as well as in the municipalities of Sernio, Sondrio, Tirano and Valdisotto (Reti Valtellina Valchiavenna S.r.l.). In addition, RetiPiù S.r.l. (AEB Group) operates the public lighting service concession in the municipality of Seregno. Management of the municipal hygiene service Environmental services are related to the case of local public services of economic importance and the procedures for awarding them are governed by art. 202 of Legislative Decree 152/2006 and by art. 34 of Law Decree 179/2012. The services of collection, transport, sweeping and washing of roads, recovery and disposal of waste are regulated by a specific service contract with the granting Municipality aimed at defining the essential 10Inclusive for some municipalities of the management of traffic lights and votive lamps. 115 A2A Consolidated financial statements 2021 elements of the award including the duration of management, the economic aspects of the contractual relationship as well as the organizational and management methods of the service and the quantitative and qualitative levels of the services provided. In defining the concessionary relationship, the Granting Body takes into account the achievement of objectives of efficiency, effectiveness and cost-effectiveness of the service. Law 205/2017 (Budget Law 2018) entrusted ARERA with the regulatory and control powers in the waste sector, including differentiated, urban and assimilated waste: with Resolution 363/2021/R/rif, ARERA defined the criteria for the recognition of the efficient operating and investment costs of the integrated waste service for the regulatory period 2022-2025 (MTR-2), confirming the general approach that distinguished the first method11and setting the criteria for defining the access tariffs to the treatment plants of undifferentiated and OFMSW. With particular reference to the Lombardy Region, it should be noted that: it has organized integrated waste management using the provisions of art. 200, paragraph 7, of Legislative Decree 152/2006 without the establishment of any Optimal Territorial Area; the responsibility for awarding the service is directly of the municipalities that exercise it individually or in an associated form. In addition, the Lombardy Region, with Council Resolution no. 5777/2021 of December 21, 2021 complied with the provisions of article 6 of ARERA Resolution 363/2021/R/rif, declaring all the undifferentiated and OFMSW treatment plants as “additional” (i.e. whose access tariffs will not be determined by ARERA), taking into account that Lombardy is not in market conditions with structural rigidity either for the entire municipal waste chain or for OFMSW and is, on the contrary, characterized by plant self-sufficiency and competitive gate prices. The Region has, therefore, strengthened the monitoring obligations of plant operators, reserving the possibility of revising this provision during the biennial updating of tariffs following any changes in market conditions and the adoption of the National Waste Management Plan. In Lombardy, the urban hygiene service is provided by AMSA S.p.A., Aprica S.p.A. (controlled by A2A Ambiente S.p.A.) and by Linea Gestioni S.p.A. (LGH Group), by Acsm Agam Ambiente S.r.l. (ACSM-AGAM Group) and by Gelsia Ambiente S.r.l. (AEB Group). The main awards concern the municipalities of Milan, Brescia, Bergamo, Como, Cremona and Lodi with different deadlines based on the deeds governing the relationship with the individual municipalities. 11Ref. Resolution 443/2019/R/rif, with which ARERA approved the Tariff Method for the Integrated Waste Management Service (MTR), defining the criteria for the recognition of efficient operating and investment costs for the period 2018-2021. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 116 116 3 Notes to the Consolidated annual report 8) Update of the main legal and tax disputes still pending Adequate provisions are provided where necessary for the disputes and litigation described below. It is noted that if there is no explicit reference to the presence of a provision, the Group assessed the corresponding risk as possible without appropriating provisions in the financial statements. It should be noted that certain disputes illustrated in previous financial statements and still pending are not further reported due to the absence of updates or the modification of the previous risk situation. A2A S.p.A. Carlo Tassara: lawsuit for damages against EDF and A2A S.p.A. on the reorganization of Edison On March 24, 2015, Carlo Tassara S.p.A. notified A2A, Electricité de France (EDF) and Edison a summons requesting the Court of Milan to condemn A2A and EDF to compensation for damages allegedly suffered by Carlo Tassara, in its capacity as minority shareholder of Edison, in relation to the mandatory tender offer launched by EDF on Edison shares consequently to the transaction by which, in 2012, A2A sold its indirect shareholding in Edison to EDF and simultaneously acquired 70% of the capital of Edipower from Edison and Alpiq. In the summons notified, Carlo Tassara complained that, in the transaction, EDF and A2A agreed on a mutual “discount” on the price paid by EDF for the purchase of Edison shares, on the one hand, and on the price paid by A2A for the purchase of 70% of Edipower, on the other. This discount was expected to be the result of abusive conduct by EDF and A2A as shareholders of Edison and the violation, among other things, of the regulations on transactions with related parties. This \- according to Carlo Tassara \- was expected to allow maintaining artificially low the price of the Edison shares paid to A2A and consequently the tender offer price paid to minorities of Edison (which by law was expected to be equal to that paid to A2A). The writ of summons did not quantify the damage allegedly suffered by Carlo Tassara as a result of such transactions. However, with brief on February 20, 2017, Carlo Tassara requested the judge (who rejected the preliminary request) to have an expert witness to calculate the damages (specifying that they should have been quantified in the alleged difference between the tender offer price and the market value that the Edison shares had previously). Carlo Tassara also filed an appraisal in which such damages were quantified in a total amount between 197 and 232 million euro, amount to calculate the compensation due from each of the companies that will be considered responsible by the judge. After several postponements justified also by modifications of the judge, on October 17, 2018, the judge rejected the requests for investigation of the plaintiffs, setting March 19, 2019 as the hearing for clarification of conclusions. On September 8, 2021, the Milan Business Court filed Sentence 7859 rejecting all of the claims made by Carlo Tassara S.p.A., without accepting the reconstruction according to which the shareholders acted to cause an undervaluation of Edison and Edipower. According to the Business Court of First Instance, in the case submitted, the conditions for assessing management and coordination are not met. The court also found that the price of Edison shares, at which EDF purchased its shares during the tender offer, was not subject to review because it was the price defined by Consob pursuant to article 106 of the TUF; the sentence also highlights the difference between the price of Edison shares and the value of the Edipower subsidiary and, more importantly, the price at which the latter was sold to A2A. Carlo Tassara S.p.A. served a writ of summons on the appeal and A2A S.p.A. entered an appearance requesting that the Tassara S.p.A. appeal be declared inadmissible as well as groundless, and re-proposed the exceptions, defenses and requests raised in the first level of judgement for full protection. At the first hearing on March 2, 2022, the judge adjourned the case to March 1, 2023 for clarification of conclusions. The Group, having fulfilled the requirements of the regulations in force, does not consider likely the risk for which it has not allocated any provisions. Derivations of public water for the production of hydroelectricity in Lombardy A number of appeals are still pending in which A2A and Linea Green have challenged the measures issued by the Lombardy Region to regulate the continuation of water derivation for hydroelectric use even after the expiry of their respective concessions. In particular, D.G.R. (Regional Council Resolution) of Lombardy no. 5130/2016 ordered, by implementing paragraph 5 of art. 53-bis of Regional Law 26/2003 introduced by Regional Law 19/2010, the subjection of the Lombardy hydroelectric concessions already expired to an “additional fee” established “provisionally” at 20 €/kW of nominal power of concession, and reserved the request for settlement at the outcome of the assessments by the regional offices regarding the profitability of expired concessions. The additional fee was imposed retroactively from the original expiry of each concession; therefore, for the Grosotto, Lovero and Stazzona concessions, it would be effective from January 1, 2011, for the Premadio 1 concession from July 29, 2013, for the Grosio concession from November 15, 2016 and for the Resio concession from December 31, 2010. 117 A2A Consolidated financial statements 2021 A2A and Linea Green, which, like other operators, have always contested, also in the courts, the legitimacy, also constitutional, of article 53-bis, paragraph 5, of Regional Law 26/2003, challenged before the Superior Court of Public Waters and other competent bodies the D.G.R. 5130/2016 and the related and consequent measures that governed the conditions for the temporary continuation of each concession, and which, where provided for, ordered the revocation of the exemption of part of the State fee. A2A has also more recently challenged the orders whereby the Lombardy Region ordered the company to pay the amount allegedly due for the operation of the large derivations of Grosio, Cancano \- Premadio I, Lovero and Stazzona due to the company’s failure to pay that part of the state fee that is exempt pursuant to article 73 of Royal Decree 1775/1933, a benefit allegedly revoked by some of the resolutions that governed the provisional continuation of the concession after its expiry. This and other related litigation are still ongoing. The case brought by A2A in order to obtain the cancellation of the regional resolutions that governed the temporary continuation of the Cancano \- Premadio I concession ended with the rejection sentence issued by the Joint Sections of the Supreme Court no. 15990/2020 and the judgement brought by A2A in order to obtain the cancellation of the regional resolutions that governed the temporary continuation of the Grosotto, Lovero and Stazzona concessions ended with the rejection sentence issued by the Joint Sections of the Supreme Court, no. 1043/2021. The provisions of the Regions concerning the temporary continuation of expired or expiring concessions could, as from 2019, be justified by the provisions introduced by the Conversion Law no. 12/2019 of Legislative Decree no. 135/2018, the constitutional compatibility of which is nevertheless controversial. In this last regard, it should be pointed out that A2A and Linea Green appealed before the TSAP for the annulment of General Director Decree (D.D.G.) no. 10544/2019 by means of which the Lombardy Region ascertained and determined the amounts allegedly owed by the concessionaires as additional fees for 2019, disputes subsequently integrated with reference to the additional fee for the years 2020 and 2021, and with these appeals, they also requested referral to the Constitutional Court of a matter of constitutional legitimacy in relation to the aforementioned provisions introduced by the law converting Decree Law Simplifications with regard to hydroelectric concessions. Also Regional Law 5/20 issued by the Lombardy Region in implementation of Law 12/2019 was submitted to the judgement of constitutionality by the Government, which, however, by Resolution of the Council of Ministers of November 24, 2021 after the amendments resulting from the entry into force of Regional Law no. 19 November 4, 2021, waived the appeal. With reference to hydroelectric concessions, national Law 12/2019 also established that regions may introduce an obligation for concessionaires to provide 220 kWh annually and free of charge to the same regions for each kW of average nominal capacity of the concession. Availing itself of this faculty, with art. 31 Regional Law L.R. 23/2019 and, therefore, with Regional Council Resolution D.G.R. 3347/2020, the Lombardy Region regulated the obligation of free transfer of electricity with effect from the year 2020 for expired and unexpired derivation concessions. A2A and Linea Green have challenged the regional measure on various grounds. For disputes relating to public water derivation fees, the Company allocated adequate provisions for risks on a prudent basis, the quantification of which also takes into account the payments \- subject to any subsequent repayment upon the final outcome of the respective legal proceedings \- of certain positions, for the sole purpose of preventing additional costs. A2A Energiefuture S.p.A. Monfalcone Plant Investigation (RNR 195/17 Public Prosecutor of Gorizia) On March 08 and 09, 2017, following orders of the Public Prosecutor of Gorizia, the Monfalcone Plant of A2A Energiefuture S.p.A. was inspected during which surveys and samplings were performed (on coal in stock, on the ashes, on fume treatment residues, emissions from the chimney) and documentary acquisitions (on the servers of the emissions monitoring system, on fuel analysis forms, etc.). On the same date, the guarantee information has been notified to three employees, regarding an investigation for the offences referred to in Article 452 bis of the Italian Criminal Code. Environmental pollution. The suspect employees appointed trusted defenders. Subsequently, between December 2017 and January 2018, and then in December 2018 and July 2020, the Public Prosecutor of Gorizia proceeded with the acquisition of additional documentation at the plant. On May 6, 2021 (and subsequently on June 4, 2021), the defenders of the former head of the plant (but not the other two employees who had received information of guarantee) were notified of the conclusion of the preliminary investigation pursuant to article 415 bis of the code of criminal procedure in relation to the crime of environmental disaster pursuant to article 452 quater, paragraph 1, no. 2 and paragraph 2 of the Criminal Code. From the same notification, it emerges that the company is charged with the offence referred to in article 25 undecies, paragraph 1, letter b), in relation to article 5, paragraph 1, letter a) of Legislative Decree 231/01. In said notice of conclusion of the investigations, it is contested that the seabed in the area in front of the power plant quay has been compromised by coal run-off, the air has been compromised by emissions 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 118 118 3 Notes to the Consolidated annual report from the power plant and the balance of the ecosystem has been altered by contamination with heavy metals. A similar notice was served on May 10, 2021 at the Monfalcone power plant. On July 29, 2021, the defense attorney of the former head of the plant was served with a decree scheduling a preliminary hearing for November 24, 2021 before the Preliminary Investigation Judge (GIP) of Gorizia. At the hearing of November 24, 2021, the Company’s lawyer raised a preliminary objection of the nullity of the notice pursuant to article 415-bis of the Code of Criminal Procedure of the conclusion of the preliminary investigations since not duly notified. The exception was upheld by the Judge who referred the case back to the Public Prosecutor’s Office so that it could serve a new notice of conclusion of the preliminary investigations. As a result of this decision, the trial regressed to the preliminary investigation stage. A new notice pursuant to article 415 bis of the Code of Criminal Procedure is awaited. Linea Ambiente S.r.l. – Grottaglie landfill Court of Taranto \- Criminal Proceeding RGNR 2785/18 On March 14, 2019, an employee of A2A Ambiente S.p.A., seconded to Linea Ambiente S.r.l. as the company’s Chief Operating Officer, was remanded in custody as part of investigations into the offences referred to in articles 319 and 321 of the Italian Criminal Code with reference to an alleged bribery connected with the issue of Executive Decision no. 45 dated April 5, 2018 by the Province of Taranto for the orographic optimization of the Linea Ambiente S.r.l.’s Grottaglie landfill. On August 1, 2019, the Court of Taranto \- Office of the Judge for Preliminary Investigation \- at the request of the Prosecutor’s Office, ordered the immediate trial, i.e. without a preliminary hearing being held, of the defendants subject to pre-trial custody, including the employee of A2A Ambiente, against whom the measure of pre-trial custody in prison was replaced by house arrest and, subsequently, with the obligation to stay in the municipality of residence and, finally, with the prohibition of residence in the province of Taranto (even this last measure was later revoked by order of January 24, 2022), setting the first hearing for this purpose on November 4, 2019\. Said proceedings are currently underway and at the stage of the debates. Court of Taranto no. 5400/19 R.G. Administrative Responsibility Precautionary measures On May 7, 2020, the Guardia di Finanza notified Linea Ambiente S.r.l. of a preventive seizure order issued by the GIP of Taranto on March 12, 2020 in the context of Proceedings no. 2785/18 R.G.N.R. and 5400/19 R.G. Admin. Resp. and deed of execution of preventive seizure pursuant to art. 53 of Legislative Decree 231/01, also valid as guarantee information pursuant to art. 369 of the Italian Criminal Code. For the first time, Linea Ambiente was informed of the existence of Criminal Proceedings no. 5400/19 R.G. Admin. Resp. of Entities for bribery offences pursuant to article 25, paragraph 2, of Legislative Decree 231/01. The preventive seizure, on May 7, 2020, was arranged up to the amount of 26,273,298 euro (equal to the presumed profit of the offence). On May 13, 2020 was the notification of appointment of a judicial administrator of the assets seized, including company shares and receivables. On May 21, 2020, Linea Ambiente proposed a request for review of the seizure order, which was discussed in the Council Chamber on June 9, 2020, and rejected. The cautionary requests have been confirmed. On June 11, 2020, a decree releasing the Linea Ambiente portions was notified. On September 10, 2020, the company was notified of the conclusion of the preliminary investigations pursuant to article 415-bis of the Code of Criminal Procedure. The notification was repeated, with partial changes, on January 21, 2021\. On January 21, 2021, the Taranto Public Prosecutor’s Office notified the defense lawyer of Linea Ambiente of an order to release and return 95.004% of the shares in Lomellina Energia held by Linea Ambiente and already placed under preventive seizure. This was done on the basis of a new estimate of the value of the shares made by the judicial administrator and on the fact that after the seizures made by the Guardia di Finanza there remained sums equal to about 5% the value of said shares. On May 18, 2021, the Taranto Preliminary Investigation Judge (GIP), following the annulment by the Supreme Court of the preventive seizure order notified on May 7, 2020, issued a new preventive seizure order recalculating the “profit from the crime” as 20,304,974.88 euro (compared to the previous amount of 26,273,298.13 euro) by subtracting the “out-of-pocket costs” incurred by Linea Ambiente and quantified as 5,968,323.25 euro. In fact, the Supreme Court found that the original determination was erroneous of the alleged profit, identified by the Judge for Preliminary Investigation in the gross revenue that Linea Ambiente would have derived as a result of the landfill contributions made in the period April 2018 \- February 2019, for a total amount of 26,273,398.13 euro. Consequently, the Supreme Court ordered the annulment of the decree and the return of the acts to the GIP of Taranto to comply with the principles of law dictated by the Supreme Court, according to which the profit is only the advantage of immediate and direct causal derivation of the crime. In the new seizure order notified on May 18, 2021, however, according to the Linea Ambiente defense, this principle was again disregarded and therefore on May 27, 2021, an appeal was filed with the Supreme Court against the same, requesting its cancellation. At the related hearing on November 10, 2021, the Court declared the appeal inadmissible; the filing of the grounds is awaited. 119 A2A Consolidated financial statements 2021 On June 29, 2021, the Linea Ambiente counsel was re-notified of the preventive seizure order issued on May 18, 2021 by the GIP and the minutes of the execution of the same by which it was ordered to release and return to Linea Ambiente 3.352% of the shares held by it in the company Lomellina Energia for an estimated value (by the Judicial Administrator) of 1,617,284.96 euro. In May 2021, the Group complied with the request of the Judicial Administrator to pay the amounts seized up to the amount of 14 million euro. The proceedings of merit On March 18, 2021, the Linea Ambiente S.r.l. counsel was served with the notice of the preliminary hearing scheduled for June 10, 2021 before the Taranto Preliminary Hearings Judge. In this preliminary hearing, the Municipality of Grottaglie filed a request to join the civil action. At the subsequent hearing on July 22, 2021, the defense of Linea Ambiente S.r.l. objected to the inadmissibility of the civil action of the Municipality of Grottaglie against Linea Ambiente S.r.l. The Preliminary Hearings Judge (GUP) accepted the objection and consequently declared the inadmissibility of the constitution of a civil party of the Municipality of Grottaglie, also rejecting the request of the latter, carried out in the alternative, to authorize the summons of the company as civil liable party, postponing the proceeding to November 11, 2021 for the continuation of the preliminary hearing. At this hearing, the defense raised a number of preliminary issues and the Judge granted time to respond and adjourned the hearing until January 20, 2022\. At the hearing of January 20, 2022, the Judge dismissed the preliminary exceptions and adjourned the decision on the preliminary investigations until the hearing of March 31, 2022. At present, the company believes that the risk of confiscation is possible and has not made a provision for the amount of the seizure in view of the multiple concomitant factors, namely: i) the as yet preliminary phase of Proceedings no. 5400/19 R.G. Admin. Liability; ii) the exorbitant amount determined by the preventive seizure decree as profit deriving from the hypothetical predicate crime in respect of what is presently considered possible for a future effective confiscation order; iii) the fact that the time, considered to be in the fairly distant future, when such seizure may be ordered, cannot yet be determined, given the need of the definitive nature of any conviction judgement. Linea Ambiente vs.Provincia di Taranto – Grottaglie Landfill In January 2021 (with reiteration in February 2022), the Province of Taranto sent a warning notice for the removal of the waste dumped during the period of validity of DD 45/18, which also constitutes a response to the requests that the company had made in previous years regarding the procedures for fulfilling the obligations resulting from the Sentence of the Council of State no. 5985/2019, which had annulled the substantial variation no. 45/2018. The Province, according to as stated in the meagre communication, which does not give evidence of the provincial inquiry, does not open the required authorization procedure and indicates to the company: (i) to remove the waste delivered in excess of the authorized quantities, (ii) to restore the landfill profiles in accordance with authorization 426/08 and (iii) to activate the closure activities. On February 9, 2021, Linea Ambiente met with the Province, expressly reserving the right to challenge the warning, in order to outline a technical path necessary to take appropriate action; in particular, the company illustrated a preliminary investigation path from which all possible solutions could emerge, including a new request for a substantial variant of the current authorization in line with Council of State Sentence 5986/2019. The uncertainty of the technical solutions available and the unpredictability of the measures of the competent authorities, which have not carried out any technical investigation, make it impossible to predict the duration of the authorization process and the type of measure that will be issued to allow the company to resolve the current impasse. In view of the flaws in the deed, the company appealed to the Apulia Regional Administrative Court to have the warning cancelled and will notify additional grounds against the February 2022 communication; a hearing on the merits has not yet been scheduled. The Group has set aside an adequate provision to cover any risk. Lecce Public Prosecutor’s Office \- Criminal Proceeding no. 6369/2019 R.G.N.R. On February 26, 2020, at the Rovato headquarters of Linea Ambiente S.r.l., the Brescia Finance Police executed the “Search and Seizure Warrant” issued on February 5, 2020 by the Lecce Public Prosecutor’s Office (Public Prosecutor Mignone) in relation to criminal proceedings no. 6369/2019 R.G.N.R.. The Finance Police then acquired a copy of the company’s Organisational Model and the deeds and documents relating to the information flows destined for the Linea Ambiente S.r.l. Supervisory Body from November 2014 to January 2019. The criminal proceedings have been filed against the company Linea Ambiente S.r.l. and the legal representative pro tempore for the offences referred to in articles 452 quaterdecies of the Italian Criminal Code (activities organised for the illicit waste trafficking) and 256 and paragraphs 1 and 3 of Legislative Decree 152/2006 (respectively waste collection, transport and disposal activities in the absence of the prescribed authorization/registration and the construction and management of unauthorized landfills) 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 120 120 3 Notes to the Consolidated annual report from which the company’s administrative liability derives pursuant to articles 24 and 25 undecies of Legislative Decree 231/2001 and this \- the said measure states \- “in order to have, with several operations and through the setting up of continuous and organized means and activities, managed and illegally disposed of large quantities of urban waste, creating an illegal landfill, in order to obtain an unfair profit”. These alleged offences were supposedly committed in “Rome and Grottaglie from November 1, 2014 to January 28, 2019 with permanence”. Together with the “Search and Seizure Warrant”, the Finance Police notified the company “Guarantee and on the right of defence information”, from which it emerges that the company AMA S.p.A. of Rome, “owner of the TMB Rocca Cencia and Salario plants in Rome”, was also entered in the same proceedings. The company has been informed that individuals who are legal representatives or directors of Linea Ambiente S.r.l. and AMA S.p.A. during the interested period have received requests to extend the preliminary investigations in the same proceedings. Amsa S.p.A. Milan Public Prosecutor’s Office \- Criminal Proceeding no. 33490/16 R.G.N.R. On May 7, 2019, the Carabinieri investigative unit of Monza showed up at the Amsa S.p.A. headquarters to notify an order for the exhibition of documents issued by the Milan Public Prosecutor’s Office, relating to the documentation concerning three tenders launched by Amsa S.p.A. in 2017-2018, as well as the supplies made to it by a specific supplier. In relation to these proceedings, the Company’s Chief Operating Officer and other employees were investigated, as well as three members of a tender judging committee issued by Amsa S.p.A.. No dispute has been raised against Amsa S.p.A. on the basis of the regulations on the administrative liability of legal persons, as Amsa S.p.A. considers itself to be an “injured party” and, in fact, has filed a complaint with the Public Prosecutor’s Office through a trusted lawyer. On December 23, 2019, lawyer of Amsa \- as the injured party \- was served notice for the setting of the preliminary hearing on February 17, 2020\. As a result of this hearing, the Judge for Preliminary Investigation adjourned the hearing to May 25, 2020, setting a provisional schedule for its continuation. The measure in question does not cover the members of the tender committee, whose position has been withdrawn and closed. Filed as civil parties were Amsa S.p.A. and A2A Calore & Servizi S.r.l., as it was found to be an injured party in the same proceedings in relation to agreements made to its detriment by some companies competing in the district heating installation tenders, which tended to distort free competition. The trial was postponed to a hearing on November 12, 2020 and then to March 19, 2021. On January 18, 2021, the lawyer of Amsa S.p.A. was served notice of the setting of the preliminary hearing relating to the second line of investigation, registered under number 34213/19 R.G.N.R. \- 21296/19 R.G.I.P. connected to the first. The preliminary hearing of this second matter was set for March 19, 2021 for the joining of the proceedings. Amsa also filed as civil party against some of the defendants and in respect of certain allegations in connection with this additional matter. The trial underwent a series of postponements and the discussion of the preliminary hearing ended at the hearing on July 15, 2021 in which the defendants were sent for trial and the first hearing was set for November 18, 2021\. At the hearing of July 8, at the conclusion of the reconnaissance on the requests for alternative rites, the Judge also set the calendar for the treatment of alternative rites, scheduling numerous hearings between September and October 2021\. At the hearing of October 21, 2021, set for the decision on alternative procedures, the Judge, as regards the positions of interest to AMSA, accepted the plea bargains requested by pronouncing a sentence of application of the penalty, while for a defendant who had requested an abbreviated trial, it pronounced a sentence of acquittal. At the hearing on November 18, 2021, the preliminary issues raised by the defense of the defendants on remand were discussed; at the end of the hearing, the Court reserved its decision and adjourned the proceedings until the hearing on December 10, 2021\. At this hearing the Court, in order to withdraw its reservation, rejected the objections raised by the defense and then opened the hearing, inviting the parties to formulate their preliminary requests, on which it reserved the right to decide, adjourning the hearing until January 14, 2022\. At this hearing, the Court granted the preliminary investigations, admitted the testimonial and documentary evidence requested and ordered the transcription of telephone and environmental interceptions, which must be provided within 90 days of the start of the expert witness operations, set for January 24, 2022\. The case was adjourned until March 14 for the start of the preliminary hearing, and further hearings have already been scheduled until April 4, 2022. 121 A2A Consolidated financial statements 2021 Linea Green S.p.A. Brescia Public Prosecutor’s Office \- Criminal Proceeding no. 3891/2020 R.G.N.R. On September 22, 2020, the person in charge of the technical and operational management of the Isola hydroelectric plant on the Grigna stream in Barzio Inferiore was notified of a request for an extension of the preliminary investigation. The interested party thus learned of the existence of investigations involving the latter in relation to an alleged crime of environmental pollution in conjunction with the legal representative of the company that owns the plant, which does not belong to Linea Green, but to a third company with which Linea Green has signed a management contract. Subsequently, on March 26, 2021, the Carabinieri from the Forestry Department appeared at the Linea Green offices to acquire documentation and, on that occasion, invited the company’s legal representative to appoint a lawyer for the company, since, as shown in the report notified, it was “under investigation for the administrative offence depending on the crime referred to in article 25 undecies paragraph 1 letter a) of Legislative Decree 231/01”, i.e. in relation to the offence of environmental pollution referred to in article 452 bis of the Criminal Code. Unareti S.p.A. 2i Rete Gas S.r.l./Unareti S.p.A. \- tender gas distribution service Atem Milano 1 In 2018, 2iRete Gas S.r.l. notified to the Milan Regional Administrative Court an appeal against the award of the gas distribution service ordered by the Municipality of Milan in favour of Unareti S.p.A., requesting the cautionary suspension of the award provision and formulating an investigative request, announcing the right to notify additional reasons as a result of the satisfaction of the request for access to the documents. After the delivery of the part of the offer documents not covered by omissis, 2i Rete Gas S.r.l. notified additional reasons and further detailed some of the reasons for the illegitimacy of the measure already stated in the initial appeal. The Council of State rejected the requests for investigation. The defects of the award could be classified under three categories of topics: reasons for excluding Unareti, reasons for re-establishing the commission and reasons for redefining the ranking. Within the terms, Unareti notified an incidental appeal in which 2i Rete Gas filed an argument with further critical aspects of the proceedings. After the Council Chamber of November 22, 2018, in which, at the joint request of the parties, the Regional Administrative Court adjourned the hearing on the merits, subsequently to November 21, 2019, the Regional Administrative Court issued Sentence no. 2598 on December 5, 2019 in which it upheld three grounds of appeal by 2i Rete Gas and one ground for the cross-appeal filed by Unareti ordering the annulment of the award unless the Administration ordered it. 2i Rete Gas S.r.l. notified the sentence on January 17, 2020 and all parties notified the appeal to the Council of State; 2i Rete Gas S.r.l. and Unareti S.p.A. appealed the grounds absorbed and not examined at first instance. The Municipality and 2i Rete Gas S.r.l. also requested cautionary suspension of the sentence, which was then waived; therefore, following the Council Chamber set for April 2, all three appeals were discussed at the only hearing on the merits set for July 9, 2020\. On September 7, 2020, the Council of State filed Sentence no. 5370, which upheld the appeal by Unareti, thus confirming the legitimacy of the award of the tender to Unareti. The Council of State, reforming the first instance ruling, also found that the reliance on the requirements of 2iRG S.p.A. in favour of 2iRG complied with the law, with the result that the first instance ruling was erroneous insofar as it excluded 2iRG from the tender. The Council of State also examined and ruled on the rejection or inadmissibility of all the other grounds of appeal of 2iRG and Unareti at first instance. On February 18, 2021, 2i Rete Gas S.r.l. filed an appeal with the Supreme Court pursuant to article 111 of the Italian Constitution, article 362, paragraph 1 of the Italian Code of Criminal Procedure and Article 110 of the Italian Code of Civil Procedure to ask the Supreme Court, which will have to decide in Joint Sections, to ascertain the lack of jurisdiction of the Council of State when it issued Sentence no. 5370 on September 7, 2020\. At present, no request to suspend the effectiveness of the sentence has been notified. Said request should in any case be filed with the Council of State. The Company and the Municipality of Milan have entered an appearance by lodging a counter-appeal. On December 16, 2021, Unareti and the Municipality of Milan signed the service agreement, with ATEM management scheduled to begin on March 1, 2022. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 122 122 3 Notes to the Consolidated annual report ACSM-AGAM S.p.A. Acsm Agam Ambiente S.r.l. vs Municipality of Varese regarding the reorganization of the municipal sanitation service Acsm Agam Ambiente S.r.l., after having contested the measures taken by the Municipality of Varese to ascertain the early lapse of the concession with which the Municipality had granted the company the municipal sanitation service, without acquiescing, took part in the tender called by the Municipality of Varese to assign the service and appealed to the Milan Regional Administrative Court (TAR) against the final awarding measure that saw it ranked third. Pending the judgement of first instance, the Municipality of Varese, with a provision of December 31, 2020 cancelled the awarding decision and, on February 4, 2021, ordered the awarding to the second in the ranking, both Acsm Agam Ambiente S.r.l. and the original contractor then revoked challenged this resolution. The Regional Administrative Court with Sentence 1080 of April 30, 2021 and the Council of State with sentence 4705 of November 11, 2021 confirmed the award to the company second in the ranking. As of January 1, 2022, service in the Municipality of Varese is managed by the successful contractor. A2A S.p.A. has recorded adequate liabilities in relation to the topic described. ACSM-AGAM S.p.A. and Acsm Agam Ambiente S.r.l.: lawsuit for damages against the Municipality of Varese regarding the municipal sanitation concession In 2020, ACSM-AGAM S.r.l. and Acsm Agam Ambiente S.p.A. filed a lawsuit with the Special Business Court of Milan seeking a declaration of contractual and non-contractual non-fulfilment by the Municipality of Varese, with a consequent order for damages. The Municipality of Varese caused direct damage to the assets of the ACSM-AGAM Group by ordering the early termination of the service contract signed with Acsm Agam Ambiente. In fact, Acsm Agam Ambiente reduced the income flows related to the contract and incurred unforeseen and otherwise avoidable charges for the transitional continuation of the contract at more onerous conditions and ACSM-AGAM S.p.A. suffered a significant reduction in the value of the subsidiary’s shareholding, despite and after the signing of the Framework Agreement that characterized the extraordinary transaction in 2018\. After the hearing for the definition of the conclusions set for October 28, 2021 and the filing of closing statements and replies, on February 15, 2022, the Court filed an order dated January 20, declaring that the Business Court of Milan lacked jurisdiction and that the ordinary Court of Varese had jurisdiction. In view of the contents of the order, the companies are considering the best course of action to pursue the case. AEB S.p.A. Judgments on the integration transaction between A2A and AEB S.p.A. With two initial appeals with cautionary request (R.G. 971/2020 submitted by CST Centro Servizi Termici (Thermal Service Center), DE.CA.BO. S.r.l. and Lombardy Regional Councillor Marco Fumagalli; R.G. 983/2020 submitted by Seregno Municipal Councillor Tiziano Mariani) filed with the Milan Regional Administrative Court, the resolution of the Seregno Municipal Council approving the merger between A2A and AEB was challenged; this resolution was suspended by Ordinances no. 868/2020 and no. 869/2020 by which the Regional Administrative Court accepted the precautionary requests submitted by the appellants and set the merit hearing for December 2, 2020\. On December 2, 2020, the third appeal was also discussed (R.G. 1095/2020 submitted by Idrotech and Eco Term S.r.l.s.). A2A, the Municipality of Seregno and AEB have filed separate cautionary appeals before the Council of State to obtain the annulment and/or reform of the ordinances. The Council of State, at the outcome of the Council Chamber set for August 27, 2020, on August 28, 2020, upheld the appeals “due to the clear lack of legitimacy and interest of the claimants at first instance and the consequent clear lack of the assumption of direct and immediate harm involving the same claimants from the contested deeds, in view of the nature of the corporate change and the inapplicability of the transaction subject to the appeal at first instance”. The resolution of the Municipality of Seregno, therefore, also took effect for the purposes of the corporate deeds that were in fact carried out. The company has evaluated the content of the Council of State’s ordinances and the appeals and, also in light of the position of the appointed lawyers, performed the company transaction, considering the prevalence of the principles of legal certainty and market confidence given the performance of corporate acts. On February 15, 2021, the Milan Regional Administrative Court published the judgments upholding the three appeals filed respectively by (i) CST Centro Servizi Termici di Calzolari Maurizio, Depositi Carboni Bovisa DE.CA.BO. S.r.l. and Marco Fumagalli (Councillor Lombardy Region) Sentence no. 412/21, (ii) Tiziano Mariani (Councillor Municipality of Seregno) Sentence no. 413/21 and (iii) Idrotech di Corno Irwin Maria Sentence no. 414/21. In order to enforce Sentence 413/21, Municipal Councillor Mariani has also appealed to the Milan TAR for a judgement of compliance. On March 2, 2021, the Regional Administrative Court, at the claimant’s request, issued a precautionary decree in which it denied single-court precautionary measures, but set a Council Chamber for March 24, 2021\. Following the hearing on the merits on April 28, 2021, 123 A2A Consolidated financial statements 2021 with Sentence no. 1248 of May 20, 2021, the Regional Administrative Court rejected the appeal for compliance, on the grounds that delivery by AEB of the due diligence of the transaction to Councillor Mariani constituted full compliance with Sentence 413/21. In the same sentence, the Lombardy Regional Administrative Court (TAR) also specified that “not included in the compliance effect” of the ruling for which compliance was requested (i.e. of Sentence no. 413/21) are “the validity and effectiveness of the corporate deeds adopted as a consequence of the contested resolution, for which the administrative judge does not have jurisdiction (Civil Cassation, Joint Sections, Ordinance January 23, 2014, no. 1237; Sentence December 30, 2011, no. 30167; Council of State, Plenary Meeting, Sentence June 3, 2011, no. 10)”, thus confirming that the acceptance of the appeal proposed by the Director Mariani did not produce immediate effects on the company deeds that have occurred in the meantime. AEB and the Municipality of Seregno have filed an appeal with the Council of State requesting a suspension of the effects of Sentence 413/21. On March 22, 2021, the Council of State denied the suspension because it found that the ruling did not jeopardize the stability of the corporate integration transaction and, given the peculiarity and delicacy of the matter, scheduled a merit hearing as early as July 1, 2021\. A similar appeal has been filed \- without a request for precautionary measures \- by A2A. The sentences 412 and 414 qualify the business combination as a transformation of AEB S.p.A. into a mixed company carried out in alleged violation of art. 17 Legislative Decree 175/16 and art. 3 Legislative Decree 50/16 and consider that the conditions do not exist for exemption from the procedures dictated by art. 10 of the same Legislative Decree no. 175/16. A2A, as well as AEB and the Municipality of Seregno, has notified appeal to the Council of State to request the annulment of the sentences. The public hearing to discuss the merits of the appeals was held on July 1, 2021, with the sole exception of the appeal notified by A2A against Sentence 413/21. On September 1, 2021, the State Board filed Sentence 6143 dismissing the appeals served by the Municipality and AEB against Sentence 413\. A2A was also notified of the sentence on September 2\. In light of Sentence 6143, A2A is assessing with its lawyers whether to request a hearing to be set or instead to leave the appeal undecided so as to prevent Sentence 413/21 becoming final. On September 1, 2021, the Council of State also filed Sentence 6142 by which it rejected the appeals notified by the Municipality, AEB and A2A against Sentence 414 of February 15, 2021 (which had upheld the appeals notified by Idrotech and Eco Term); and on September 6, 2021, the Council of State also filed Sentence 6213 by which it rejected the appeals notified by the Municipality, AEB and A2A against Sentence 412 of February 15, 2021 (which had upheld the appeal notified by Regional Councillor Fumagalli, CST and DE.CA.BO.). Also in these two cases, therefore, the annulment of the resolution passed by the Seregno City Council on April 20, 2020 with number 17 was confirmed. Moreover, on September 3, the legal counsel of the appellants, Idrotech and Eco Term, asked the Municipality, AEB and A2A to provide compensation for the damages suffered by the companies as a result of the illegitimate transaction carried out, announcing possible legal action in the event of inactivity. The Municipality replied, fulfilling its obligations to respond to the companies. A2A and AEB have appealed the sentences both by way of revocation and appeal by cassation. In its appeals for revocation, A2A claimed that the Council of State had made a factual error in two respects: on the one hand, in that it mistakenly deemed the companies claiming at first instance to be “operators in the sector” and, as such, legitimated to act against the merger between A2A and AEB; on the other, in that it mistakenly qualified the merger as a public-private partnership aimed at obtaining public assignments, without appreciating the fact that it was objectively unsuitable. In its appeals to the Supreme Court, A2A claimed both absolute lack of jurisdiction on the part of the administrative judge (since it decided on appeals lodged by parties without legitimacy) and excess of jurisdictional power due to exceeding the limits of administrative jurisdiction (since the Council of State’s pronouncements invaded the sphere of regulatory production reserved for the legislator, introducing an obligation to tender in corporate transactions with public companies that is not provided for by the law). The appellants have entered an appearance and none of the appeals have been discussed. The parties are evaluating the possibility of an out-of-court settlement of disputes with the original appellant companies with settlement of the claims made, without any recognition of liability. Monza Public Prosecutor’s Office \- Criminal Proceeding no. 1931/2021 R.G.N.R. On July 5, 2021, officers and agents of the Guardia di Finanza of Seregno showed up at the headquarters of AEB S.p.A. in Seregno to execute “personal and local search orders” and “request for delivery \- local search order”. The proceedings, which in the initial phase were against unknown persons, originated from two complaints submitted to the Prosecutor’s Office on November 25, 2019 and on February 10, 2020 by Tiziano Mariani, Municipal Councillor of the Municipality of Seregno, who also notified an appeal to the TAR in the terms referred to above. The “personal and local search decree” concerns the Chair of the Board of Directors of AEB S.p.A and is also valid as “information of guarantee” pursuant to art. 369 of the Italian Code of Criminal Procedure for the person under investigation. On the basis of this decree, the Chair of AEB is being investigated, 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 124 124 3 Notes to the Consolidated annual report in conjunction with others (art. 110 of the Criminal Code), who have not been named, for the offences referred to in art. 353 bis Criminal Code (disturbance of the freedom of the procedure for choosing a contractor), 319 Criminal Code (bribery for an act contrary to the duties of office), 321 Criminal Code (penalties for the briber), committed between “October 2019 and in present permanency.” At the same time, AEB was served with a “request for delivery and a local search decree” with which the Monza Public Prosecutor’s Office ordered the acquisition of documentation concerning the transaction. Subsequently, on September 24, 2021, the Finance Police of Seregno, at the request of the Monza Public Prosecutor’s Office, appeared at the A2A Milan headquarters to serve, as part of Procedure no. 1931/2021 R.G.N.R. relating to the merger between the A2A and AEB Groups, a notice of non-repeatable technical checks on the IT supports already previously seized, with the appointment on October 8, 2021 of a consultant appointed by the Public Prosecutor’s Office to make the forensic copy. The deed in question was notified to persons, other than the current directors of A2A S.p.A., who in A2A S.p.A., Unareti S.p.A. and A2A Illuminazione Pubblica S.r.l. had positions of responsibility, or considered such, for various reasons in the project in question and also contains information about the guarantee and the right of defense in relation to the investigation concerning the hypotheses of crime pursuant to articles 110 of the Italian Criminal Code (conspiracy), 353 bis Criminal Code (disturbance of the freedom of the procedure for choosing a contractor), 319 Criminal Code (bribery for an act contrary to the duties of office), 321 Criminal Code (penalties for the corruptor). * * * The following information is provided in connection with the main litigation of a fiscal nature. A2A gencogas S.p.A. (formerly Abruzzoenergia S.p.A.) \- General IRES/IRAP/VAT audit for fiscal years 2014 and 2015 On January 19, 2016, the Finance Police \- Chieti Unit commenced a general audit of A2A gencogas S.p.A. (formerly Abruzzoenergia S.p.A.) for fiscal years 2014 and 2015 for IRES, IREP and VAT purposes. This audit was completed on May 25, 2016\. The company submitted comments to the formal notice of assessment by the inspectors. In December 2016, the Revenue Agency of Chieti issued notices of assessment for IRES, IRAP and VAT for the years 2011 and 2012 and, in August 2017, served notices of assessment for IRES, IRAP and VAT for the years 2013 and 2014\. The company has proposed a timely appeal against all the deeds notified. The Provincial Tax Commission of Chieti and the Regional Tax Commission of Pescara issued unfavourable rulings for IRES and IRAP. The appeals against the VAT assessment notices for the years 2011-2014 were rejected by the Provincial Tax Commission of Chieti and upheld by the Regional Tax Commission of Pescara. On May 8, 2019, the Company filed an appeal with the Supreme Court for IRES 2011 and 2012\. In February 2020, the Company filed an appeal with the Supreme Court for IRES 2013 and 2014 and IRAP 2011-2014 and a counter-appeal with the Supreme Court for VAT 2011 and 2012\. On May 5, 2020, the Company filed a counter-appeal with the Supreme Court for 2013-2014 VAT. A risk provision of 2 million euro has been recognized. A2A S.p.A. \- Registration tax for transfer of business unit and sale of the investment Chi.na.co. S.r.l. On April 4, 2016, the Provincial Directorate I of Milan \- Regional Office of Milan 1 \- notified the invitation to appear to provide clarifications on a business transfer in the company Chi.na.co. S.r.l. and the subsequent sale of the investment held in it under control for registration tax purposes. The invitation was followed by a contradictory with the Office and subsequent notification by the latter of the notice of liquidation to the acquiring counterparty, which filed an appeal on September 28, 2016\. The Provincial Tax Commission of Milan rejected the appeal with sentence filed on July 07, 2017\. On February 13, 2018, the acquiring company filed an appeal, which was rejected by the Milan Regional Administrative Court. On April 8, 2019, the Company filed an appeal with the Supreme Court. On February 21, 2020, the Office filed a counter-appeal and a cross-appeal with the Supreme Court. The risks provision recognized for 1.4 million euro was fully used for the payment of the amounts requested with the liquidation notice. A2A Ambiente S.p.A. (formerly Aprica S.p.A.) \- Technical audit of the Brescia waste-to-energy plant On March 7, 2013, the Brescia Customs Agency commenced a technical audit of the Brescia waste-to-energy plant owned by Aprica S.p.A. (now owned by A2A Ambiente S.p.A.). The audit was completed on January 16, 2014 with the serving of a formal notice of assessment for the years 2008 to 2011\. For 2008 and 2009, the Customs Authority served payment notices together with the respective penalties on May 7 and 21, 2014\. The company appealed against these two demands in July 2014\. For the year 2009, in December 10, 2014, the company signed a conciliation agreement with the Customs Agency of Brescia for the final closure of the dispute and the consequent termination of the proceedings. For 2008, the litigation of first instance ended favourably for the company. On September 24, 2015, the Office 125 A2A Consolidated financial statements 2021 appealed. The company filed counter-claims on November 17, 2015\. With sentence of June 6, 2016, the Regional Tax Commission partially upheld the company’s reasons. The Office has appealed to the Supreme Court and the company has resisted with counter-claim and cross-appeal notified on February 20, 2017\. The Supreme Court referred the case back to the Regional Tax Commission and the Company filed an appeal for reinstatement on June 8, 2020\. On August 5, 2014, the Customs Authority served formal notices of assessment for 2012 and 2013\. In March 2016, the company defined with the Customs Agency of Brescia the years from 2010 to 2013 with the payment of the amounts due on the basis of the criteria identified in the deed of reconciliation for the year 2009\. With regard to 2008, the Office did not appeal the sentence issued by the Regional Tax Commission in favour of the Company, which has therefore become final, definitively closing the tax claim. A2A S.p.A. (merging company of AMSA Holding S.p.A.) \- VAT Tax assessments for tax years from 2001 to 2005 In early 2006, the Italian Finance Police – Lombardy Regional Unit, Milan – carried out a tax audit of AMSA Holding S.p.A. (now A2A S.p.A.) for VAT purposes for tax years 2001 to 2005. The audit ended with the issue of a final report contesting the legitimacy of the ordinary VAT rate, in place of the special rate applied by suppliers for waste disposal and plant maintenance, as well as the subsequent deduction made after the invoices issued for these services were duly paid. The report was followed by formal notices of assessment from the Tax Revenue Office (Milan 3 Office) for each year audited; appeals were then filed with the Provincial Tax Commission within the term provided by law. The appeals for 2001 and for 2004 and 2005 were discussed on January 25, 2010 and on February 17, 2010 respectively, with a favourable outcome for the company in all cases. The Tax Revenue Office appealed against the verdict of the first court. The Regional Tax Commission rejected this appeal for all three years, 2001, 2004 and 2005. For 2001, the Tax Revenue Office filed an appeal with the Supreme Court against which AMSA Holding S.p.A. (now A2A S.p.A.), filed a cross-appeal on November 9, 2012\. At the hearing on December 12, 2018, the Company requested that the case be suspended in order to assess the facilitated settlement of the dispute. On May 24, 2019, the company filed an application for a facilitated settlement of pending tax disputes and definitively settled its tax claim. The outcomes of the 2002 and 2003 disputes were also favourable for the company but the Tax Revenue Office filed an appeal against both sentences. The appeal for 2002 was discussed on November 30, 2010, and by way of a sentence lodged on February 2, 2011 the Milan Regional Tax Commission overturned the sentence of the first court, upholding the Tax Revenue Office’s appeal on almost all counts with the exception of the hazardous waste category. The Company filed an appeal with the Supreme Court for 2002\. The hearing was held on December 12, 2018 and the appeal was upheld and the judgement was adjourned to the Regional Technical Committee (CTR). On December 23, 2019, the Company filed an appeal for reinstatement in CTR and an appeal for revocation with the Supreme Court. For 2003 the appeal made by the Tax Revenue Office was discussed on November 7, 2011 before the Regional Tax Commission which rejected it with a sentence filed on November 11, 2011\. The Tax Revenue Office has not appealed to the Supreme Court for 2003, 2004 and 2005 and the sentence has become final, thereby closing the litigation. No provisions for risks have been recognized. A2A Ciclo Idrico S.p.A. IMU assessment notices of Municipality of Montichiari for the years 2013-2018 On December 4, 2019, the Municipality of Montichiari (BS) issued notices of assessment for IMU purposes for the years from 2013 to 2018 regarding the purification plant located in the territory of the same municipality. On January 29, 2020, the Company filed an appeal with the Provincial Tax Commission. A risk provision of 0.7 million euro has been recognized. A2A Energia S.p.A. merging company of Linea Più S.p.A. \- General IRES/IRAP/VAT audit for fiscal years 2013 and 2014 On September 17, 2019 the Lombardy Regional Department \- Large Taxpayers Section \- opened in respect of A2A Energia S.p.A. (merging company of Linea Più S.p.A.) a general audit for IRES, IRAP and VAT purposes for tax periods 2013 and 2014\. This audit was completed on October 22, 2019\. On December 24, 2019, the Lombardy Regional Department issued notices of assessment for IRES, ROBIN TAX, IRAP and VAT purposes for the tax periods verified. On July 24, 2020, the Company appealed against all the assessments to the Provincial Tax Commission. At the hearing on May 11, 2021, the Milan Provincial Tax Commission upheld the company’s appeals. On September 24, 2021, the Office appealed, and on November 19, 2021, the Company filed a notice of counter-claim to the appeal. A risk provision of 10.3 million euro has been recognized. 3 Notes to the Consolidated annual report General information Consolidated annual report Financial statements Basis of preparation Changes in international accounting standards Scope of consolidation Consolidation policies and procedures Accounting standards and policies Business Units Results sector by sector Notes to the balance sheet Net debt Notes to the income statement Earnings per share Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 126 126 3 Notes to the Consolidated annual report A2A Ambiente S.p.A. \- Tax audit on sulphur dioxide and nitrogen oxides SO2 NOx emissions for the 2014 and 2019 tax periods On October 24, 2019, the Naples Customs Agency 2 \- Excise Department for Audits and Controls \- opened against A2A Ambiente S.p.A. an administrative technical audit of the Acerra waste-to-energy plant for the recovery of the tax on emissions of sulphur dioxide and nitrogen oxides for the years 2014-2019\. The audit was completed on February 27, 2020\. On April 24, 2020, the Company submitted its observations regarding the notice of assessment prepared by the inspectors. On December 11, 2020, the Naples Customs Agency served notice of payment and imposition of penalties for the years 2015-2019. In March 2021, the Company filed an appeal with the Naples Provincial Tax Commission. A risk provision of 0.5 million euro has been recognized. A2A Energiefuture S.p.A. \- TASI assessment notice Municipality of Brindisi for the year 2015 On March 18, 2021, the Municipality of Brindisi issued notice of assessment for TASI purposes for the year 2015 regarding the thermoelectric plant located in the territory of the same Municipality. On June 7, 2021, the Company filed an appeal with the Provincial Tax Commission. The Municipality issued a self-protection cancellation order. The risk provision of 0.13 million euro has been released. * * * Consob Recommendation no. 61493 of July 18, 2013 In response to Consob Recommendation no. 61493 published in July 2013, the A2A Group has carried out detailed analyses which have led to the identification of the hydroelectric production sector as the area applicable to the Group. The investments made in this sector in 2021 were of a marginal amount and due to ordinary maintenance. 4 Attachments to the notes to the Consolidated annual report 128 4 Attachments to the notes to the Consolidated annual report Tangible assets millions of euro RESIDUAL VALUE AT 12 31 2020 FIRST CONSOLIDATION CHANGES CHANGES RESIDUAL VALUE AT 12 31 2021 INVESTMENTS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES WRITE-DOWNS AMORTIZATION TOTAL CHANGES GROSS VALUE ACCUMULATED AMORTIZATION GROSS VALUE ACCUMULATED AMORTIZATION Land 127 14 4 (4) - 141 Buildings 597 5 11 8 (105) 60 (3) 1 (30) (58) 544 Plant and machinery 3,788 146 214 100 209 (199) (73) 71 (8) (340) (26) 3,908 Industrial and commercial equipment 50 17 6 (9) (1) 1 (9) 5 55 Other assets 122 27 13 26 (25) (12) 12 (31) 10 132 Landfills 26 2 17 (13) (7) (1) 25 Construction in progress and advances 226 34 411 (128) 3 (2) 284 544 Leasehold improvements 113 2 30 2 (3) (20) 9 124 Right-of-use assets 113 16 11 3 (2) 2 (28) (14) 115 Total tangible assets 5,162 217 714 (3) 163 (186) (91) 87 (10) (465) 209 5,588 Tangible assets millions of euro RESIDUAL VALUE AT 12 31 2019 FIRST CONSOLIDATION CHANGES CHANGES RESIDUAL VALUE AT 12 31 2020 INVESTMENTS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES WRITE-DOWNS AMORTIZATION TOTAL CHANGES GROSS VALUE ACCUMULATED AMORTIZATION GROSS VALUE ACCUMULATED AMORTIZATION Land 112 13 3 (1) 2 127 Buildings 594 22 10 3 2 (1) (2) (31) (19) 597 Plant and machinery 3,591 138 165 117 87 (13) (26) 24 (295) 59 3,788 Industrial and commercial equipment 45 2 11 1 (2) 2 (9) 3 50 Other assets 127 4 17 6 (8) 7 (31) (9) 122 Landfills 28 2 1 (2) (3) (2) 26 Construction in progress and advances 131 3 221 (133) 6 (2) 92 226 Leasehold improvements 101 24 5 (14) 13 (1) 1 (16) 12 113 Right-of-use assets 140 10 (49) 39 (27) (37) 113 Total tangible assets 4,869 192 451 1 33 38 (39) 34 (4) (413) 101 5,162 4.1 1\. Statement of changes in tangible assets 129 A2A Consolidated financial statements 2021 Tangible assets millions of euro RESIDUAL VALUE AT 12 31 2020 FIRST CONSOLIDATION CHANGES CHANGES RESIDUAL VALUE AT 12 31 2021 INVESTMENTS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES WRITE-DOWNS AMORTIZATION TOTAL CHANGES GROSS VALUE ACCUMULATED AMORTIZATION GROSS VALUE ACCUMULATED AMORTIZATION Land 127 14 4 (4) - 141 Buildings 597 5 11 8 (105) 60 (3) 1 (30) (58) 544 Plant and machinery 3,788 146 214 100 209 (199) (73) 71 (8) (340) (26) 3,908 Industrial and commercial equipment 50 17 6 (9) (1) 1 (9) 5 55 Other assets 122 27 13 26 (25) (12) 12 (31) 10 132 Landfills 26 2 17 (13) (7) (1) 25 Construction in progress and advances 226 34 411 (128) 3 (2) 284 544 Leasehold improvements 113 2 30 2 (3) (20) 9 124 Right-of-use assets 113 16 11 3 (2) 2 (28) (14) 115 Total tangible assets 5,162 217 714 (3) 163 (186) (91) 87 (10) (465) 209 5,588 Tangible assets millions of euro RESIDUAL VALUE AT 12 31 2019 FIRST CONSOLIDATION CHANGES CHANGES RESIDUAL VALUE AT 12 31 2020 INVESTMENTS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES WRITE-DOWNS AMORTIZATION TOTAL CHANGES GROSS VALUE ACCUMULATED AMORTIZATION GROSS VALUE ACCUMULATED AMORTIZATION Land 112 13 3 (1) 2 127 Buildings 594 22 10 3 2 (1) (2) (31) (19) 597 Plant and machinery 3,591 138 165 117 87 (13) (26) 24 (295) 59 3,788 Industrial and commercial equipment 45 2 11 1 (2) 2 (9) 3 50 Other assets 127 4 17 6 (8) 7 (31) (9) 122 Landfills 28 2 1 (2) (3) (2) 26 Construction in progress and advances 131 3 221 (133) 6 (2) 92 226 Leasehold improvements 101 24 5 (14) 13 (1) 1 (16) 12 113 Right-of-use assets 140 10 (49) 39 (27) (37) 113 Total tangible assets 4,869 192 451 1 33 38 (39) 34 (4) (413) 101 5,162 4 Attachments to the notes to the Consolidated annual report 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3\. List of companies included in the consolidated annual report 4\. List of shareholdings in companies carried at equity 5\. List of holdings in other companies Certification of the consolidated financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 130 4 Attachments to the notes to the Consolidated annual report Intangible assets millions of euro RESIDUAL VALUE AT 12 31 2020 FIRST CONSOLIDATION CHANGES CHANGES RESIDUAL VALUE AT 12 31 2021 INVESTMENTS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES WRITE-DOWNS AMORTIZATION TOTAL CHANGES GROSS VALUE ACCUMULATED AMORTIZATION GROSS VALUE ACCUMULATED AMORTIZATION Industrial patent and intellectual property rights 40 21 10 3 (22) 12 52 Concessions, licences, trademarks and similar rights 1,876 237 26 (104) (6) (19) 17 (2) (144) 5 1,881 Goodwill 426 331 2 6 (19) (11) 746 Assets in progress 74 83 (35) (2) (1) 45 119 Other intangible assets 321 20 17 2 9 (7) (35) (14) 327 Total intangible assets 2,737 351 360 3 (88) (32) (19) 17 (3) (201) 37 3,125 Intangible assets millions of euro RESIDUAL VALUE AT 12 31 2019 FIRST CONSOLIDATION CHANGES CHANGES RESIDUAL VALUE AT 12 31 2020 INVESTMENTS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES WRITE-DOWNS AMORTIZATION TOTAL CHANGES GROSS VALUE ACCUMULATED AMORTIZATION GROSS VALUE ACCUMULATED AMORTIZATION Industrial patent and intellectual property rights 31 14 14 (19) 9 40 Concessions, licences, trademarks and similar rights 1.616 131 195 36 (38) 41 (24) 18 (1) (98) 129 1.876 Goodwill 374 61 (9) (9) 426 Assets in progress 62 70 (51) (7) 12 74 Other intangible assets 296 56 8 (18) 4 (25) (31) 321 Total intangible assets 2.379 248 287 (1) (72) 45 (24) 18 (1) (142) 110 2.737 4.2 2\. Statement of changes in intangible assets 131 A2A Consolidated financial statements 2021 Intangible assets millions of euro RESIDUAL VALUE AT 12 31 2020 FIRST CONSOLIDATION CHANGES CHANGES RESIDUAL VALUE AT 12 31 2021 INVESTMENTS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES WRITE-DOWNS AMORTIZATION TOTAL CHANGES GROSS VALUE ACCUMULATED AMORTIZATION GROSS VALUE ACCUMULATED AMORTIZATION Industrial patent and intellectual property rights 40 21 10 3 (22) 12 52 Concessions, licences, trademarks and similar rights 1,876 237 26 (104) (6) (19) 17 (2) (144) 5 1,881 Goodwill 426 331 2 6 (19) (11) 746 Assets in progress 74 83 (35) (2) (1) 45 119 Other intangible assets 321 20 17 2 9 (7) (35) (14) 327 Total intangible assets 2,737 351 360 3 (88) (32) (19) 17 (3) (201) 37 3,125 Intangible assets millions of euro RESIDUAL VALUE AT 12 31 2019 FIRST CONSOLIDATION CHANGES CHANGES RESIDUAL VALUE AT 12 31 2020 INVESTMENTS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES WRITE-DOWNS AMORTIZATION TOTAL CHANGES GROSS VALUE ACCUMULATED AMORTIZATION GROSS VALUE ACCUMULATED AMORTIZATION Industrial patent and intellectual property rights 31 14 14 (19) 9 40 Concessions, licences, trademarks and similar rights 1.616 131 195 36 (38) 41 (24) 18 (1) (98) 129 1.876 Goodwill 374 61 (9) (9) 426 Assets in progress 62 70 (51) (7) 12 74 Other intangible assets 296 56 8 (18) 4 (25) (31) 321 Total intangible assets 2.379 248 287 (1) (72) 45 (24) 18 (1) (142) 110 2.737 4 Attachments to the notes to the Consolidated annual report 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3\. List of companies included in the consolidated annual report 4\. List of shareholdings in companies carried at equity 5\. List of holdings in other companies Certification of the consolidated financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 132 4 Attachments to the notes to the Consolidated annual report Company name REGISTERED OFFICE CURRENCY SHARE CAPITAL (THOUSANDS) % OF SHAREHOLDING CONSOLIDATED BY GROUP AT 12 31 2021 SHAREHOLDING % SHAREHOLDER VALUATION METHOD Scope of consolidation Unareti S.p.A. Brescia Euro 965,250 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Calore & Servizi S.r.l. Brescia Euro 150,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Smart City S.p.A. Brescia Euro 3,448 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Energia S.p.A. Milan Euro 3,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Ciclo Idrico S.p.A. Brescia Euro 70,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Ambiente S.p.A. Brescia Euro 220,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Montenegro d.o.o. Podgorica (Montenegro) Euro 100 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Energiefuture S.p.A. Milan Euro 50,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A gencogas S.p.A. Milan Euro 450,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation Retragas S.r.l. Brescia Euro 34,495 91.60% 91.60% A2A S.p.A. (87.27%) Unareti S.p.A. (4.33%) Line-by-line consolidation Camuna Energia S.r.l. Cedegolo (BS) Euro 900 89.00% 89.00% A2A S.p.A. (74.50%) Linea Green S.p.A. (14.50%) Line-by-line consolidation A2A Alfa S.r.l. in liquidation Milan Euro 100 70.00% 70.00% A2A S.p.A. Line-by-line consolidation Proaris S.r.l. in liquidation Milan Euro 1,875 60.00% 60.00% A2A S.p.A. Line-by-line consolidation SEASM S.r.l. Brescia Euro 700 67.00% 67.00% A2A S.p.A. Line-by-line consolidation Azienda Servizi Valtrompia S.p.A. Gardone Val Trompia (BS) Euro 8,939 74.80% 74.80% A2A S.p.A. (74.55%) Unareti S.p.A. (0.25%) Line-by-line consolidation Yada Energia S.r.l. Milan Euro 2,400 100.00% 100.00% A2A S.p.A. Line-by-line consolidation ROMEO GAS S.p.A. Milan Euro 50 100.00% 100.00% A2A S.p.A. Line-by-line consolidation LaboRAEE S.r.l. Milan Euro 90 100.00% 100.00% Amsa S.p.A. Line-by-line consolidation Ecodeco Hellas S.A. in liquidation Atene (Grecia) Euro 60 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation Ecolombardia 4 S.p.A. Milan Euro 13,515 68.78% 68.78% A2A Ambiente S.p.A. Line-by-line consolidation Sicura S.r.l. Milan Euro 1,040 96.80% 96.80% A2A Ambiente S.p.A. Line-by-line consolidation Sistema Ecodeco UK Ltd Canvey Island Essex (UK) GBP 250 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation A.S.R.A.B. S.p.A. Cavaglià (BI) Euro 2,582 70.00% 70.00% A2A Ambiente S.p.A. Line-by-line consolidation Nicosiambiente S.r.l. Milan Euro 50 99.90% 99.90% A2A Ambiente S.p.A. Line-by-line consolidation Bioase S.r.l. Sondrio Euro 677 70.00% 70.00% A2A Ambiente S.p.A. Line-by-line consolidation Aprica S.p.A. Brescia Euro 10,000 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation Amsa S.p.A. Milan Euro 10,000 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation SED S.r.l. Robassomero (TO) Euro 1,250 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation TecnoA S.r.l. Brescia Euro 3,000 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation Bergamo Servizi S.r.l. Brescia Euro 10 100.00% 100.00% Aprica S.p.A. Line-by-line consolidation A2A Recycling S.r.l. Novate Milanese (MI) Euro 5,000 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation A2A Integrambiente S.r.l. Brescia Euro 10 100.00% 100.00% A2A Ambiente S.p.A. (74%) Aprica S.p.A. (1%) Amsa S.p.A. (25%) Line-by-line consolidation Electrometal S.r.l Castegnato (BS) Euro 200 90.00% 90.00% A2A Ambiente S.p.A. Line-by-line consolidation Areslab S.r.l. Brescia Euro 10 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation 4.3 3\. List of companies included in the consolidated annual report 133 A2A Consolidated financial statements 2021 Company name REGISTERED OFFICE CURRENCY SHARE CAPITAL (THOUSANDS) % OF SHAREHOLDING CONSOLIDATED BY GROUP AT 12 31 2021 SHAREHOLDING % SHAREHOLDER VALUATION METHOD Scope of consolidation Unareti S.p.A. Brescia Euro 965,250 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Calore & Servizi S.r.l. Brescia Euro 150,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Smart City S.p.A. Brescia Euro 3,448 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Energia S.p.A. Milan Euro 3,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Ciclo Idrico S.p.A. Brescia Euro 70,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Ambiente S.p.A. Brescia Euro 220,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Montenegro d.o.o. Podgorica (Montenegro) Euro 100 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A Energiefuture S.p.A. Milan Euro 50,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation A2A gencogas S.p.A. Milan Euro 450,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation Retragas S.r.l. Brescia Euro 34,495 91.60% 91.60% A2A S.p.A. (87.27%) Unareti S.p.A. (4.33%) Line-by-line consolidation Camuna Energia S.r.l. Cedegolo (BS) Euro 900 89.00% 89.00% A2A S.p.A. (74.50%) Linea Green S.p.A. (14.50%) Line-by-line consolidation A2A Alfa S.r.l. in liquidation Milan Euro 100 70.00% 70.00% A2A S.p.A. Line-by-line consolidation Proaris S.r.l. in liquidation Milan Euro 1,875 60.00% 60.00% A2A S.p.A. Line-by-line consolidation SEASM S.r.l. Brescia Euro 700 67.00% 67.00% A2A S.p.A. Line-by-line consolidation Azienda Servizi Valtrompia S.p.A. Gardone Val Trompia (BS) Euro 8,939 74.80% 74.80% A2A S.p.A. (74.55%) Unareti S.p.A. (0.25%) Line-by-line consolidation Yada Energia S.r.l. Milan Euro 2,400 100.00% 100.00% A2A S.p.A. Line-by-line consolidation ROMEO GAS S.p.A. Milan Euro 50 100.00% 100.00% A2A S.p.A. Line-by-line consolidation LaboRAEE S.r.l. Milan Euro 90 100.00% 100.00% Amsa S.p.A. Line-by-line consolidation Ecodeco Hellas S.A. in liquidation Atene (Grecia) Euro 60 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation Ecolombardia 4 S.p.A. Milan Euro 13,515 68.78% 68.78% A2A Ambiente S.p.A. Line-by-line consolidation Sicura S.r.l. Milan Euro 1,040 96.80% 96.80% A2A Ambiente S.p.A. Line-by-line consolidation Sistema Ecodeco UK Ltd Canvey Island Essex (UK) GBP 250 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation A.S.R.A.B. S.p.A. Cavaglià (BI) Euro 2,582 70.00% 70.00% A2A Ambiente S.p.A. Line-by-line consolidation Nicosiambiente S.r.l. Milan Euro 50 99.90% 99.90% A2A Ambiente S.p.A. Line-by-line consolidation Bioase S.r.l. Sondrio Euro 677 70.00% 70.00% A2A Ambiente S.p.A. Line-by-line consolidation Aprica S.p.A. Brescia Euro 10,000 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation Amsa S.p.A. Milan Euro 10,000 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation SED S.r.l. Robassomero (TO) Euro 1,250 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation TecnoA S.r.l. Brescia Euro 3,000 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation Bergamo Servizi S.r.l. Brescia Euro 10 100.00% 100.00% Aprica S.p.A. Line-by-line consolidation A2A Recycling S.r.l. Novate Milanese (MI) Euro 5,000 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation A2A Integrambiente S.r.l. Brescia Euro 10 100.00% 100.00% A2A Ambiente S.p.A. (74%) Aprica S.p.A. (1%) Amsa S.p.A. (25%) Line-by-line consolidation Electrometal S.r.l Castegnato (BS) Euro 200 90.00% 90.00% A2A Ambiente S.p.A. Line-by-line consolidation Areslab S.r.l. Brescia Euro 10 100.00% 100.00% A2A Ambiente S.p.A. Line-by-line consolidation 4 Attachments to the notes to the Consolidated annual report 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3\. List of companies included in the consolidated annual report 4\. List of shareholdings in companies carried at equity 5\. List of holdings in other companies Certification of the consolidated financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 134 4 Attachments to the notes to the Consolidated annual report Company name REGISTERED OFFICE CURRENCY SHARE CAPITAL (THOUSANDS) % OF SHAREHOLDING CONSOLIDATED BY GROUP AT 12 31 2021 SHAREHOLDING % SHAREHOLDER VALUATION METHOD A2A Security S.c.p.a. Milan Euro 52 100.00% 100.00% A2A S.p.A. (45.96%) Unareti S.p.A. (18.37%) A2A Ciclo Idrico S.p.A. (10.49%) Amsa S.p.A. (9.14%) A2A gencogas S.p.A. (3.95%) A2A Ambiente S.p.A. (3.95%) A2A Calore & Servizi S.r.l. (2.60%) A2A Energiefuture S.p.A. (1.93%) A2A Energia S.p.A. (0.19%) A2A Energy Solutions S.r.l. (0.19%) Linea Green S.p.A. (0.19%) Linea Gestioni S.r.l. (0.19%) LD Reti S.r.l. (0.19%) Linea Ambiente S.r.l. (0.19%) A2A Recycling S.r.l. (0.19%) A2A Smart City S.p.A. (0.19%) ACSM-AGAM S.p.A. (0.19%) Aprica S.p.A. (0.19%) Lomellina Energia S.r.l. (0.19%) Retragas S.r.l. (0.19%) Lereti S.p.A. (0.19%) Azienda Servizi Valtrompia S.p.A. (0.19%) Acel Energie S.r.l. (0.19%) Serenissima Gas S.p.A. (0.19%) Varese Risorse S.p.A. (0.19%) Reti Valtellina Valchiavenna S.r.l. (0.19%) AEVV Farmacie S.r.l. (0.19%) Line-by-line consolidation BIOENERGIA GUALDO S.r.l. Gualdo Tadino (PG) Euro 10 80.00% 80.00% A2A Ambiente S.p.A. Line-by-line consolidation WALDUM TADINUM ENERGIA S.r.l. Gualdo Tadino (PG) Euro 10 90.00% 90.00% A2A Ambiente S.p.A. Line-by-line consolidation ENERGIA ANAGNI S.r.l. Anagni (FR) Euro 10 55.00% 55.00% A2A Ambiente S.p.A. Line-by-line consolidation BIOENERGIA ROCCASECCA S.r.l. San Vito (FR) Euro 10 55.00% 100.00% Energia Anagni S.r.l. Line-by-line consolidation LumEnergia S.p.A. Villa Carcina (BS) Euro 300 94.72% 94.72% A2A Energia S.p.A. Line-by-line consolidation A2A Energy Solutions S.r.l. Milan Euro 4,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation ES Energy S.r.l. Jesi (AN) Euro 10 50.00% 50.00% A2A S.p.A. Line-by-line consolidation A2A Rinnovabili S.p.A. Milan Euro 50 100.00% 100.00% A2A S.p.A. Line-by-line consolidation INTHE 2 S.r.l. Milan Euro 210 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Fair Renew S.r.l. Milan Euro 10 60.00% 60.00% A2A Rinnovabili S.p.A. Line-by-line consolidation renewA21 S.r.l. Milan Euro 20 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation renewA22 S.r.l. Milan Euro 220 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation renewA23 S.r.l. Milan Euro 20 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation renewA24 S.r.l. Milan Euro 20 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation renewA25 S.r.l. Milan Euro 20 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Trovosix S.r.l. Milan Euro 20 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Des Energia Tredici S.r.l. Milan Euro 10 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation CS Solar2 S.r.l. Milan Euro 15 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Flabrum S.r.l. Milan Euro 100 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Solar italy V S.r.l. Milan Euro 10 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Rossini Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Verdi Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Vivaldi Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Pergolesi Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Cilea Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Tosti Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Albinoni Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Bellini Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Corelli Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Leoncavallo Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation 135 A2A Consolidated financial statements 2021 Company name REGISTERED OFFICE CURRENCY SHARE CAPITAL (THOUSANDS) % OF SHAREHOLDING CONSOLIDATED BY GROUP AT 12 31 2021 SHAREHOLDING % SHAREHOLDER VALUATION METHOD A2A Security S.c.p.a. Milan Euro 52 100.00% 100.00% A2A S.p.A. (45.96%) Unareti S.p.A. (18.37%) A2A Ciclo Idrico S.p.A. (10.49%) Amsa S.p.A. (9.14%) A2A gencogas S.p.A. (3.95%) A2A Ambiente S.p.A. (3.95%) A2A Calore & Servizi S.r.l. (2.60%) A2A Energiefuture S.p.A. (1.93%) A2A Energia S.p.A. (0.19%) A2A Energy Solutions S.r.l. (0.19%) Linea Green S.p.A. (0.19%) Linea Gestioni S.r.l. (0.19%) LD Reti S.r.l. (0.19%) Linea Ambiente S.r.l. (0.19%) A2A Recycling S.r.l. (0.19%) A2A Smart City S.p.A. (0.19%) ACSM-AGAM S.p.A. (0.19%) Aprica S.p.A. (0.19%) Lomellina Energia S.r.l. (0.19%) Retragas S.r.l. (0.19%) Lereti S.p.A. (0.19%) Azienda Servizi Valtrompia S.p.A. (0.19%) Acel Energie S.r.l. (0.19%) Serenissima Gas S.p.A. (0.19%) Varese Risorse S.p.A. (0.19%) Reti Valtellina Valchiavenna S.r.l. (0.19%) AEVV Farmacie S.r.l. (0.19%) Line-by-line consolidation BIOENERGIA GUALDO S.r.l. Gualdo Tadino (PG) Euro 10 80.00% 80.00% A2A Ambiente S.p.A. Line-by-line consolidation WALDUM TADINUM ENERGIA S.r.l. Gualdo Tadino (PG) Euro 10 90.00% 90.00% A2A Ambiente S.p.A. Line-by-line consolidation ENERGIA ANAGNI S.r.l. Anagni (FR) Euro 10 55.00% 55.00% A2A Ambiente S.p.A. Line-by-line consolidation BIOENERGIA ROCCASECCA S.r.l. San Vito (FR) Euro 10 55.00% 100.00% Energia Anagni S.r.l. Line-by-line consolidation LumEnergia S.p.A. Villa Carcina (BS) Euro 300 94.72% 94.72% A2A Energia S.p.A. Line-by-line consolidation A2A Energy Solutions S.r.l. Milan Euro 4,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation ES Energy S.r.l. Jesi (AN) Euro 10 50.00% 50.00% A2A S.p.A. Line-by-line consolidation A2A Rinnovabili S.p.A. Milan Euro 50 100.00% 100.00% A2A S.p.A. Line-by-line consolidation INTHE 2 S.r.l. Milan Euro 210 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Fair Renew S.r.l. Milan Euro 10 60.00% 60.00% A2A Rinnovabili S.p.A. Line-by-line consolidation renewA21 S.r.l. Milan Euro 20 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation renewA22 S.r.l. Milan Euro 220 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation renewA23 S.r.l. Milan Euro 20 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation renewA24 S.r.l. Milan Euro 20 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation renewA25 S.r.l. Milan Euro 20 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Trovosix S.r.l. Milan Euro 20 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Des Energia Tredici S.r.l. Milan Euro 10 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation CS Solar2 S.r.l. Milan Euro 15 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Flabrum S.r.l. Milan Euro 100 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Solar italy V S.r.l. Milan Euro 10 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Rossini Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Verdi Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Vivaldi Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Pergolesi Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Cilea Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Tosti Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Albinoni Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Bellini Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Corelli Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Leoncavallo Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation 4 Attachments to the notes to the Consolidated annual report 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3\. List of companies included in the consolidated annual report 4\. List of shareholdings in companies carried at equity 5\. List of holdings in other companies Certification of the consolidated financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 136 4 Attachments to the notes to the Consolidated annual report Company name REGISTERED OFFICE CURRENCY SHARE CAPITAL (THOUSANDS) % OF SHAREHOLDING CONSOLIDATED BY GROUP AT 12 31 2021 SHAREHOLDING % SHAREHOLDER VALUATION METHOD Monteverdi Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Tartini Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Trovaioli Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Paganini Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Puccini Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Gash 1 S.r.l. Milan Euro 10 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Gash 2 S.r.l. Milan Euro 10 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Linea Gestioni S.r.l. Crema (CR) Euro 6,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation LD Reti S.r.l. Lodi Euro 32,976 95.60% 95.60% A2A S.p.A. Line-by-line consolidation Linea Green S.p.A. Cremona Euro 48,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation Linea Ambiente S.r.l. Rovato (BS) Euro 19,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation Fragea S.r.l. società agricola Sesto ed Uniti (CR) Euro 20,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation AGRIPOWER S.R.L. Bologna Euro 500 100.00% 100.00% A2A S.p.A. Line-by-line consolidation B-HOLDING S.R.L. Bologna Euro 50 100.00% 100.00% AGRIPOWER S.R.L. Line-by-line consolidation CASTEL RITALDI BIOENERGIA SOCIETÀ AGRICOLA S.R.L. Bologna Euro 50 100.00% 100.00% AGRIPOWER S.R.L. Line-by-line consolidation DONNA RICCA BIOENERGIA S.R.L. SOCIETÀ AGRICOLA Bologna Euro 10 51.00% 51.00% AGRIPOWER S.R.L. Line-by-line consolidation GIULIANA BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 65 100.00% 100.00% B-HOLDING S.R.L. Line-by-line consolidation IUMAGAS BIOENERGY SOCIETÀ AGRICOLA A.R.L. Bologna Euro 50 51.00% 51.00% AGRIPOWER S.R.L. Line-by-line consolidation LA MARROCCA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 10 100.00% 100.00% AGRIPOWER S.R.L. Line-by-line consolidation LI.F.E. S.R.L. Bologna Euro 10 100.00% 100.00% AGRIPOWER S.R.L. Line-by-line consolidation MARSICA AGROENERGIA S.R.L. Bologna Euro 60 54.02% 54.02% LA MARROCCA SOCIETÀ AGRICOLA A.R.L. Line-by-line consolidation PONZANO BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 40 51.00% 51.00% B-HOLDING S.R.L. Line-by-line consolidation PRATI BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 40 51.00% 51.00% B-HOLDING S.R.L. Line-by-line consolidation ROBERTA BIOENERGIA S.R.L. Bologna Euro 10 51.00% 51.00% AGRIPOWER S.R.L. Line-by-line consolidation SAN QUIRICO BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 160 93.75% 93.75% AGRIPOWER S.R.L. Line-by-line consolidation SCALENGHE BIOGAS SOCIETÀ AGRICOLA S.R.L. Bologna Euro 10 82.00% 82.00% B-HOLDING S.R.L. Line-by-line consolidation STROVINA BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Sanluri (SU) Euro 40 51.00% 51.00% AGRIPOWER S.R.L. Line-by-line consolidation SUGAR ENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 100 100.00% 100.00% AGRIPOWER S.R.L. Line-by-line consolidation TORRE ZUINA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 10 51.00% 51.00% AGRIPOWER S.R.L. Line-by-line consolidation TULA BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 40 51.00% 51.00% B-HOLDING S.R.L. Line-by-line consolidation VITTORIA BIOENERGIA S.R.L. Bologna Euro 50 75.00% 75.00% B-HOLDING S.R.L. Line-by-line consolidation CONSORZIO UMBRIA BIOENERGIA Zola Predosa (BO) Euro 1 90.92% 90.92% CASTEL RITALDI BIOENERGIA SOCIETÀ AGRICOLA S.R.L. Line-by-line consolidation Lomellina Energia S.r.l. Parona (PV) Euro 358 100.00% 100.00% A2A Ambiente S.p.A. (64.30%) Linea Ambiente S.r.l. (35.70%) Line-by-line consolidation Asm Energia S.p.A. Vigevano (PV) Euro 2,511 45.00% 45.00% A2A Energia S.p.A. Line-by-line consolidation ACSM-AGAM S.p.A. Monza Euro 197,344 41.34% 41.34% A2A S.p.A. Line-by-line consolidation Lereti S.p.A. Como Euro 86,450 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation ComoCalor S.p.A. Como Euro 3,516 51.00% 51.00% ACSM-AGAM S.p.A. Line-by-line consolidation Reti Valtellina Valchiavenna S.r.l. Sondrio Euro 2,000 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation Acel Energie S.r.l. Lecco Euro 17,100 99.75% 99.75% ACSM-AGAM S.p.A. (99.75%) Line-by-line consolidation Acsm Agam Ambiente S.r.l. Varese Euro 4,500 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation Varese Risorse S.p.A. Monza Euro 6,000 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation AEVV Impianti S.r.l. Monza Euro 21,800 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation AEVV Farmacie S.r.l. Sondrio Euro 100 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation A2A E-MOBILITY S.r.l. Milan Euro 10 100.00% 100.00% A2A S.p.A. Line-by-line consolidation Ambiente Energia Brianza S.p.A. Seregno (MB) Euro 119,496 33.52% 33.52% A2A S.p.A. Line-by-line consolidation 137 A2A Consolidated financial statements 2021 Company name REGISTERED OFFICE CURRENCY SHARE CAPITAL (THOUSANDS) % OF SHAREHOLDING CONSOLIDATED BY GROUP AT 12 31 2021 SHAREHOLDING % SHAREHOLDER VALUATION METHOD Monteverdi Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Tartini Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Trovaioli Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Paganini Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Puccini Energia S.r.l. Milan Euro - 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Gash 1 S.r.l. Milan Euro 10 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Gash 2 S.r.l. Milan Euro 10 100.00% 100.00% A2A Rinnovabili S.p.A. Line-by-line consolidation Linea Gestioni S.r.l. Crema (CR) Euro 6,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation LD Reti S.r.l. Lodi Euro 32,976 95.60% 95.60% A2A S.p.A. Line-by-line consolidation Linea Green S.p.A. Cremona Euro 48,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation Linea Ambiente S.r.l. Rovato (BS) Euro 19,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation Fragea S.r.l. società agricola Sesto ed Uniti (CR) Euro 20,000 100.00% 100.00% A2A S.p.A. Line-by-line consolidation AGRIPOWER S.R.L. Bologna Euro 500 100.00% 100.00% A2A S.p.A. Line-by-line consolidation B-HOLDING S.R.L. Bologna Euro 50 100.00% 100.00% AGRIPOWER S.R.L. Line-by-line consolidation CASTEL RITALDI BIOENERGIA SOCIETÀ AGRICOLA S.R.L. Bologna Euro 50 100.00% 100.00% AGRIPOWER S.R.L. Line-by-line consolidation DONNA RICCA BIOENERGIA S.R.L. SOCIETÀ AGRICOLA Bologna Euro 10 51.00% 51.00% AGRIPOWER S.R.L. Line-by-line consolidation GIULIANA BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 65 100.00% 100.00% B-HOLDING S.R.L. Line-by-line consolidation IUMAGAS BIOENERGY SOCIETÀ AGRICOLA A.R.L. Bologna Euro 50 51.00% 51.00% AGRIPOWER S.R.L. Line-by-line consolidation LA MARROCCA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 10 100.00% 100.00% AGRIPOWER S.R.L. Line-by-line consolidation LI.F.E. S.R.L. Bologna Euro 10 100.00% 100.00% AGRIPOWER S.R.L. Line-by-line consolidation MARSICA AGROENERGIA S.R.L. Bologna Euro 60 54.02% 54.02% LA MARROCCA SOCIETÀ AGRICOLA A.R.L. Line-by-line consolidation PONZANO BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 40 51.00% 51.00% B-HOLDING S.R.L. Line-by-line consolidation PRATI BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 40 51.00% 51.00% B-HOLDING S.R.L. Line-by-line consolidation ROBERTA BIOENERGIA S.R.L. Bologna Euro 10 51.00% 51.00% AGRIPOWER S.R.L. Line-by-line consolidation SAN QUIRICO BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 160 93.75% 93.75% AGRIPOWER S.R.L. Line-by-line consolidation SCALENGHE BIOGAS SOCIETÀ AGRICOLA S.R.L. Bologna Euro 10 82.00% 82.00% B-HOLDING S.R.L. Line-by-line consolidation STROVINA BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Sanluri (SU) Euro 40 51.00% 51.00% AGRIPOWER S.R.L. Line-by-line consolidation SUGAR ENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 100 100.00% 100.00% AGRIPOWER S.R.L. Line-by-line consolidation TORRE ZUINA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 10 51.00% 51.00% AGRIPOWER S.R.L. Line-by-line consolidation TULA BIOENERGIA SOCIETÀ AGRICOLA A.R.L. Bologna Euro 40 51.00% 51.00% B-HOLDING S.R.L. Line-by-line consolidation VITTORIA BIOENERGIA S.R.L. Bologna Euro 50 75.00% 75.00% B-HOLDING S.R.L. Line-by-line consolidation CONSORZIO UMBRIA BIOENERGIA Zola Predosa (BO) Euro 1 90.92% 90.92% CASTEL RITALDI BIOENERGIA SOCIETÀ AGRICOLA S.R.L. Line-by-line consolidation Lomellina Energia S.r.l. Parona (PV) Euro 358 100.00% 100.00% A2A Ambiente S.p.A. (64.30%) Linea Ambiente S.r.l. (35.70%) Line-by-line consolidation Asm Energia S.p.A. Vigevano (PV) Euro 2,511 45.00% 45.00% A2A Energia S.p.A. Line-by-line consolidation ACSM-AGAM S.p.A. Monza Euro 197,344 41.34% 41.34% A2A S.p.A. Line-by-line consolidation Lereti S.p.A. Como Euro 86,450 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation ComoCalor S.p.A. Como Euro 3,516 51.00% 51.00% ACSM-AGAM S.p.A. Line-by-line consolidation Reti Valtellina Valchiavenna S.r.l. Sondrio Euro 2,000 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation Acel Energie S.r.l. Lecco Euro 17,100 99.75% 99.75% ACSM-AGAM S.p.A. (99.75%) Line-by-line consolidation Acsm Agam Ambiente S.r.l. Varese Euro 4,500 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation Varese Risorse S.p.A. Monza Euro 6,000 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation AEVV Impianti S.r.l. Monza Euro 21,800 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation AEVV Farmacie S.r.l. Sondrio Euro 100 100.00% 100.00% ACSM-AGAM S.p.A. Line-by-line consolidation A2A E-MOBILITY S.r.l. Milan Euro 10 100.00% 100.00% A2A S.p.A. Line-by-line consolidation Ambiente Energia Brianza S.p.A. Seregno (MB) Euro 119,496 33.52% 33.52% A2A S.p.A. Line-by-line consolidation 4 Attachments to the notes to the Consolidated annual report 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3\. List of companies included in the consolidated annual report 4\. List of shareholdings in companies carried at equity 5\. List of holdings in other companies Certification of the consolidated financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 138 4 Attachments to the notes to the Consolidated annual report Company name REGISTERED OFFICE CURRENCY SHARE CAPITAL (THOUSANDS) % OF SHAREHOLDING CONSOLIDATED BY GROUP AT 12 31 2021 SHAREHOLDING % SHAREHOLDER VALUATION METHOD A2A Illuminazione Pubblica S.r.l. Brescia Euro 19,000 100.00% 100.00% Ambiente Energia Brianza S.p.A. Line-by-line consolidation Gelsia S.r.l. Seregno (MB) Euro 20,345 100.00% 100.00% Ambiente Energia Brianza S.p.A. Line-by-line consolidation RetiPiù S.r.l. Desio (MB) Euro 110,000 100.00% 100.00% Ambiente Energia Brianza S.p.A. Line-by-line consolidation Gelsia Ambiente S.r.l. Desio (MB) Euro 4,671 100.00% 100.00% Ambiente Energia Brianza S.p.A. (70%) A2A Integrambiente S.r.l. (30%) Line-by-line consolidation Shareholdings held for sale Serenissima Gas S.p.A. Como Euro 9,230 79.37% 78.44% ACSM-AGAM S.p.A. Line-by-line consolidation 139 A2A Consolidated financial statements 2021 Company name REGISTERED OFFICE CURRENCY SHARE CAPITAL (THOUSANDS) % OF SHAREHOLDING CONSOLIDATED BY GROUP AT 12 31 2021 SHAREHOLDING % SHAREHOLDER VALUATION METHOD A2A Illuminazione Pubblica S.r.l. Brescia Euro 19,000 100.00% 100.00% Ambiente Energia Brianza S.p.A. Line-by-line consolidation Gelsia S.r.l. Seregno (MB) Euro 20,345 100.00% 100.00% Ambiente Energia Brianza S.p.A. Line-by-line consolidation RetiPiù S.r.l. Desio (MB) Euro 110,000 100.00% 100.00% Ambiente Energia Brianza S.p.A. Line-by-line consolidation Gelsia Ambiente S.r.l. Desio (MB) Euro 4,671 100.00% 100.00% Ambiente Energia Brianza S.p.A. (70%) A2A Integrambiente S.r.l. (30%) Line-by-line consolidation Shareholdings held for sale Serenissima Gas S.p.A. Como Euro 9,230 79.37% 78.44% ACSM-AGAM S.p.A. Line-by-line consolidation 4 Attachments to the notes to the Consolidated annual report 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3\. List of companies included in the consolidated annual report 4\. List of shareholdings in companies carried at equity 5\. List of holdings in other companies Certification of the consolidated financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 140 4 Attachments to the notes to the Consolidated annual report Company name REGISTERED OFFICE CURRENCY SHARE CAPITAL (THOUSANDS) SHAREHOLDING % SHAREHOLDER CARRYING AMOUNT AT 12 31 2021 (THOUSANDS) VALUATION METHOD Shareholdings in companies carried at equity PremiumGas S.p.A. in liquidation Bergamo Euro 120 50.00% A2A Alfa S.r.l. in liquidation - Equity Ergosud S.p.A. Rome Euro 81,448 50.00% A2A gencogas S.p.A. - Equity Metamer S.r.l. San Salvo (CH) Euro 650 50.00% A2A Energia S.p.A. 2,613 Equity NETCITY S.r.l. Pescara Euro 20 49.00% A2A Energia S.p.A. 692 Equity SET S.r.l. Toscolano Maderno (BS) Euro 104 49.00% A2A S.p.A. 1,015 Equity Messina in Luce S.c.a r.l. Monza Euro 20 70.00% Varese Risorse S.p.A. (55%) A2A Illuminazione Pubblica S.r.l. (15%) 11 Equity Serio Energia S.r.l. Concordia sulla Secchia (MO) Euro 1,000 40.00% A2A S.p.A. 783 Equity Visano Soc. Trattamento Reflui S.c.a.r.l. Brescia Euro 25 40.00% A2A S.p.A. 10 Equity COSMO Società Consortile a Responsabilità Limitata Brescia Euro 100 52.00% A2A Calore & Servizi S.r.l. 118 Equity Crit S.c.a.r.l. Cremona Euro 310 32.90% A2A Smart City S.p.A. 104 Equity Suncity Group S.r.l. Pescara Euro 14 26.00% A2A Energy Solution S.r.l. 6,685 Equity G.Eco S.r.l. Treviglio (BG) Euro 500 40.00% Aprica S.p.A. 2,992 Equity Bergamo Pulita S.r.l. Bergamo Euro 10 50.00% A2A Ambiente S.p.A. 79 Equity Tecnoacque Cusio S.p.A. Omegna (VB) Euro 206 25.00% A2A Ambiente S.p.A. 247 Equity Fratelli Omini S.p.A. Novate Milanese (MI) Euro 260 30.00% A2A Ambiente S.p.A. 5,458 Equity ASM Codogno S.r.l. Codogno (LO) Euro 1,898 49.00% Linea Gestioni S.r.l. 3,777 Equity 758 AM S.r.l. Milan Euro 20 20.00% A2A Rinnovabili S.p.A. 131 Equity Prealpi Servizi S.r.l. Varese Euro 5,451 12.47% ACSM-AGAM S.p.A. - Equity Consul System S.p.A. Ascoli Piceno Euro 2,000 49.00% A2A Energy Solution S.r.l. 8,051 Equity Saxa Gres S.p.A. Anagni (FR) Euro 3,100 27.71% A2A Ambiente S.p.A. - Equity Società Agricola Mattioli Energia S.r.l. Finale Emilia (MO) Euro 20 20.00% Agripower S.r.l. 267 Equity Total shareholdings 33,033 Shareholdings held for sale Sviluppo Turistico Lago d’Iseo S.p.A. Iseo (BS) Euro 1,616 24.29% A2A S.p.A. \- Equity 4.4 4\. List of shareholdings in companies carried at equity 141 A2A Consolidated financial statements 2021 Company name REGISTERED OFFICE CURRENCY SHARE CAPITAL (THOUSANDS) SHAREHOLDING % SHAREHOLDER CARRYING AMOUNT AT 12 31 2021 (THOUSANDS) VALUATION METHOD Shareholdings in companies carried at equity PremiumGas S.p.A. in liquidation Bergamo Euro 120 50.00% A2A Alfa S.r.l. in liquidation - Equity Ergosud S.p.A. Rome Euro 81,448 50.00% A2A gencogas S.p.A. - Equity Metamer S.r.l. San Salvo (CH) Euro 650 50.00% A2A Energia S.p.A. 2,613 Equity NETCITY S.r.l. Pescara Euro 20 49.00% A2A Energia S.p.A. 692 Equity SET S.r.l. Toscolano Maderno (BS) Euro 104 49.00% A2A S.p.A. 1,015 Equity Messina in Luce S.c.a r.l. Monza Euro 20 70.00% Varese Risorse S.p.A. (55%) A2A Illuminazione Pubblica S.r.l. (15%) 11 Equity Serio Energia S.r.l. Concordia sulla Secchia (MO) Euro 1,000 40.00% A2A S.p.A. 783 Equity Visano Soc. Trattamento Reflui S.c.a.r.l. Brescia Euro 25 40.00% A2A S.p.A. 10 Equity COSMO Società Consortile a Responsabilità Limitata Brescia Euro 100 52.00% A2A Calore & Servizi S.r.l. 118 Equity Crit S.c.a.r.l. Cremona Euro 310 32.90% A2A Smart City S.p.A. 104 Equity Suncity Group S.r.l. Pescara Euro 14 26.00% A2A Energy Solution S.r.l. 6,685 Equity G.Eco S.r.l. Treviglio (BG) Euro 500 40.00% Aprica S.p.A. 2,992 Equity Bergamo Pulita S.r.l. Bergamo Euro 10 50.00% A2A Ambiente S.p.A. 79 Equity Tecnoacque Cusio S.p.A. Omegna (VB) Euro 206 25.00% A2A Ambiente S.p.A. 247 Equity Fratelli Omini S.p.A. Novate Milanese (MI) Euro 260 30.00% A2A Ambiente S.p.A. 5,458 Equity ASM Codogno S.r.l. Codogno (LO) Euro 1,898 49.00% Linea Gestioni S.r.l. 3,777 Equity 758 AM S.r.l. Milan Euro 20 20.00% A2A Rinnovabili S.p.A. 131 Equity Prealpi Servizi S.r.l. Varese Euro 5,451 12.47% ACSM-AGAM S.p.A. - Equity Consul System S.p.A. Ascoli Piceno Euro 2,000 49.00% A2A Energy Solution S.r.l. 8,051 Equity Saxa Gres S.p.A. Anagni (FR) Euro 3,100 27.71% A2A Ambiente S.p.A. - Equity Società Agricola Mattioli Energia S.r.l. Finale Emilia (MO) Euro 20 20.00% Agripower S.r.l. 267 Equity Total shareholdings 33,033 Shareholdings held for sale Sviluppo Turistico Lago d’Iseo S.p.A. Iseo (BS) Euro 1,616 24.29% A2A S.p.A. \- Equity 4 Attachments to the notes to the Consolidated annual report 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3\. List of companies included in the consolidated annual report 4\. List of shareholdings in companies carried at equity 5\. List of holdings in other companies Certification of the consolidated financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 4 Attachments to the notes to the Consolidated annual report 143 A2A Consolidated financial statements 2021 Company name SHAREHOLDING % SHAREHOLDER CARRYING AMOUNT AT 12 31 2021 (THOUSANDS) Immobiliare-Fiera di Brescia S.p.A. 0.90% A2A S.p.A. AQM S.r.l. 7.80% A2A S.p.A. (7.52%) LumEnergia S.p.A. (0.28%) AvioValtellina S.p.A. 0.18% A2A S.p.A. Banca di Credito Cooperativo dell’Oglio e del Serio s.c. n.s. A2A S.p.A. Brescia Mobilità S.p.A. 0.25% A2A S.p.A. L.E.A.P. S.c.a.r.l. 8.29% A2A S.p.A. Guglionesi Ambiente S.c.a.r.l. 1.01% A2A Ambiente S.p.A. S.I.T. S.p.A. 0.26% Aprica S.p.A. Stradivaria S.p.A. n.s. A2A S.p.A. Tirreno Ambiente S.p.A. in liquidation 3.00% A2A Ambiente S.p.A. IBF Servizi S.p.A. 14.50% A2A Smart City S.p.A. DI.T.N.E. S.c.a.r.l. 1.76% A2A S.p.A. E.M.I.T. S.r.l. in liquidation 10.00% A2A S.p.A. COMIECO 7.54% A2A Recycling S.r.l. (2.89%) A2A Ambiente S.p.A. (4.65%) CONAPI S.c.a.r.l. 20.00% A2A Recycling S.r.l. Blugas Infrastrutture S.r.l. 27.51% A2A S.p.A. Casalasca Servizi S.p.A. 13.88% Linea Gestioni S.r.l. Sinergie Italiane S.r.l. in liquidation 22.10% A2A S.p.A. (14.92%) Ambiente Energia Brianza S.p.A. (7.18%) Cassa Padana S.c.a.r.l. n.s. A2A Smart City S.p.A. Confidi Toscana S.c.a.r.l. n.s. Linea Ambiente S.r.l. Credito Valtellinese n.s. Linea Ambiente S.r.l. Futura S.r.l. 1.00% A2A Calore & Servizi S.r.l. MORINA S.r.l. 5.00% Azienda Servizi Valtrompia S.p.A. Comodepur S.c.p.a. in liquidation 9.81% ACSM \- AGAM S.p.A. T.C.V.V.V. S.p.A. 0.25% ACSM \- AGAM S.p.A. CIAL \- CONSORZIO IMBALLAGGIO ALLUMINIO 0.60% A2A Ambiente S.p.A. COREVE 0.89% A2A Ambiente S.p.A. COREPLA \- CONSORZIO RECUPERO PLASTICA NAZIONALE 3.04% A2A Ambiente S.p.A. RICREA \- CONSORZIO NAZIONALE RICICLO E RECUPERO IMBALLAGGI ACCIAIO n.s. A2A Ambiente S.p.A. CIC \- CONSORZIO ITALIANO COMPOSTATORI n.s. A2A Ambiente S.p.A. SABB \- SERVIZI AMBIENTALI BASSA BERGAMASCA S.P.A. 5.08% Linea Gestioni S.r.l. SV.IM. CONSORTIUM CONSORZIO PER LO SVILUPPO DELLE IMPRESE SOCIETÀ CONSORTILE PER AZIONI In liquidation 0.35% A2A Rinnovabili S.p.A. (0.05%) Des Energia Tredici S.r.l. (0.30%) Total investments in other companies 7,187 4.5 5\. List of holdings in other companies 4 Attachments to the notes to the Consolidated annual report 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3\. List of companies included in the consolidated annual report 4\. List of shareholdings in companies carried at equity 5\. List of holdings in other companies Certification of the consolidated financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 144 4 Attachments to the notes to the Consolidated annual report 4.6 Certification of the consolidated financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 1. 1. The undersigned, Renato Mazzoncini, as CEO of A2A S.p.A., and Andrea Crenna, as Financial Reporting Manager of A2A S.p.A. also considering the provisions of article 154-bis, paragraphs 3 and 4, of Legislative Decree no. 58 of February 24, 1998, hereby attest: the adequacy in relation to the characteristics of the company and the effective application of administrative and accounting procedures for the preparation of financial statements in the year 2021. 2. It is also certified that: 2.1 the Consolidated Financial Statements: a) have been prepared in accordance with International Financial Reporting Standards as endorsed by the European Community pursuant to Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002; b) correspond to the information contained in the accounting ledgers and records; c) provide a true and fair representation of the equity, economic and financial situation of the issuer and the whole of the companies included in the scope of consolidation. 2.2 the Report on Operations includes reliable analysis on the performance, result of operations and the business of the issuer and of all entities included in the consolidated financial statements as well as description of principal risks and uncertainties to which they are exposed. Milan, March 17, 2022 Renato Mazzoncini Andrea Crenna (CEO) (Financial Reporting Manager) 5 Independent Auditors’ Report 146 5 Independent Auditors’ Report 5 Independent Auditors’ Report 147 A2A Consolidated financial statements 2021 5 Independent Auditors’ Report 148 5 Independent Auditors’ Report 149 A2A Consolidated financial statements 2021 5 Independent Auditors’ Report 150 5 Independent Auditors’ Report 151 A2A Consolidated financial statements 2021 5 Independent Auditors’ Report 152 5 Independent Auditors’ Report 2021 Separate Financial Statements these Financial Statements are available at the website Separate financial statements 2021 2 2 Overview of performance, financial conditions and net debt 4 1 Financial statements 1.1 Balance sheet 12 1.2 Income statement 14 1.3 Statement of comprehensive income 15 1.4 Cash-flow statement 16 1.5 Statement of changes in equity 17 2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010 2.1 Balance sheet pursuant to Consob Resolution no. 17221 of March 12, 2010 20 2.2 Income statement pursuant to Consob Resolution no. 17221 of March 12, 2010 22 3 Notes 3.1 General information on A2A S.p.A. 24 3.2 Financial statements 25 3.3 Basis of preparation 26 3.4 Changes in international accounting standards 27 3.5 Accounting standards and policies 29 3.6 Notes to the balance sheet 41 3.7 Net debt 61 3.8 Notes to the income statement 63 3.9 Note on related party transactions 79 3.10 Consob Communication no. DEM/6064293 of July 28, 2006 82 3.11 Guarantees and commitments with third parties 85 3.12 Other information 86 Contents 3 A2A Separate financial statements 2021 This is a translation of the Italian original “Bilancio separato 2021” and has been prepared solely for the convenience of international readers. In the event of any ambiguity the Italian text will prevail. The Italian original is available at the website . 4 Attachments 4.1 1\. Statement of changes in tangible assets 110 4.2 2\. Statement of changes in intangible assets 112 4.3 3/a. Statement of changes in investments in subsidiaries 114 4.4 3/b. Statement of changes in investments in affiliates 116 4.5 3/c. Statement of changes in investments in other companies 119 4.6 4/a. List of investments in subsidiaries 120 4.7 4/b. List of investments in affiliates 122 4.8 Key data of the financial statements of the main subsidiaries and affiliatesprepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) 124 4.9 Key data of the financial statements of the main subsidiaries and affiliatesprepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) 126 4.10 Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 128 5 Independent Auditors’ Report 129 6 Report of the Board of Auditors 135 4 4 Overview of performance, financial conditions and net debt Overview of performance, financial conditions and net debt A2A S.p.A. The Parent Company is responsible for strategic vision, planning, control, financial management and coordination of the A2A Group activities. It also provides services to support the business and operating activities of Group companies (administrative, legal, supply, and personnel management services, information technology and communications) in order to optimize the resources available and use existing expertise in the most efficient manner. These services are governed by intercompany service agreements. Finally, A2A S.p.A. provides its subsidiaries with office space and operating areas, as well as related services. A2A S.p.A. owns some hydroelectric plants in Valtellina, the hydroelectric unit in Calabria and the unit in Mese, as well as the hydroelectric plants of the unit in Udine. The Balance Sheet of A2A S.p.A. includes, with respect to the situation at December 31, 2020, the effect of the following non-recurring transactions: the merger by incorporation of the subsidiary Linea Group Holding S.p.A., with effect from January 1, 2021, following the acquisition by A2A S.p.A. of 49% of the share capital of that company by means of the assignment of treasury shares amounting to 2.75% of the share capital of A2A S.p.A., as described in greater detail in the section “Significant events during the year” in the Report on operations. The values of the merged company’s assets and liabilities are the same as those shown in the Group’s consolidated financial statements; the merger by incorporation of the subsidiary Suncity Energy S.r.l., with effect from January 1, 2021; the merger by incorporation of the subsidiary A2A Telecommunications S.r.l., with effect from February 1, 2021. Results millions of euro 01 01 202112 31 2021 01 01 202012 31 2020 Restated Change Revenues Revenues from the sale of goods and services 8,196.0 3,943.3 4,252.7 Other operating income 60.0 45.4 14.6 Total revenues 8,256.0 3,988.7 4,267.3 Operating expenses (7,903.7) (3,736.1) (4,167.6) Labour costs (160.0) (150.9) (9.1) Gross operating margin 192.3 101.7 90.6 Depreciation, amortization and write-downs (110.9) (98.8) (12.1) Provisions (12.3) (8.3) (4.0) Net operating income 69.1 (5.4) 74.5 Financial balance 375.8 499.6 (123.8) Result before taxes 444.9 494.2 (49.3) Income taxes 40.9 55.4 (14.5) Result after taxes from operating activities 485.8 549.6 (63.8) Net result from discontinued operations (0.3) (3.9) 3.6 Net result of the year 485.5 545.7 (60.2) In the year in question A2A S.p.A. shows revenues for a total of 8,256 million euro (3,988.7 million euro in the previous year). Sales revenues (7,952 million euro) mainly refer to electricity sales to wholesalers, institutional operators, even on IPEX markets (Italian Power Exchange) and subsidiaries, sales of gas and fuels to third parties and subsidiaries, as well as the sale of materials and plants and the sale of environmental certificates. Revenues from services (244 thousand euro) mainly relate to provisions to subsidiaries of administrative, fiscal, legal, managerial and technical services, and revenues from the Municipality of Milan for the video surveillance service. 5 A2A Separate financial statements 2021 The increase in sales revenues is due to higher prices in the wholesale markets for both electricity and gas and, to a lesser extent, growth in volumes sold. The higher revenues from the sale of environmental certificates during the year relate to higher sales of CO2for the recognition of revenue from subsidiaries and associates whose plants are managed by A2A S.p.A. through tolling contracts. Other revenues (60 million euro) primarily refer to incentives on net production from renewable sources; they also include rent from subsidiaries, contingent assets recorded following the difference in provisions for previous years, reimbursements for damages and penalties received from customers, insurance companies and private individuals, as well as the capital gain realized on the sale of a building and land during the year. Operating expenses amounted to 7,903.7 million euro (3,736.1 million euro at December 31, 2020) and refer to costs for raw materials (6,973.2 million euro) related primarily to purchases of energy and fuels, both for electricity production and for resale to customers and wholesalers, in addition to purchases of materials and environmental certificates; service costs (349 million euro), which refer to the logistics costs for the transport on the national network of natural gas, costs for maintenance and repairs related to both the plants and the information systems of the company, as well as costs for services from third parties and from subsidiaries and associates; to other operating costs (581.5 million euro), which refer to the contracting of the thermoelectric production plants tolling agreement of subsidiaries, the costs relating to the use of a portion of the electricity capacity of Ergosud S.p.A., as well as water derivation fees, damages and penalties. The increase in operating expenses derives mainly from the increase in raw material costs, due to the increase in unit prices of procurement as a result of the growth recorded in the reference scenario, as well as the higher quantities purchased, the increase in service costs mainly due to the higher costs for the transportation of natural gas and the higher costs for IT services related to the development of new projects. Labour costs amounted to 160 million euro (150.9 million euro at December 31, 2020). The increase for the year includes both the effect of the extraordinary merger transactions and an increase related to the new personnel additions that materialized in 2021. Due to the dynamics mentioned above the EBITDA amounted to 192.3 million euro (101.7 million euro at December 31, 2020). The increase is primarily related to the performance of the industrial electricity portfolio to be attributed mainly to the margin of the CCGT plants that provided extraordinary grid modulation service during a period in which significant congestion occurred. “Amortization and depreciation, provisions and write-downs” of the year amounted to 123.2 million euro (107.1 million euro at December 31, 2020) and include amortisation, depreciation and write-downs of the tangible and intangible assets for 110.9 million euro (98.8 million euro at December 31, 2020) and provisions for 12.3 million euro (8.3 million euro at December 31, 2020), mainly related to provisions for risks. “Net operating income” was positive for 69.1 million euro (negative for 5.4 million euro at December 31, 2020). Financial operations reported a positive balance of 375.8 million euro (positive for 499.6 million euro at December 31, 2020). This item includes dividends from investee companies of 415.3 million euro (413.7 million euro at December 31, 2020), capital gains from the sale of financial assets for 1 million euro, write-downs of equity investments for 1.9 million euro, as well as net financial expenses of 38.6 million euro (53.7 million euro at December 31, 2020). In the previous year, this item included 139.6 million euro relating to the higher value deriving from the exchange of A2A S.p.A.’s shareholding in AEB S.p.A., which led to the recognition of a higher value than the book value. The “Result before taxes” was positive for 444.9 million euro (positive for 494.2 million euro at December 31, 2020). “Income taxes” amounted to 40.9 million euro (income for taxes for 55.4 million euro at December 31, 2020). Taxation is mainly due to the booking of: i) release of deferred tax liabilities and recognition of a substitute tax following exercise of the option to realign the differences between the statutory and tax values of tangible assets pursuant to L.D. 104/2020; ii) current taxes calculated on IRES and IRAP taxable income. The “Net result from operating assets held for sale” was negative for 0.3 million euro (negative for 3.9 million euro at December 31, 2020) and referred to the depreciation of the buildings that were reclassified as “Assets held for sale” as at December 31, 2021 (-1.9 million euro), to the loss on the equity investment in the company Sviluppo Turistico Lago d’Iseo S.p.A. following the exercise of the right of withdrawal (-0.3 million euro), as well as the capital gain from the sale of the equity investment in Ge.S.I. S.r.l. (+1.9 million euro). Overview of performance, financial conditions and net debt 6 6 Overview of performance, financial conditions and net debt The “Net result for the year” was positive for 485.5 million euro (545.7 million euro at December 31, 2020). * * * Net year capex amounted to 271.1 million euro and in particular involved interventions on the hydroelectric plants, IT equipment of the “New Data Center”, buildings, fixed assets in progress, capex in the Group’s information systems and software, net investments in equity and purchase of treasury shares. Balance sheet and financial position millions of euro 12 31 2021 12 31 2020 Change CAPITAL EMPLOYED Net fixed assets 5,168.9 4,883.1 285.8 \- Tangible assets 934.2 1.000,4 (66.2) \- Intangible assets 146.4 100.8 45.6 \- Shareholdings and other non-current financial assets (*) 4,226.4 3,961.5 264.9 \- Other non-current assets/liabilities (*) 9.6 6.3 3.3 \- Deferred tax assets/liabilities 102.9 41.6 61.3 \- Provisions for risks, charges and liabilities for landfills (101.4) (104.6) 3.2 \- Employee benefits (149.2) (122.9) (26.3) of which with counter-entry to equity (59.5) (23.5) Net Working Capital and Other current assets/liabilities (103.3) 133.6 (236.9) Net Working Capital 86.5 86.3 0.2 \- Inventories 103.9 64.3 39.6 \- Trade receivables 2,155.5 872.1 1,283.4 \- Trade payables (2,172.9) (850.1) (1,322.8) Other current assets/liabilities (189.8) 47.3 (237.1) \- Other current assets/liabilities (*) (244.4) (15.3) (229.1) \- Current tax assets/tax liabilities 54.6 62.6 (8.0) of which with counter-entry to equity 60.0 23.9 Assets/liabilities held for sale (*) 46.8 0.4 46.4 of which with counter-entry to equity - - TOTAL CAPITAL EMPLOYED 5,112.4 5,017.1 95.3 SOURCES OF FUNDS Shareholders’ equity 3,332.4 3,176.6 155.8 Total financial position after one year 2,889.6 2,320.7 568.9 Total financial position within one year (1,109.6) (480.2) (629.4) Total Net financial Position 1,780.0 1,840.5 (60.5) of which with counter-entry to equity (20.0) (30.9) TOTAL SOURCES 5,112.4 5,017.1 95.3 (*) Excluding balances included in the net financial position. “Capital employed” totalled 5,112.4 million euro at December 31, 2021, partly covered by “Equity” in the amount of 3,332.4 million euro and net debt of 1,780 million euro; provided below are the main items that make up the Capital Employed. The “Net fixed capital” amounted to 5,168.9 million euro, up 285.8 million euro compared to December 31, 2020. 7 A2A Separate financial statements 2021 Changes are detailed below: Tangible assets decreased by 66.2 million euro due to: investments made during the year for a total of 46.0 million euro; other decreases of 44.1 million euro due to the reclassification of certain owned properties under assets held for sale (52.4 million euro), partly offset by a change in contracts for rights of use (8.2 million euro) and recognition of the decommissioning allowance for the Valtellina area (0.3 million euro); increases deriving from extraordinary transactions during the year totalling 15.3 million euro; disposal of assets, net of accumulated depreciation, for 1.6 million euro; write-downs for 1.1 million euro; decrease of 80.7 million euro for the depreciation charge for the year; Intangible assets increased by 45.6 million euro on December 31, 2020, due to: investments made during the year for a total of 46.4 million euro; other decreases amounting to 2.3 million euro; increases deriving from extraordinary transactions during the year totalling 33.1 million euro; a decrease of 2.5 million euro for disposals of assets, net of accumulated depreciation; decrease of 29.1 million euro for the depreciation charge for the year; Shareholdings and other non-current financial assets amounted to 4,226.4 million euro, up 264.9 million euro compared to December 31, 2020, attributable to: net increase totalling 201.7 million euro following the merger by incorporation of Linea Group Holding S.p.A. with effect from January 1, 2021; other increases resulting from the merger by incorporation of Linea Group Holding S.p.A. totalling 38.8 million euro; acquisition of the equity investment in Agripower S.r.l. for 10.2 million euro and subsequent capital contribution of 5.0 million euro; acquisition of the equity investment in A2A Telecomunications S.r.l. for 9.1 million euro, subsequently merged into A2A S.p.A.; decrease of 4.3 million euro due to the merger by incorporation of Suncity Energy S.r.l.; decrease of 0.6 million euro following completion of the liquidation process of Plurigas S.p.A.; reclassification of the equity investment in Sviluppo Turistico Lago d’Iseo S.p.A. to “Assets held for sale”, amounting to 0.7 million euro; other decreases amounting to 0.2 million euro; Other non-current assets and liabilities rose by 3.3 million euro due to a reduction of 2.1 million euro in amounts due under long-term service agreements regarding plant maintenance and a net increase of 1.2 million euro in other non-current assets; Deferred tax assets amounted to 102.9 million euro (41.6 million euro at December 31, 2020) and showed an increase of 61.3 million euro. During the year under review, deferred tax liabilities of 65.6 million euro were released as a result of the realignment option pursuant to L.D. 104/2020, exercised by the Company and registration in current tax payables of a substitute tax equal to 7.0 million euro, which allowed realigning the differences between higher statutory values and lower values for tax purposes on tangible assets and the consequent deduction of higher tax amortization starting from the current year; Provisions for risks, charges and liabilities for landfills evidenced a decrease of 3.2 million euro. Changes during the year are due to releases of 4.4 million euro relating to provisions for decommissioning, provisions for public water diversion fees and the provision for charges deriving from the restructuring plan. In addition, there was an increase resulting from net accruals for the year of 13.9 million euro, related to public water derivation fees and ongoing litigation with third parties, and other decreases of 15.6 million euro attributable to the mobility provision for charges deriving from the restructuring plan, to provisions relating to disputes with employees and pending lawsuits with third parties. The effects deriving from extraordinary transactions during the year led to an increase of 2.9 million euro; Employee benefits increased by 26.3 million euro, due to actuarial valuations, net provisions for the year and the effects of extraordinary transactions, partly offset by payments during the year and payments to pension funds. Net Working Capital and Other current assets/liabilities The “Net Working Capital”, defined as the algebraic sum of trade receivables, closing inventories and trade payables, amounted to 86.5 million euro, up 0.2 million euro compared to December 31, 2020\. Comments on the main items are given below: “Inventories” amounted to 103.9 million euro (64.3 million euro at December 31, 2020), net of the related obsolescence provision for 0.7 million euro (0.7 million euro at December 31, 2020). The positive change is due to the increase in gas inventories for the sale and storage of gas, as well as to the increase in fuel inventories for the production of electricity as a result of the increase in unit supply prices due to the growth recorded in the reference scenario; Overview of performance, financial conditions and net debt 8 8 Overview of performance, financial conditions and net debt “Trade receivables” amounted to 2,155.5 million euro (872.1 million euro at December 31, 2020), with an increase of 1,283.4 million euro. The increase in trade receivables is primarily linked to the rise in prices on both the electricity and gas wholesale markets, as well as to the growth in volumes sold. The “Bad debts provision”, calculated in compliance with IFRS 9, amounted to 4.5 million euro and showed a net decrease of 1.6 million euro compared to December 31, 2020. “Trade payables”, amounting to 2,172.9 million euro, rose by 1,322.8 million euro due to an increase in unit prices for supplies as a result of the rise in the benchmark energy scenario, as well as growth in volumes purchased; “Other current assets/liabilities” evidenced a net decrease of 237.1 million euro, due to: net increase in derivative assets for 5.9 million euro; net decrease in current tax assets for 8 million euro; net increase of 263.0 million euro in payables due to early collection of electricity and gas futures contracts, which will take place in the following year; increase in advances to suppliers of 29.8 million euro following prepayments on gas purchases; other increases in other current liabilities for 1.8 million euro. “Assets/liabilities held for sale” were positive and equal to 46.8 million euro at December 31, 2021 and refer to the reclassification of tangible assets regarding the properties located in Milan in Corso di Porta Vittoria (Signora), in Via Gonin and in Via Balduccio da Pisa (Orobia), which have been sold in February 2022, net of depreciation and deferred taxes related to them, as well as the reclassification of the equity investment, equal to 24.29% of the share capital, in the company Sviluppo Turistico Lago d’Iseo S.p.A., for which the company exercised its right of withdrawal. Equity Equity amounted to 3,332.4 million euro and showed a positive change for a total of 155.8 million euro. The net profit for the year generated a positive effect of 485.5 million euro, offset by the distribution of 247.7 million euro in dividends. There was also a negative effect in the valuation of cash flow hedge derivatives and IAS 19 reserves for 24.9 million euro. Furthermore, it is specified that treasury shares have no value at December 31, 2021 (53.7 million euro at December 31, 2020) due to the purchase and allocation of treasury shares during the year in favour of minority shareholders of Linea Group Holding S.p.A.. The “Net financial position” amounted to 1,780.0 million euro (1,840.5 million euro at December 31, 2020) and improved by 60.5 million euro. During the year, operations, including dividends paid to shareholders for 247.7 million euro, generated resources for 543.7 million euro, partially offset by resources absorbed by net investment in tangible and intangible assets and equity investments for 270.2 million euro. The effect of the application of IFRS 16 was negative and amounted to 8.8 million euro as a result of new contracts for rights of use stipulated during the year, while the effect deriving from non-recurring transaction in the year resulted in a negative change of 228.7 million euro. 9 A2A Separate financial statements 2021 millions of euro 12 31 2021 12 31 2020 NET FINANCIAL POSITION AT THE BEGINNING OF THE YEAR (1,840.5) (1,868.2) EFFECT OF NON-RECURRING TRANSACTIONS (228.7) - New contracts IFRS 16 (8.8) (54.7) Net result of the year 485.5 545.7 Taxes for the year (40.9) (55.4) Net interest for the year 38.6 53.7 Gains/losses for the year (7.3) 1.2 Amortization 109.8 100.8 Write-downs/disposals of PPE and intangible assets 1.1 - Net allocations for the year 12.2 8.3 Write-downs of investments 1.8 - Valuation of share exchange - (139.6) Net interest paid (52.2) (50.6) Net taxes paid/collected (3.5) 52.2 Dividends paid (247.7) (241.0) Change in receivables from customers (1,263.4) (216.4) Change in payables to suppliers 1,314.7 77.4 Change in inventories (39.4) 42.6 Other changes in net working capital 234.4 1.7 Cash flow from operating activities 543.7 180.6 Net cash flows used in investing activities (270.2) (84.2) Other changes 13.6 (3.2) Change in financial assets/liabilities with counter-entry to equity 10.9 (10.8) NET FINANCIAL POSITION AT THE END OF THE YEAR (1,780.0) (1,840.5) Below is a detail of the net debt: millions of euro 12 31 2021 12 31 2020 Medium/long-term debt 4,201.8 3,789.5 Medium/long-term financial receivables (1,312.2) (1,468.8) Total non-current net debt 2,889.6 2,320.7 Short-term debt 981.7 879.9 Short-term financial receivables (1,204.9) (412.8) Cash and cash equivalents (886.4) (947.3) Total current net debt (1,109.6) (480.2) Net financial debt 1,780.0 1,840.5 Overview of performance, financial conditions and net debt 1 Financial statements 12 12 amounts in euro Note 12 31 2021 12 31 2020 NON-CURRENT ASSETS Tangible assets 1 934,218,394 1,000,419,014 Intangible assets 2 146,383,435 100,819,490 Shareholdings 3 4,204,055,422 3,954,036,431 Other non-current financial assets 3 1,334,677,747 1,476,271,851 Deferred tax assets 4 102,884,864 41,585,738 Other non-current assets 5 13,053,755 11,917,684 Total non-current assets 6,735,273,617 6,585,050,208 CURRENT ASSETS Inventories 6 103,867,362 64,301,009 Trade receivables 7 2,155,509,072 872,115,857 Other current assets 8 3,912,370,491 505,533,864 Current financial assets 9 1,204,973,806 412,777,069 Current tax assets 10 60,592,132 62,592,398 Cash and cash equivalents 11 886,354,322 947,294,052 Total current assets 8,323,667,185 2,864,614,249 NON-CURRENT ASSETS HELD FOR SALE 12 46,788,054 465,623 TOTAL ASSETS 15,105,728,856 9,450,130,080 (1)As required by Consob Resolution no. 17221 of March 12, 2010, the effects of relations with related parties in the separate financial statements are highlighted in the accounting statements in section 2 and commented on in Note 35.Significant non-recurring events and transactions in the separate financial statements are provided in Note 36 pursuant to Consob Communication DEM/6064293 of July 28, 2006. 1 Financial statements 1.1 Balance sheet (1) Assets 13 A2A Separate financial statements 2021 amounts in euro Note 12 31 2021 12 31 2020 EQUITY Share capital 13 1,629,110,744 1,629,110,744 (Treasury shares) 14 - (53,660,996) Reserves 15 1,217,791,460 1,055,432,573 Net result of the year 16 485,477,683 545,729,183 Total equity 3,332,379,887 3,176,611,504 LIABILITIES Non-current liabilities Non-current financial liabilities 17 4,191,240,086 3,771,288,070 Employee benefits 18 149,174,579 122,952,128 Provisions for risks, charges and liabilities for landfills 19 101,431,443 104,592,610 Other non-current liabilities 20 14,056,580 23,815,726 Total non-current liabilities 4,455,902,688 4,022,648,534 Current liabilities Trade payables 21 2,172,866,259 850,137,382 Other current liabilities 21 4,156,909,244 520,846,017 Current financial liabilities 22 981,736,220 879,886,643 Tax liabilities 23 5,934,558 - Total current liabilities 7,317,446,281 2,250,870,042 Total liabilities 11,773,348,969 6,273,518,576 LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE - - TOTAL EQUITY AND LIABILITIES 15,105,728,856 9,450,130,080 Equity and liabilities 1 Financial statements Balance sheet Income statement Statement of comprehensive income Cash-flow statement Statement of changes in equity 14 14 amounts in euro Note 01 01 2021 12 31 2021 01 01 2020 12 31 2020 Restated (*) Revenues Revenues from the sale of goods and services 8,196,015,067 3,943,350,650 Other operating income 59,968,651 45,421,093 Total revenues 25 8,255,983,718 3,988,771,743 Operating expenses Expenses for raw materials and services 7,322,231,042 3,313,234,320 Other operating expenses 581,477,745 422,866,446 Total operating expenses 26 7,903,708,787 3,736,100,766 Labour costs 27 160,014,697 150,968,919 Gross operating income \- EBITDA 28 192,260,234 101,702,058 Depreciation, amortization, provisions and write-downs 29 123,140,593 107,121,310 Net operating income \- EBIT 30 69,119,641 (5,419,252) Result from non-recurring transactions - - Financial balance Financial income 448,739,269 581,056,815 Financial expenses 72,965,521 81,482,396 Result from disposal of other shareholdings - - Total financial balance 31 375,773,748 499,574,419 Result before taxes 444,893,389 494,155,167 Income taxes 32 (40,888,556) (55,371,601) Result after taxes from operating activities 485,781,945 549,526,768 Net result from discontinued operations 33 (304,262) (3,797,585) NET RESULT OF THE YEAR 34 485,477,683 545,729,183 (1)As required by Consob Resolution no. 17221 of March 12, 2010, the effects of relations with related parties in the separate financial statements are highlighted in the accounting statements in section 2 and commented on in Note 35.Significant non-recurring events and transactions in the separate financial statements are provided in Note 36 pursuant to Consob Communication DEM/6064293 of July 28, 2006. (*) The values as at December 31, 2020 have been restated to make them consistent with the values as at December 31, 2021 by reclassifying the depreciation related to buildings subject to future sale under the item “Net result from discontinued operations”. 1 Financial statements 1.2 Income statement (1) 15 A2A Separate financial statements 2021 amounts in euro 12 31 2021 12 31 2020 Net result of the year (A) 485,477,683 545,729,183 Actuarial gains/(losses) on Employee’s Benefits booked in the Net equity (31,066,216) 10,045,828 Tax effect of other actuarial gains/(losses) 9,128,469 (2,499,086) Total actuarial gains/(losses) net of the tax effect (B) (21,937,747) 7,546,742 Effective part of gains/(losses) on cash flow hedge 47,083,512 30,498,860 Tax effect of other gains/(losses) (13,498,212) (9,852,041) Total other gains/(losses) net of the tax effect (C) 33,585,300 20,646,819 Total comprehensive result ( A ) \+ ( B ) \+ ( C ) 497,125,236 573,922,744 With the exception of the actuarial effects on employee benefits recognized in equity, the other effects stated above will be reclassified to the Income Statement in subsequent years. 1.3 Statement of comprehensive income 1 Financial statements Balance sheet Income statement Statement of comprehensive income Cash-flow statement Statement of changes in equity 16 16 amounts in euro 12 31 2021 12 31 2020 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 947,294,052 360,077,895 Operating activities Net Result 485,477,683 545,729,183 Net income taxes (40,888,556) (55,371,601) Net financial interests 38,633,485 53,729,668 Capital gains/expenses (7,269,512) 1,199,034 Tangible assets depreciation 80,667,473 79,980,239 Intangible assets amortization 29,141,818 20,810,652 Fixed assets write-downs/disposals 1,124,343 5,420 Net provisions 12,218,210 8,285,532 Shareholdings write-up/down 1,800,000 - Shares exchange ratio - (139,588,612) Net financial interests paid (52,201,144) (50,574,561) Net taxes paid (3,520,245) 52,152,837 Dividends paid (247,698,115) (240,961,749) Change in trade receivables (1,263,371,650) (216,368,867) Change in trade payable 1,314,701,908 77,370,818 Change in inventories (39,446,157) 42,611,129 Other changes in net working capital 234,309,984 1,663,509 Cash flow from operating activities 543,679,525 180,672,631 Investment activities Investments in tangible assets (45,998,963) (21,120,302) Investments in intangible assets and goodwill (46,415,671) (38,154,919) Investments in shareholdings and securities (*) (80,194,303) (67,837,415) Contribution of non-recurring transactions on cash and cash equivalents 968,869 - Disposal of fixed assets and shareholdings 10,232,579 42,880,567 Purchase of treasury shares (108,745,705) - Cash flow from investment activities (270,153,194) (84,232,069) FREE CASH FLOW 273,526,331 96,440,562 Financing activities Changes in financial assets Change in intercompany currency accounts (738,248,552) (30,264,694) Issuance of loans (130,470,335) (384,671,970) Proceeds from loans 51,293,009 61,128,595 Other changes (9,154,039) 6,135,914 Total changes in financial assets (*) (826,579,917) (347,672,155) Changes in financial liabilities Change in intercompany currency accounts (59,776,819) (39,752,331) Borrowings/bonds issued 1,100,000,000 1,000,000,000 Repayment of borrowings/bond (530,506,398) (107,685,761) Other changes (17,602,927) (14,114,158) Total changes in financial liabilities (*) 492,113,856 838,447,750 Cash flow from financing activities (334,466,061) 490,775,595 CHANGE IN CASH AND CASH EQUIVALENTS (60,939,730) 587,216,157 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 886,354,322 947,294,052 (*) Cleared of balances in return of shareholders’ equity and other balance sheet items. 1 Financial statements 1.4 Cash-flow statement 17 A2A Separate financial statements 2021 Changes from January 1, 2021 to December 31, 2021 amounts in euro Share capital Note 13 Treasury shares Note 14 Cash Flow Hedge Note 15 Reserves Note 15 Net result of the year Note 16 Total equity Equity at December 31, 2020 1,629,110,744 (53,660,996) (5,909,123) 1,061,341,696 545,729,183 3,176,611,504 Contribution from non-recurring transactions 162,406,701 (367) (136,387,467) 26,018,867 Allocation of net result 545,729,183 (545,729,183) - Dividend distribution (247,698,115) (247,698,115) IAS 19 reserve (*) (21,937,747) (21,937,747) Cash flow hedge reserves (*) 33,585,300 33,585,300 Other changes (108,745,705) (10,931,900) (119,677,605) Net result of the year (*) 485,477,683 485,477,683 Equity at December 31, 2021 1,629,110,744 - 27,675,810 1,190,115,650 485,477,683 3,332,379,887 Availability of Equity Reserves D A-B-C A: For share capital increase B: To cover losses C: For distribution to Shareholders \- available for euro 1,020,135,773 (**) D: Reserves not avaliable (*) These form part of the statement of comprehensive income. (**) Of which subject to tax moderate suspension equal to 124,783,022 euro, and subject to tax suspension following the realignment of Legislative Decree 104/20 for 227,529,561 euro. Changes from January 1, 2020 to December 31, 2020 amounts in euro Share capital Note 13 Treasury shares Note 14 Cash Flow Hedge Note 15 Reserves Note 15 Net result of the year Note 16 Total equity Equity at December 31, 2019 1,629,110,744 (53,660,996) (26,555,942) 844,133,794 450,622,909 2,843,650,509 Allocation of net result 450,622,909 (450,622,909) - Dividend distribution (240,961,749) (240,961,749) IAS 19 reserve (*) 7,546,742 7,546,742 Cash flow hedge reserves (*) 20,646,819 20,646,819 Other changes - Net result of the year (*) 545,729,183 545,729,183 Equity at December 31, 2020 1,629,110,744 (53,660,996) (5,909,123) 1,061,341,696 545,729,183 3,176,611,504 (*) These form part of the statement of comprehensive income. 1.5 Statement of changes in equity 1 Financial statements Balance sheet Income statement Statement of comprehensive income Cash-flow statement Statement of changes in equity 2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010 20 20 amounts in euro 12 31 2021 of which Related Parties (note 35) 12 31 2020 of which Related Parties (note 35) NON-CURRENT ASSETS Tangible assets 934,218,394 41,539,774 1,000,419,014 45,306,755 Intangible assets 146,383,435 100,819,490 Shareholdings 4,204,055,422 4,204,055,422 3,954,036,431 3,954,036,431 Other non-current financial assets 1,334,677,747 1,316,584,621 1,476,271,851 1,468,890,342 Deferred tax assets 102,884,864 41,585,738 Other non-current assets 13,053,755 10,745 11,917,684 Total non-current assets 6,735,273,617 6,585,050,208 CURRENT ASSETS Inventories 103,867,362 64,301,009 Trade receivables 2,155,509,072 937,605,975 872,115,857 384,878,785 Other current assets 3,912,370,491 74,846,677 505,533,864 54,170,554 Current financial assets 1,204,973,806 1,201,667,886 412,777,069 412,777,069 Current tax assets 60,592,132 62,592,398 Cash and cash equivalents 886,354,322 947,294,052 Total current assets 8,323,667,185 2,864,614,249 NON-CURRENT ASSETS HELD FOR SALE 46,788,054 440,404 465,623 465,623 TOTAL ASSETS 15,105,728,856 9,450,130,080 2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010 2.1 Balance sheet pursuant to Consob Resolution no. 17221 of March 12, 2010 Assets 21 A2A Separate financial statements 2021 amounts in euro 12 31 2021 of which Related Parties (note 35) 12 31 2020 of which Related Parties (note 35) EQUITY Share capital 1,629,110,744 1,629,110,744 (Treasury shares) - (53,660,996) Reserves 1,217,791,460 1,055,432,573 Net result of the year 485,477,683 545,729,183 Total equity 3,332,379,887 3,176,611,504 LIABILITIES Non-current liabilities Non-current financial liabilities 4,191,240,086 38,911,162 3,771,288,070 41,190,642 Employee benefits 149,174,579 122,952,128 Provisions for risks, charges and liabilities for landfills 101,431,443 104,592,610 1,000,000 Other non-current liabilities 14,056,580 23,815,726 Total non-current liabilities 4,455,902,688 4,022,648,534 Current liabilities Trade payables 2,172,866,259 430,817,120 850,137,382 223,617,370 Other current liabilities 4,156,909,244 69,281,107 520,846,017 37,325,581 Current financial liabilities 981,736,220 363,512,176 879,886,643 398,682,192 Tax liabilities 5,934,558 - Total current liabilities 7,317,446,281 2,250,870,042 Total liabilities 11,773,348,969 6,273,518,576 LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE - - TOTAL EQUITY AND LIABILITIES 15,105,728,856 9,450,130,080 Equity and liabilities 2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010 Balance sheet pursuant to Consob Resolution no. 17221 of March 12, 2010 Income statement pursuant to Consob Resolution no. 17221 of March 12, 2010 22 22 amounts in euro 01 01 2021 12 31 2021 of which Related Parties (note 35) 01 01 2020 12 31 2020 of which Related Parties (note 35) Revenues Revenues from the sale of goods and services 8,196,015,067 2,862,329,571 3,943,350,650 1,553,187,684 Other operating income 59,968,651 4,920,084 45,421,093 5,624,003 Total revenues 8,255,983,718 3,988,771,743 Operating expenses Expenses for raw materials and services 7,322,231,042 306,913,033 3,313,234,320 173,763,299 Other operating expenses 581,477,745 469,765,365 422,866,446 328,220,557 Total operating expenses 7,903,708,787 3,736,100,766 Labour costs 160,014,697 1,742,435 150,968,919 1,282,005 Gross operating income \- EBITDA 192,260,234 101,702,058 Depreciation, amortization, provisions and write-downs 123,140,593 5,784,085 109,076,423 4,373,810 Net operating income \- EBIT 69,119,641 (7,374,365) Result from non-recurring transactions - - Financial balance Financial income 448,739,269 444,598,443 581,056,815 580,304,742 Financial expenses 72,965,521 2,306,597 81,482,396 414,968 Result from disposal of other shareholdings - - Total financial balance 375,773,748 499,574,419 Result before taxes 444,893,389 492,200,054 Income taxes (40,888,556) (55,371,601) Result after taxes from operating activities 485,781,945 547,571,655 Net result from discontinued operations (304,262) (294,775) (1,842,472) NET RESULT OF THE YEAR 485,477,683 545,729,183 2.2 Income statement pursuant to Consob Resolution no. 17221 of March 12, 2010 2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010 3 Notes 24 24 3 Notes 3.1 General information on A2A S.p.A. A2A S.p.A. is a company with legal personality organized under the laws of the Italian Republic which operates, also through its subsidiaries ("Group"), both in Italy and abroad. In particular, as the “Parent Company”, A2A S.p.A. is responsible for the guiding strategy, administration, planning and control, financial management and coordinating the activities of the A2A Group. Therefore, Group companies benefit from administrative, tax, legal, personnel management, procurement and communication services, so as to optimize the resources that are available within the Group and to use the existing known how in a cost-effective way. The A2A Group mainly operates in the following sectors: production, sale and distribution of electricity even from renewable resources; sale and distribution of gas; production, distribution and sale of heat through district heating networks; waste management (from collection and sweeping to disposal) and the construction and management of integrated waste disposal plants and systems, also making these available for other operators; integrated water cycle management; technical consultancy relating to energy efficiency certificates. The separate financial statements for A2A S.p.A. are presented in euro, which is also the functional currency in the economies in which the company operates. In particular, the following notes are prepared in thousands of euro. The separate financial statements of A2A S.p.A. at December 31, 2021, have been prepared on a going-concern basis and comprise the balance sheet, income statement, statement of comprehensive income, cash flow statement, statement of changes in equity and these notes. The separate financial statements of A2A S.p.A. at December 31, 2021 have been prepared: in compliance with Legislative Decree 58/1998 (art. 154-ter) as amended and with the Issuers’ Regulations published by Consob; in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB) and approved by the European Union. IFRS means all the revised international accounting standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), formerly known as the Standing Interpretations Committee (SIC). In preparing the separate financial statements, the same standards used for the financial statements at December 31, 2020 were applied, other than the principles and interpretations described in detail in the paragraph below “Changes in accounting principles” adopted for the first time on January 1, 2021\. These explanatory notes include the supplemental information required by the Italian civil code, by Consob Resolutions no. 15519 and 15520 of July 27, 2006, and Consob communication no. 6064293 of July 28, 2006. In this file, use has been made of some Alternative Performance Measures (APM) that are different from the financial indicators expressly provided for by the IAS/IFRS international accounting standards adopted by the company; for details of these indicators, please see the specific paragraph Alternative Performance Measures (APM) in the Report on Operations. These separate financial statements for the year ended December 31, 2021, were approved on March 17, 2022, by the Board of Directors, which authorized its publication, and has been audited by EY S.p.A. in accordance with their appointment by the shareholders' meeting of June 11, 2015, for the nine years from 2016 to 2024. 25 A2A Separate financial statements 2021 3.2 Financial statements For the balance sheet, the company A2A S.p.A. has adopted a format which separates current and non-current assets and liabilities, as required by paras. 60 et seq. of IAS 1. The income statement is presented by nature, a format which is considered more representative than a presentation by function. The selected format is in agreement with the presentation used by the Group’s major competitors and in line with international practice. The specific line items “Result from non-recurring transactions” and “Result from disposal of other shareholdings” are in the format of the income statement in order to provide clear and immediate identification of the results arising from non-recurring transactions forming part of continuing operations, separating these from the results from discontinued operations/held for sale. In particular, it should be noted that the item "Result from non-recurring transactions" is intended to include the results from the sale of investments in subsidiaries and associates and other non-operating expenses/income. This item is presented between net operating income and the financial balance. In this way net operating income is not affected by non-recurring operations, making it easier to measure the effective performance of the Group’s ordinary operating activities. The “Cash flow statement” has been prepared using the indirect method as permitted by IAS 7. The “Statement of changes in equity” has been prepared in accordance with IAS 1. The accounting schedules included in the annual report are in the same format as those used in the separate financial statements at December 31, 2020. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 26 26 3 Notes 3.3 Basis of preparation The separate financial statements as at December 31, 2021, have been prepared on a historical cost basis, with the exception of those items which under IFRS must be or can be measured at fair value, as discussed in further detail in the accounting policies. The accounting standards, the accounting policies and the methods of measurement used in the preparation of the separate financial statements are consistent with those used to prepare the annual separate financial statements at December 31, 2020, except as specified below regarding newly enacted standards. 27 A2A Separate financial statements 2021 3.4 Changes in international accounting standards Pursuant to IAS 8, the subsequent paragraph “Accounting standards, amendments and interpretations applicable by the company as of the current year” indicates and briefly illustrates the amendments in force as of January 1, 2021\. The following paragraph, “Accounting standards, amendments and interpretations approved by the European Union” instead detail the accounting standards and interpretations already issued, not yet approved by the European Union and therefore not applicable for the preparation of the financial statements at December 31, 2021, any impacts of which will then be transposed as of the financial statements of the following years. Accounting standards, amendments and interpretations applicable as of the current year As from January 1, 2021, applicable to the Group are the following two additions to specific paragraphs of the international accounting standards already adopted by the Group companies in previous years:: IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: approved on January 13, 2021 and effective as of the financial statements ending January 1, 2021, the supplement to the standards in question follows the same one issued on January 16, 2020 "reforming major interest rate benchmarks" with which the European Council for financial stability issued recommendations aimed at strengthening existing reference indices and other potential reference rates based on interbank markets and developing alternative reference rates that are almost risk-free. This integration represents the second phase and aims to stabilize cash flow valuations avoiding impacts on the income statement deriving from the change in the rate used for valuations. This amendment did not have any impact on the Group's economic and financial results; IFRS 16 “Leases”: approved on October 12, 2020 and temporarily extended to June 30, 2022, the integration aims to neutralize the accounting effects resulting from changes in lease payments (cancellation or reduction of lease payments) arising from agreements between parties in consideration of the negative effects of COVID-19. In the absence of such action by the regulator, these amendments would have resulted in a restatement of the financial liability and the carrying amount of the asset consisting of the right of use, resulting in a significant administrative burden. This integration did not have any impact on the Group's economic and financial results since the payments related to contracts covered by IFRS 16 were not changed. Accounting standards, amendments and interpretations approved this year and applicable as of subsequent years IFRS 17 “Insurance contracts”: issued by the IASB on May 18, 2017 and approved November 19, 2021, will be applicable to companies that issue insurance contracts from the financial statements closed as of January 1, 2023\. No impacts are expected on the Group's economic and financial situation. IFRS 3 “Business Combination”: issued by the IASB on May 14, 2020 and approved on July 2, 2021, the integration introduces an exception to the standard to avoid the risk of potential “day-after” losses or gains arising from liabilities and contingent liabilities that would fall within the scope of IAS 37 or IFRIC 21, if contracted separately. The integration will be applicable from financial statements ending January 1, 2022 and is not expected to have impacts on the Group's economic and financial situation. IAS 16 “Property, plant and equipment”: issued by the IASB on May 14, 2020 and approved on July 2, 2021, the integration prohibits the deduction from the carrying amount of a fixed asset of any revenue from the sale achieved during the preparation of the fixed asset. These revenues must be recognized in the income statement. The integration will be applicable from financial statements ending January 1, 2022 and is not expected to have impacts on the Group's economic and financial situation. IAS 37 “Provisions, liabilities and contingent liabilities”: issued by the IASB on May 14, 2020 and endorsed on July 2, 2021, the integration further specifies which costs should be considered in the definition of an onerous contract. General and administrative expenses are excluded unless explicitly included in the contract. The integration will be applicable from financial statements ending January 1, 2022 and is not expected to have impacts on the Group's economic and financial situation. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 28 28 3 Notes Accounting standards, amendments and interpretations not yet approved by the European Union On May 7, 2021, the IASB issued an integration to IAS 12 “Income Taxes” clarifying the procedure to account for deferred taxes on transactions such as leases and decommissioning provisions. In particular, the option, previously provided for, not to calculate deferred taxation upon initial recognition of assets and liabilities deriving from lease contracts and/or decommissioning provisions is eliminated. This integration clarifies, therefore, that all companies are required to recognize deferred taxation on the transactions in question. On February 12, 2021, the IASB issued a supplement to IAS 1 “Presentation of the financial statements” in which it specifies that the Group must disclose information about its material accounting policies and no longer only significant ones. This implies, for example, assessing its accounting policies by the nature of the item and no longer primarily by its significance. The integration will be applicable from the financial statements ending January 1, 2023 and is not expected to have a significant impact on the disclosure of the accounting policies since an analysis by nature and not only by significance is already carried out. On February 12, 2021, the IASB issued a supplement to IAS 8 “Accounting policies, Changes in Accounting Estimates and Errors” in which it clarifies and specifies the definition of an estimate in relation to error correction. According to this integration, a change in estimation methods resulting from new information available does not translate into a correction of a past error and the related effects must be accounted for in the Income Statement as current changes and never as changes from previous years. The integration will be applicable to financial statements for the period beginning January 1, 2023 and is not expected to have significant impacts on the Group's economic and financial situation. On January 23, 2020 and July 15, 2020, the IASB issued two additions to IAS 1 "Presentation of Financial Statements" that aim to better define the concept of liabilities and the related classification between short and medium/long-term. Specifically, emphasis is placed on the temporal concept of transferring money or other resources to the counterparty to settle the liability. The integration will be applicable to financial statements for the period beginning January 1, 2023 and is not expected to have an impact on the Group's economic and financial situation. 29 A2A Separate financial statements 2021 3.5 Accounting standards and policies Translation of foreign currency items The consolidated financial statements of the A2A Group are presented in euro; this is also the functional currency of the economies in which the Group operates. Transactions in other currencies are initially recognized at the exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are translated into euro at the exchange rates at the balance sheet date. Non-monetary items measured at historical cost in foreign currency are translated at the exchange rates at the date of the transaction. Non-monetary items measured at fair value are translated at the exchange rates at the date when the fair value was determined. Tangible assets Assets for business use are classified as tangible assets, while non-business assets are classified as investment property. Tangible assets are measured at cost, including any additional charges directly attributable to bringing the asset into an operating condition (e.g. transport, customs duty, installation and testing costs, notary and land registry fees and any non-deductible VAT), increased when material and where there are obligations by the present value of the estimated cost of restoring the location from an environmental point of view or dismantling the asset. Borrowing costs, where directly attributable to the purchase or construction of an asset, are capitalized as part of the cost of the asset if the type of asset so warrants. If important components of tangible assets have different useful lives, they are accounted for separately using the “component approach”, assigning to each component its own useful life for the purpose of calculating depreciation (the component approach). Land, whether occupied by residential or industrial buildings or devoid of construction, is not depreciated as it has an unlimited useful life, except for land used in production activities that is subject to deterioration over time (e.g. landfills, quarries). Ordinary maintenance costs are fully expensed to the income statement in the year they are incurred. Costs for maintenance carried out at regular intervals are attributed to the assets to which they refer and are depreciated over the specific residual possibility of use of such. Tangible assets are stated net of accumulated depreciation and any write-downs. Depreciation is charged from the year in which the individual asset enters service on a straight-line basis over the estimated useful life of the asset for the business. The estimated realizable value which is deemed to be recoverable at the end of an asset’s useful life is not depreciated. The useful life of each asset is reviewed annually and any changes, if needed, are made with a view to showing the correct value of the asset. Landfills are depreciated on the basis of the percentage filled, which is calculated as the ratio between the volume occupied at the end of the period and the total volume authorized. The main depreciation rates used, which are based on technical and economic considerations, are as follows: buildings______________________________________________________________0.1 % \- 12.0 % production plants________________________________________________________0.2 % \- 14.1 % distribution networks___________________________________________________1.4 % \- 10.0 % miscellaneous equipment_________________________________________________9.7 % \- 10.0 % mobile phones______________________________________________________________100.0 % furniture and fittings____________________________________________________6.0 % \- 15.0 % electric and electronic office machines_____________________________________10.0 % \- 26.7 % means of transport____________________________________________________________10.0 % improvements to third-party assets \- buildings________________________________5.2 % \- 32.4 % Tangible assets are subjected to impairment testing if there is any indication that an asset may be impaired in accordance with the paragraph below “Impairment of assets”; write-downs may be reversed in subsequent periods if the reasons for which they were recognized no longer apply. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 30 30 3 Notes When an asset is disposed of or if future economic benefits are no longer expected from using an asset, it is removed from the balance sheet and any gain or loss (being the difference between the disposal proceeds and the carrying amount) is recognized in the income statement in the year of the derecognition. Leasing Assets for rights of use are recognized on the start date of the lease, i.e. the date on which the underlying asset is available for use. Rights to use assets are measured at cost, net of accumulated depreciation and impairment losses, and adjusted for any restatement of lease liabilities. The cost of assets for rights of use includes the amount of lease liabilities recognized and lease payments made on or before the commencement of the lease. Assets for right of use are depreciated on a straight-line basis from the effective date to the end of the useful life of the asset consisting of the right of use or at the end of the lease term, whichever is earlier. If the lease transfers ownership of the underlying asset to the lessee at the end of the term of the contract or if the cost of the asset consisting of the right of use reflects the fact that the lessee will exercise the purchase option, the asset consisting of the right of use is depreciated from the effective date until the end of the useful life of the underlying asset. Lease liabilities are recognized at the present value of lease payments not yet paid at the reporting date. Lease payments also include the exercise price of a purchase option if it is reasonably certain that the option will be exercised. Intangible assets Intangible assets are identifiable non-monetary assets without physical substance which are controlled by the enterprise and able to produce future economic benefits, and include goodwill when acquired for consideration. The fact of being identifiable distinguishes an intangible asset that has been acquired from goodwill; this requirement is normally met when: (i) the intangible asset is attributable to a legal or contractual right, or (ii) the asset is separable, in other words it can be sold, transferred, rented or exchanged individually or as an integral part of other assets. Control by the enterprise consists of the right to enjoy the future economic benefits flowing from the asset and to restrict the access of others to those benefits. Intangible assets are stated at purchase or production cost, including ancillary charges, determined in the same way as for tangible assets. Intangible fixed assets produced internally are not capitalized but recognized in the income statement in the year in which the costs are incurred. Intangible assets with a definite useful life are reported in the financial statements net of the related accumulated amortization and impairments in the same way as for tangible assets. Changes in the expected useful life or in the ways in which the future economic benefits of an intangible asset are achieved by the Company are accounted for by suitably adjusting the period or method of amortization, treating them as changes in accounting estimates. The amortization of intangible fixed assets with a definite useful life is charged to income statement in the cost category that reflects the function of the intangible asset concerned. Intangible assets are subjected to impairment testing if there are specific indications that they may be impaired, in accordance with the paragraph below “Impairment of assets”; impairment losses may be reversed in subsequent periods if the reasons for which they were recognized no longer apply. Intangible assets with an indefinite useful life and those that are not yet available for use are subjected to impairment testing on an annual basis, whether or not there are any specific indications that they may be impaired, in accordance with the paragraph below “Impairment of assets”. Impairment losses recognized for goodwill are not reversed. Gains or losses on the disposal of an intangible asset are calculated as the difference between the disposal proceeds and the carrying amount of the asset and recognized in the Income Statement at the time of the disposal. The following amortization rates are applied to intangible assets with a definite useful life: industrial patents and intellectual property rights____________________________20.0 % \- 34.0 % concessions. licenses. trademarks and similar rights___________________________20.0 % \- 33.3 % other tangible assets____________________________________________________2.1 % \- 33.0 % 31 A2A Separate financial statements 2021 Service concession arrangements IFRIC 12 states that, based on the characteristics of the concession arrangement, the infrastructures used in the provision of public services under concession are to be recognized as intangible assets if the operator has the right to receive a payment from the customer for the service provided, and/or as a financial asset if the operator has the right to receive payment from the public sector entity. Impairment/Reversal of tangible assets, intangible assets and equity investments Tangible assets, intangible assets and investments are subjected to impairment testing if there is any specific indication that there may be an impairment loss. Goodwill, other intangible assets with an indefinite useful life and assets not available for use are tested for impairment at least annually or more frequently if there is any specific indication that they may be impaired. Impairment testing consists of comparing the carrying amount of an asset or impairment with an estimate of the related recoverable amount. The recoverable amount of an asset or investment is the higher of its fair value less costs to sell and its value in use. To determine the value in use of an asset or investment, the entity calculates the present value of the estimated future cash flows on the basis of business plans prepared by management, before tax, applying a pre-tax discount rate which reflects current market assessments of the time value of money and the risks specific to the asset or investment. If the recoverable amount of an asset or investment is lower than its carrying amount, a loss is recognized in the Income Statement. If a loss recognized for an asset other than goodwill no longer exists or is reduced, the carrying amount of the asset or cash-generating unit is increased to the new estimate of recoverable value, which may not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset. Reversals of impairment losses are immediately recognized in the income statement. When the recoverable amount of the individual asset cannot be estimated, it is based on the cash generating unit (CGU) or group of CGUs that the asset belongs to and/or to which it may be reasonably allocated. CGUs are identified on the basis of the company’s organizational and business structure as homogeneous aggregations that generate independent cash inflows deriving from the continuous use of the assets allocated to them. Environmental certificates: emission quotas and White Certificates Different accounting policies are applied to quotas or certificates held for own use in the “Industrial Portfolio” and those held for trading purposes in the “Trading Portfolio”. Surplus quotas or certificates held for own use in the “Industrial Portfolio” which are in excess of the Group's requirements in relation to the obligations accruing at year end are recognized as other intangible assets at the actual cost incurred. Quotas or certificates assigned free of charge are recognized at a zero carrying amount. Given that they are assets for instant use, they are not amortized but subjected to impairment testing. The recoverable amount is the higher of value in use and market value. If, on the other hand, there is a deficit because the requirement exceeds the quotas or certificates in portfolio at the balance sheet date, a provision is recognized for the amount needed to meet the residual obligation, estimated on the basis of any purchase contracts, spot or forward, already signed at the balance sheet date; otherwise on the basis of market prices. Quotas or certificates held for trading in the “Trading Portfolio” are recognized in inventories and measured at the lower of purchase cost and estimated realizable value based on market trends. Quotas or certificates assigned free of charge are recognized at a zero carrying amount. Market value is established on the basis of any sales contracts, spot or forward, already signed at the balance sheet date; otherwise on the basis of market prices. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 32 32 3 Notes Shareholdings in subsidiaries, associates and joint ventures Subsidiaries are companies in which the parent company “is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee”, as defined by IFRS 10\. Control is generally assumed to exist when a company holds either directly or indirectly more than half of the exercisable voting rights at an ordinary shareholders' meeting, also considering potential voting rights, meaning voting rights deriving from convertible financial instruments. Subsidiaries are consolidated on a line-by-line basis. Associates are companies in which the parent has a significant influence over strategic decisions, despite not having control, also considering potential voting rights, meaning voting rights deriving from convertible financial instruments; significant influence is assumed to exist when A2A S.p.A. holds, either directly or indirectly, more than 20% of voting rights exercisable at an ordinary shareholders’ meeting. A joint venture is a contractual agreement whereby two or more parties undertake an income generating activity subject to joint control. Shareholdings in associates and joint ventures are accounted for in the consolidated financial statements using the equity method. Long term construction contracts in progress Construction contracts with durations exceeding one year in progress are valued in accordance with IFRS 15\. In particular, over-the-time revenues are recognized if it can be demonstrated that: a) the customer simultaneously receives and consumes the benefits of the contract in force at the same time as the service is provided b) the service provided improves. Construction contracts currently in progress are measured on the basis of the contractual fees that have accrued with reasonable certainty on the basis of the stage of completion, using the “cost to cost” method, so as to allocate the revenues and net result of the contract to the individual periods to which they belong in proportion to the progress being made on the project. Any difference, positive or negative, between the value of the contracts and advances received is recognized as an asset or a liability respectively. In addition to the contractual fees, contract revenues include variants, price revisions and incentive awards to the extent that it is probable that they represent actual revenues that can be reliably determined. Ascertained losses are recognized independently of the stage of completion of contracts. Inventories Inventories of materials and fuel are measured at the lower of weighted average cost and market value at the balance sheet date. Weighted average cost is determined for the period of reference for each inventory code. Weighted average cost includes any additional costs (such as sea freight, customers charges, insurance and lay or demurrage days in the purchase of fuel). Inventories are constantly monitored and, where necessary, obsolete stocks are written down with a charge to the Income Statement. Financial instruments Financial instruments include shareholdings (excluding shareholdings in subsidiaries, joint ventures and associates) held for trading (so-called trading shareholdings) or available for sale, non-current receivables and loans and other non-current financial assets, trade and other receivables deriving from company operations and other current financial assets such as cash and cash equivalents. The latter consist of bank and postal deposits, readily negotiable securities used as temporary investments of surplus cash and financial receivables due within three months. Financial instruments also include financial payables (bank loans and bonds), trade payables, other payables and other financial liabilities and derivatives. Financial assets and liabilities are recognized at the time that the contractual rights and obligations forming part of the instrument arise. Financial assets and liabilities are accounted for in accordance with IFRS 9 “Financial Instruments”. 33 A2A Separate financial statements 2021 Financial assets Initial recognition Financial assets are classified into two categories alone \- “at fair value” or “at amortized cost”. Classification within the two categories is carried out on the basis of an entity’s business model and the contractual cash flow characteristics of the financial asset. A financial asset is measured at amortized cost if both of the following requirements are met: the objective of the entity’s business model is to hold assets to collect contractual cash flows (and therefore in substance not to earn trading profits) and the characteristics of the cash flows of the asset are solely payments of principal and interest. A financial asset is measured at fair value if it is not measured at amortized cost. All equity instruments both listed and unlisted – must be measured at fair value. An entity has the option of presenting changes in the fair value of equity instruments that are not held for trading in equity; that option is not permitted for equity instruments that are held for trading. This designation is permitted on initial recognition, may be adopted for each individual instrument and is irrevocable. If an election is made for this option, changes in the fair value of these instruments may never be reclassified from equity to the income statement. Dividends on the other hand continue to be recognized in the income statement. In addition, the method of expected credit losses is modified, moving to an impairment model that leads to the early recognition of forward-looking losses. Subsequent valuation Measurement subsequent to initial recognition depends on which of the following categories the financial instrument falls into: Financial assets at amortized cost (debt instruments); Financial assets at fair value in the Income Statement with reclassification of cumulative gains and losses (debt instruments); Financial assets at fair value in the Income Statement without reversal of cumulative gains and losses at the time of derecognition (equity instruments); Financial assets at fair value in the Income Statement. Financial assets at amortized cost Financial assets at amortized cost are valued using the effective interest method and are subject to impairment. Gains and losses are recognized in the income statement when the asset is derecognized, modified or revalued. Investments in equity instruments On initial recognition, the Group may irrevocably choose to classify its equity investments as equity instruments recognized at fair value through profit and loss when they meet the definition of equity instruments pursuant to IAS 32 "Financial instruments: Presentation" and are not held for trading. The classification is determined for each individual instrument. Gains and losses on these financial assets are never reclassified to the income statement. Dividends are recognized as other income in the income statement when the right to payment has been approved, except when the Group benefits from such income as a recovery of part of the cost of the financial asset, in which case such profits are recognized in OCI. Equity instruments recognized at fair value through OCI are not subject to impairment testing. Financial assets measured at fair value through the income statement This category includes assets held for trading, assets designated at the time of initial recognition as financial assets at fair value with changes recognized in the Income Statement, or financial assets that must be measured at fair value. Assets held for trading are all those assets acquired for sale or repurchase in the short term. Derivatives, including those separated, are classified as financial instruments held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not represented solely by principal and interest payments are classified and measured at fair value in the Income Statement, regardless of the business model. Notwithstanding the criteria for debt instruments to be classified at amortized cost or at fair value through OCI, as described above, debt instruments may be recognized at fair value in the Income Statement upon initial recognition if this results in the elimination or significant reduction of an accounting mismatch. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 34 34 3 Notes Financial instruments at fair value with changes recognized in the Income Statement are recognized in the statement of financial position at fair value and net changes in fair value are recognized in profit/(loss) for the year. This category includes derivative instruments and listed equity investments that the Group has not irrevocably chosen to classify at fair value through OCI. Dividends on listed equity investments are also recognized as other income in the statement of profit/(loss) for the year when the right to payment is established. The embedded derivative contained in a non-derivative hybrid contract, in a financial liability or in a principal non-financial contract, is separated from the principal contract and accounted for as a separate derivative, if: its economic characteristics and the risks associated with it are not closely correlated with those of the principal contract; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value in the Income Statement. Embedded derivatives are measured at fair value, with changes in fair value recognized in the Income Statement. A restatement occurs only when there is a change in the terms of the contract that significantly changes the cash flows otherwise expected or a reclassification of a financial asset to a category other than fair value in the Income Statement. An embedded derivative included in a hybrid contract that contains a financial asset is not separated from the host contract. The financial asset together with the embedded derivative is classified entirely as a financial asset at fair value in the Income Statement. Derecognition A financial asset is derecognized when: the rights to receive cash flows from the asset no longer apply; the company has transferred to a third party the right to receive cash flows from the asset or has assumed a contractual obligation to transfer them. In substance, the transfer is completed when: the company has transferred all the risks and rewards of ownership of the asset or has transferred control of the asset while maintaining the related risks and rewards. In cases where the company has transferred the rights to receive cash flows from an asset or signed an agreement under which it retains the contractual rights to receive the cash flows from the financial asset but assumes a contractual obligation to pay the cash flows to one or more beneficiaries (pass-through), it assesses whether and to what extent it has retained the risks and rewards of ownership. In the cases in which it has neither transferred nor retained substantially all of the risks and rewards or has not lost control of the asset, it continues to be recognized in the financial statements of the Group to the extent of its continuing involvement in the asset. In this case, the Group also recognizes an associated liability. The transferred asset and the associated liability are valued to reflect the rights and obligations that remain with the Group. When the entity's continuing involvement is a guarantee of the transferred asset, involvement is measured on the basis of the lower of the amount of the asset and the maximum amount of consideration received that the entity might have to repay. Financial liabilities Financial liabilities are classified, at the time of initial recognition, at fair value in the Income Statement, as mortgages and loans or as derivatives designated as hedges. Directly attributable transaction costs are added to the valuation. The Group's financial liabilities include trade payables and other payables, mortgages and loans, including current account overdrafts and derivative financial instruments. The subsequent evaluation depends on the classification of the main instrument: financial liabilities at fair value in the Income Statement, typically of a trading nature (settlement and transfer in the short term). This category includes financial derivatives held for trading (speculative); loans and receivables: valued at amortized cost using the effective interest method. Gains and losses are recognized in the Income Statement when the liability is settled, as well as through amortization. A financial liability is derecognized when the obligation underlying the liability is settled or cancelled. 35 A2A Separate financial statements 2021 Derivative financial instruments and hedge accounting These are initially recognized at fair value on the date the contract is signed and the subsequent measurement is also at fair value. To classify a derivative as a hedge, the company formally designates and documents the hedging relationship, its risk management objectives and the strategy pursued. From January 1, 2018, the following must be identified: a) the hedging instrument b) the nature of the risk being hedged c) the way in which the company will assess the effectiveness of the hedge. The hedging relationship is effective if: there is an economic relationship between the hedged item and the hedging instrument; the effect of the credit risk does not prevail over the changes in value resulting from the aforementioned economic relationship; the hedging ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge this quantity of hedged item. Transactions that meet the above criteria are accounted for as follows: Fair value hedging If a derivative financial instrument is designated as a hedge against exposure to changes in the fair value of an asset or liability attributable to a specific risk, the gain or loss resulting from subsequent changes in fair value of the hedging instrument is recognized in the Income Statement. The profit or loss deriving from the adjustment to fair value of the item hedged, for the part attributable to the hedged risk, changes the book value of this item and is recognized in the Income Statement. Cash flow hedge \- If a derivative financial instrument is designated to hedge the exposure to the variability of the cash flows of an asset or a liability recognized in the Financial Statements or of a highly probable transaction, the effective portion of the resulting profits or losses deriving from the fair value adjustment of the derivative instrument is recognized in a specific equity reserve. The cumulative profit or loss is reversed from the equity reserve and recorded in the Income Statement in the same years in which the effects of the hedged transaction are recognized in the Income Statement. The gain or loss associated with that part of the ineffective hedge is recognised in the Income Statement immediately. If the hedged transaction is no longer considered probable, the unrealized gains or losses recognized in the equity reserve are immediately recognized in the Income Statement. Cash flow hedges The portion of gain or loss on the hedged instrument relating to the effective portion of the hedge is recognized in other comprehensive income in the cash flow hedge reserve, while the ineffective portion is recognized directly in the Income Statement. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in the fair value of the hedged item. Amounts accumulated under other components of the comprehensive income statement are recorded, depending on the nature of the underlying hedged transaction. If the hedged transaction subsequently results in the recognition of a non-financial component, the accumulated amount in equity is removed from the separate component of equity and included in the cost or other carrying amount of the asset or liability hedged. This is not considered a reclassification of the items recognized in OCI for the period. This also applies in the case of a hedged forecast transaction of a non-financial asset or a non-financial liability that subsequently becomes an irrevocable commitment to which fair value hedge accounting is applied. For any other cash flow hedge, the amount accumulated in OCI is reclassified in the Income Statement as a reclassification adjustment in the same period or periods during which the hedged cash flows impact profit or loss. If the cash flow hedge accounting is discontinued, the accumulated amount in OCI must remain so if the hedged future cash flows are expected to occur. Otherwise, the amount shall be immediately reclassified to profit or loss for the period as a reclassification adjustment. After suspension, once the hedged cash flow occurs, any accumulated amount remaining in OCI must be accounted for depending on the nature of the underlying transaction as described above. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 36 36 3 Notes Non-current assets held for sale, disposal groups and discontinued operations – IFRS 5 Non-current assets held for sale, disposal groups and discontinued operations whose carrying amount will be recovered principally through sale rather than continuous use are measured at the lower of their carrying amount and fair value less costs to sell. A disposal group is a group of assets to be disposed of together as a group in a single transaction together with the liabilities directly associated with those assets that will be transferred in that transaction. Discontinued operations on the other hand consist of a significant component of the Group such as a separate major line of business or a geographical area of operations or a subsidiary acquired exclusively with a view to resale. In accordance with IFRSs, the figures for non-current assets held for sale, disposal groups and discontinued operations are shown on two specific lines in the balance sheet: non-current assets held for sale and liabilities directly associated with non-current assets held for sale. Non-current assets held for sale are not depreciated or amortized and are measured at the lower of carrying amount and fair value less costs to sell; any difference between carrying amount and fair value less costs to sell is recognized in the income statement as a write-down. The net economic results arising from discontinued operations, and only discontinued operations, pending the disposal process, any gains or losses on disposal and the corresponding comparative figures for the previous year or period are recognized in a specific line of the Income Statement: “Net result from discontinued operations”. On the other hand any gains or losses recognized as the result of measuring non-current assets (or disposal groups), classified as held for sale within the meaning of IFRS 5, at fair value less costs to sell are presented in a specific line item of the income statement “Result from non-recurring transactions”, as discussed further in the previous section “Format of financial statements”. Employee benefits The employees’ leaving entitlement (TFR) and pension provisions are determined using actuarial methods; the rights accrued by employees during the year are recognized in the Income Statement as “labour costs”, whereas the figurative financial cost that the company would have to bear if it were to ask the market for an loan of the same amount as the TFR is recognized as part of the “financial balance”. Actuarial gains and losses arising from changes in actuarial assumptions are recognized in income statement taking into account the residual average working life of the employees. Following the introduction of Finance Law no. 296 of December 27, 2006, only the portion of accrued employees’ leaving entitlement that remained in the company has been measured in accordance with IAS 19, as amounts are now paid over to a separate entity as they accrue (either to a supplementary pension scheme or to funds held by INPS). As a result of these payments the company no longer has any obligations in connection with the services employees may render in the future. Guaranteed employee benefits paid on or after the termination of employment through defined benefit plans (energy discount, health care or other benefits) or long-term benefits (loyalty bonuses) are recognized in the period when the right vests. The liability for defined benefit plans, net of any plan assets, is determined by independent actuaries on the basis of actuarial assumptions and recognized on an accrual basis in line with the work performed to obtain the benefits. Gains and losses arising from actuarial calculations are recognized in a specific equity reserve. Reverse factoring The Group entered into factoring agreements, typically in the technical form of reverse factoring. On the basis of the contractual structures in place, the supplier has the possibility to sell at its discretion, the receivables from the company to a lending institution. In some cases, the payment terms indicated in the invoice are the subject of further deferments agreed between the supplier and the Group; these deferments can be both burdensome and not burdensome. In the event of extensions, a quantitative analysis is carried out to verify whether or not the contractual terms have been amended. In this context, the relations, for which the primary obligation is maintained with the supplier and the possible deferment, if granted, does not involve a substantial change in payment terms, retain their nature and are therefore classified as trading liabilities. 37 A2A Separate financial statements 2021 Provisions for risks, charges and liabilities for landfills Provisions for risks and charges regard costs of a determinate nature and of certain or probable existence which at year-end are uncertain in terms of timing or amount. Provisions are recognized when there is a legal or constructive present obligation arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits, and it is possible to make a reasonable estimate of the obligation. Provisions are recognized at the best estimate of the amount that the company would have to pay to settle the liability or to transfer it to third parties at the balance sheet date. If the effect of discounting is significant, provisions are calculated by discounting expected future cash flows at a pre-tax discount rate that reflects the current market assessment of the time value of money. If discounting is used the increase in the provision due to the passage of time is recognized as financial expense. If the liability relates to tangible assets (such as the dismantling and reclamation of industrial sites), the initial provision is recognized as a counter-entry to the assets to which it refers; expense is then charged to income statement as the asset in question is depreciated. Treasury shares Treasury shares are accounted for as a deduction from equity. In particular, treasury shares are recognized as a negative equity reserve. Grants Grants, both from public entities and from third party private entities, are measured at fair value when there is the reasonable certainty that they will be received and that the Group will be able to comply with the terms and conditions for obtaining them. Grants received to provide support for the cost of specific assets are recognized as a direct deduction from the assets concerned and credited to the income statement over the life of the depreciable asset to which they refer. Revenue grants (given to provide the company with immediate financial support or as compensation for expenses or losses incurred in a previous accounting period) are recognized in their entirety in the income statement as soon as the conditions for recognizing the grants are met. Revenues and costs The recognition of revenues is based on the following five steps: (i) identification of the contract with the customer; (ii) identification of the performance obligations, represented by the contractual promises to transfer goods and/or services to a customer; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations identified on the basis of the stand-alone sale price of each good or service; (v) recognition of the revenue when the relative performance obligation is satisfied, i.e. when the promised good or service is transferred to the customer; the transfer is considered completed when the customer obtains control of the good or service, which can occur continuously over time diluted and extended or at a point in time. Revenues are stated net of returns, discounts, allowances and rebates, as well as directly related taxes. Expenses relate to goods or services sold or consumed during the year or as a result of systematic allocation; if no future use is envisaged they are recognized directly in the income statement. Result from non-recurring transactions The item “Result from non-recurring transactions” is intended to include the results from the sale of investments in subsidiaries and associates and other non-operating expenses/income. Financial income and expenses Financial income is recognized when interest income arises using the effective interest method, i.e. at the rate that exactly discounts expected future cash flows over the expected life of the financial instrument. Financial expense is recognized in the Income Statement on an accrual basis on the basis of the effective interest. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 38 38 3 Notes Dividends Dividend income is recognized when it is established that the shareholders have a right to receive payment, and is recognized as financial income in the Income Statement. Income taxes Current taxes Current income taxes are based on an estimate of taxable income in compliance with tax regulations in force or substantially approved at the balance sheet date, bearing in mind any exemptions or tax credits due. Account is also taken of the fact that the Group now files for tax on a consolidated basis. Deferred tax assets and liabilities Deferred tax assets and liabilities are calculated on the temporary differences between the carrying amount of assets and liabilities in the balance sheet and their tax bases, with the exception of goodwill which is not deductible for tax purposes and any differences resulting from investments in subsidiaries which are not expected to reverse in the foreseeable future. The tax rates used are those expected to apply to the period when the temporary differences reverse. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the tax benefit will be realized. The measurement of deferred tax assets takes account of the period for which business plans are available. When transactions are recognized directly in equity, any related current or deferred tax effects are also recognized directly in equity. Deferred taxes on the undistributed profits of Group companies are only provided for if there is the real intention to distribute such profits and, in any case, if the taxation is not offset as the result of filing a Group tax return. Deferred tax assets and liabilities are classified as non-current assets and liabilities. Taxes are only offset when they are levied by the same tax authority, when there is the legal right of set-off and when settlement of the net balance is expected. Use of estimates Preparing the financial statements and notes requires the use of estimates and assumptions in determining certain assets and liabilities and measuring contingent assets and liabilities. The actual results after the event could differ from such estimates. Estimates have been used in assessing the recoverability of assets, to determine certain sales revenues, in provisions for risks and charges, in provisions for receivables and other write-downs, amortization and depreciation, the valuation of derivatives, employee benefits and taxes. The underlying estimates and assumptions are regularly reviewed and the effect of any change is immediately recognized in the income statement. The following are the key assumptions made by management as part of the process of making these accounting estimates. The inherently critical element of such estimates comes from using assumptions or professional opinions on matters that are by their very nature uncertain. Changes in the conditions underlying the assumptions and opinions used could have a material impact on subsequent results. Impairment Test The carrying amount of non-current assets (including goodwill and other intangible assets) and of assets held for sale is reviewed periodically and whenever circumstances or events require a more frequent assessment. If it is considered that the book value of a group of fixed assets has had an impairment loss, it is subject to the application of professional judgement by management and is based on assumptions that include: the identification of the Cash Generating Units, the estimate of the future operating cash flows associated with these CGUs during the reference period of the 2021-2030 business plan, the estimate of the cash flows subsequent to this time horizon, the cash flow deriving from the disposal at the end of useful life of the assets, discount rates used ("Wacc"). These assumptions are complex due to their nature and imply recourse to the opinion of the directors, who are also sensitive to future trends in energy markets, macroeconomic scenarios, and the resolutions of ARERA (Regulatory Authority for Energy Networks and Environment). For the purpose of preparing the impairment test, the company avails itself of the support of an independent expert, external to the A2A Group. In the hypothesis in which the recoverable value is lower than the carrying amount, the latter is written 39 A2A Separate financial statements 2021 down to the extent applicable. Management is of the opinion that the estimates of such recoverable amounts are reasonable, albeit subject to changes in the factors underlying the estimates on which these recoverable amounts have been calculated could produce different measurements. For further details on the way in which impairment testing was carried out and the results of such testing, reference is made to the specific paragraph. Revenue recognition Revenues for the year include income from the sale of electricity and gas, including through sales on the IPEX markets, from the sale of environmental certificates and from the provision of administrative, fiscal, legal, management and technical services, as well as incentives on net production from renewable sources and rental income. It should be noted that the processes and methods for evaluating and determining these types of revenue do not require the use of complex assumptions. Provisions for risks and charges In certain circumstances it is not easy to identify whether a legal or constructive present obligation exists. The directors assess these situations case by case, together with an estimate of the economic resources required to settle the obligation. Estimating such provisions is the result of a complex process that involves subjective judgements on the part of company management. When the directors are of the opinion that it is only possible that a liability could arise, the risks are disclosed in the section on commitments and contingent liabilities without making any provision. Decommissioning provisions Decommissioning provisions include charges for costs of dismantling and recovery of production sites related to hydroelectric plants. Bad debts provision The entry into force of IFRS 9 on January 1, 2018 has led to a change in the recognition of credit losses for the Group. The approach adopted is a forward-looking one, focusing on the probability of future losses on receivables, even in the absence of events that would suggest the need to write-down a credit position (Expected Losses). Although the provision is considered adequate, the use of different assumptions or changes in prevailing economic conditions, even more so in this period of recession, could give rise to adjustments to the bad debts provision. Amortization Depreciation and amortization charges are a significant cost for the company. Non-current assets are depreciated or amortized on a straight-line basis over the useful lives of the assets. The useful lives of the company's non-current assets are established by the directors, with the assistance of expert appraisers, when they are purchased. The company periodically reviews technological and sector changes, dismantling/closure charges and the recovery amount of assets to update their residual useful lives. This periodic update could lead to a change in the period of depreciation or amortization and hence also in the depreciation or amortization charge in future years. Measurement of derivative instruments The derivatives used are measured at fair value based on the forward market curve at the balance sheet date, if the underlying of the derivative is traded on markets that provide official, liquid forward prices. If the market does not provide forward prices, forecast price curves are used based on simulation models developed by Group companies internally. However, the actual results of derivatives could differ from the measurements made. The serious turbulence on markets for the energy commodities traded by the company, as well the fluctuations in exchange and interest rates, could lead to greater volatility in cash flows and in expected results. Employee benefits The calculations of expenses and the related liabilities, estimated by independent experts, are based on actuarial assumptions. The full effects of any changes in these actuarial assumptions are recognized in a specific equity reserve. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 40 40 3 Notes Business combinations Accounting for business combinations entails allocating the difference between purchase cost and net carrying amount to the assets and liabilities of the acquired business. For the majority of assets and liabilities this difference is allocated by recognizing the assets and liabilities at fair value. If positive, the unallocated portion is recognized as goodwill. If negative, it is recognized in the income statement. A2A S.p.A. bases its allocations on available information and, for the more significant business combinations, on external appraisals. Current taxes and future recovery of deferred tax assets The uncertainties that exist regarding the way of applying certain tax regulations have led the company to taking an interpretative stance when providing for current taxes in the financial statements; such interpretations could be overturned by official clarifications on the part of the tax authorities. Deferred tax assets are accounted for on the basis of the taxable profit expected to be available in future years. Assessing the expected taxable profit for the purpose of accounting for deferred taxation depends on factors that can vary over time, and may lead to significant effects on the measurement of deferred tax assets. 41 A2A Separate financial statements 2021 3.6 Notes to the balance sheet The Balance Sheet of A2A S.p.A. includes, with respect to the situation at December 31, 2020, the effect of the following non-recurring transactions: the merger by incorporation of the subsidiary Linea Group Holding S.p.A., with effect from January 1, 2021, following the acquisition by A2A S.p.A. of 49% of the share capital of that company by means of the assignment of treasury shares amounting to 2.75% of the share capital of A2A S.p.A., as described in greater detail in the section “Significant events during the year” in the Report on operations. The values of the merged company’s assets and liabilities are the same as those shown in the Group’s consolidated financial statements; the merger by incorporation of the subsidiary Suncity Energy S.r.l., with effect from January 1, 2021; the merger by incorporation of the subsidiary A2A Telecommunications S.r.l., with effect from February 1, 2021. For details of the equity effects of non-recurring transactions in 2021, please refer to note no. 36) Consob Communication no. DEM/6064293 of July 28, 2006 \- non-recurring transactions. At December 31, 2021, in compliance with the provisions of IFRS 5, the tangible assets related to three buildings in the Milan area, which have been sold in February 2022, were reclassified under the item “Non-current assets held for sale”, as well as the equity investment of 24.29% in the company Sviluppo Turistico Lago d’Iseo S.p.A., for which the company exercised the withdrawal right for the share held, which will become effective in 2022. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 42 3 Notes ASSETS NON-CURRENT ASSETS 1) Tangible assets “Tangible assets” at December 31, 2021 amounted to 934,219 thousand euro (1,000,419 thousand euro in the previous year) and show, net of the effect of positive non-recurring transactions for 15,329 thousand euro, a decrease of 81,529 thousand euro resulting from the following transactions: capex for 45,998 thousand euro; other negative changes of 44,100 thousand euro due, for 52,478 thousand euro, to reclassifications, in application of IFRS5, of assets held for sale regarding the properties located in Milan in Corso di Porta Vittoria (Signora), in Via Gonin and in Via Balduccio da Pisa (Orobia), for 15 thousand euro due to reclassification from tangible to intangible assets and for 166 thousand euro due to reclassification to other balance sheet items, as opposed to an increase of 8,246 thousand euro following application of IFRS16 and 313 thousand euro for recognition of provisions for decommissioning, primarily in the Valtellina area; disposal of assets, net of accumulated depreciation, for 1,646 thousand euro; write-downs for the period of 1,113 thousand euro; depreciation for the period for 80,668 thousand euro. For a detailed analysis of changes in the period, reference shall be made to annex “1 Statement of changes in tangible assets”. Capex during the period refer to: “Buildings” for a total amount of 1,233 thousand euro. In detail, they refer: for 725 thousand euro to various interventions on the buildings in Via della Signora, Piazza Trento, Bovisa, Caracciolo, Gonin Warehouse, Orobia, Piazza Po, Canavese in Milan; for 312 thousand euro to investments in the office in via Lamarmora in Brescia; for 60 thousand euro to various interventions on the new Cremona Technological Hub Lot; for 37 thousand euro to restructuring interventions of the guard house of the Arvo dam and for 99 thousand euro other interventions on buildings; “Plant and machinery” for 2,382 thousand euro. In particular, they refer to interventions for 54 thousand euro on the power plants of the Calabria Unit; for 1,176 thousand euro on the power plants of the Valtellina Unit; for 845 thousand euro on the power plants of the Mese and Udine Unit; for 307 thousand euro for telematic and telephone wiring; “Industrial and commercial equipment” for 702 thousand euro; “Other assets” for 8,228 thousand euro. These include: 3,706 thousand euro for IT equipment at the “New Data Center”, 2,751 thousand euro for LAN and WAN network equipment and fixed and mobile telephone equipment, 1,623 thousand euro for furniture and fittings, especially for the new Multifunctional Center in Brescia and the new Cremona offices, 67 thousand euro for electric vehicle recharging infrastructure at the Milan and Brescia offices and 81 thousand euro for goods worth less than 516 euro; thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 Invest. Other changes Disposals net of provision Write-down/Reversal Amort. Total changes Land 32,497 (3,879) (629) (4,508) 27,989 Buildings 204,422 1,233 (43,390) (856) (7,694) (50,707) 153,715 Plant and machinery 672,245 4,039 2,382 11,664 (18) (56,113) (42,085) 634,199 Industrial and commercial equipment 2,452 2,588 702 (1) (798) (97) 4,943 Other assets 9,321 1,368 8,228 96 (133) (4,600) 3,591 14,280 Construction in progress and advances 23,854 4,730 33,397 (17,007) (10) (1,113) 15,267 43,851 Leasehold improvements 50 417 56 170 (182) 44 511 Assets for rights of use 55,578 2,187 8,247 (11,281) (3,034) 54,731 Total tangible assets 1,000,419 15,329 45,998 (44,100) (1,646) (1,113) (80,668) (81,529) 934,219 Historical Cost 2,893,903 24,700 45,998 (93,169) (4,490) (1,113) (52,774) 2,865,829 Accumulated depreciation (1,540,995) (9,371) 49,068 2,844 (80,668) (28,756) (1,579,122) Write-downs (352,489) 1 1 (352,488) 43 A2A Separate financial statements 2021 “Construction in progress and advances” for an amount of 33,397 thousand euro; “Leasehold improvements” for 56 thousand euro. “Tangible assets” include “Construction in progress and advances” for 43,851 thousand euro (23,854 thousand euro at December 31, 2020), presenting an increase of 19,997 thousand euro resulting from the counter effects of the following items: the increase of 4,730 thousand euro following the extraordinary merger by incorporation of the subsidiary Linea Group Holding S.p.A., with effect from January 1, 2021; the increase of 33,397 thousand euro is mainly attributable to: for 20,263 thousand euro to works on buildings (mainly on the area of Piazza Trento in Milan, on the headquarters in via Lamarmora in Brescia and on the building in Cremona); for 12,965 thousand euro to interventions on plant and machinery, on the hydroelectric plants of the Calabria Unit (6,190 thousand euro), on the hydroelectric plants of the Mese and Udine Unit (3,871 thousand euro), on the plants of the Valtellina Unit (2,640 thousand euro) and to the improvement of other plants (264 thousand euro); the decrease due to the entry into operation amounted to 16,947 thousand euro and is attributable for 11,425 thousand euro to interventions on the production plants (of which 4,090 thousand euro on the Mese and Udine plants, 4,820 thousand euro for the hydroelectric plants of Calabria, 2,338 thousand euro on the plants in Valtellina as well as 177 thousand euro on other minor plants), 5,069 thousand euro for the New Cremona Technological Hub Lot and for 453 thousand euro the conclusion of works relating mainly to the buildings of the Mese and Udine plants. the decrease of 60 thousand euro due to other changes in the accounts. the decrease of 10 thousand euro due to the sale of electronic equipment; the decrease of 1,113 thousand euro following the write-down of electronic equipment that is no longer required for the Company’s activities. With regard to large-scale diversion hydroelectric concessions, it is noted that when they are converted into law (Law no. 12/2019) with amendments to Decree Law December 14, 2018, no. 135 (“Competitiveness Decree Law”), the Legislator intervened in article 11-quater with overall review of the regulations governing large-scale diversion hydroelectric concessions (> 3 MW), as explained in greater detail in paragraph “Regulatory Changes and Impacts on the Business Units of the A2A Group \- Generation and Trading Business Unit”. The Group is continuing to analyze the impact of regulatory amendments, also in light of the new regional regulations issued in 2020, and confirms, to date, that the amounts recognized in the financial statements for dry and wet works related to hydroelectric concessions are prudent and recoverable also in accordance with the new regulations. Tangible assets include “Assets for rights of use” totalling 54,731 thousand euro (55,578 thousand euro at December 31, 2020), recognized in accordance with IFRS 16 and for which the outstanding payable to lessors at December 31, 2021 amounted to 68,353 thousand euro (57,120 thousand euro at December 31, 2020). Below is a breakdown of “Assets for rights of use” deriving from operating and financial leases at December 31, 2021. It is specified that the Company has made use of the option provided for in paragraph 6 of the standard not to apply the provisions of paragraphs 22 to 49 of the standard to the following categories: a) short-term leases; b) leases whose underlying assets are of low value. It should also be noted, in accordance with paragraph 48 of the principle, that the company does not have assets for rights of use that meet the definition of property investment. thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 Increases Other changes Amort. Total changes Land 77 2 (14) (12) 65 Buildings 7,874 2,098 7,005 (913) (3,588) 2,504 12,476 Plant and machinery 44,025 (11) (5,334) (5,345) 38,680 Industrial and commercial equipment - 36 (2) 34 34 Vehicles 3,602 89 1,764 364 (2,343) (215) 3,476 Total 55,578 2,187 8,805 (558) (11,281) (3,034) 54,731 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 44 3 Notes 2) Intangible assets thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 Invest. Other changes Disposals net of provision Amort. Total changes Industrial patents and intellectual property rights 16,495 94 6,326 10,840 (9,875) 7,291 23,880 Concessions, licences, trademarks and similar rights 27,810 988 27,803 1,493 (18,858) 10,438 39,236 Goodwill 35,641 29,503 - 65,144 Assets in progress 18,648 158 12,287 (12,574) (2,541) (2,828) 15,978 Other intangible assets 2,225 2,356 (2,027) (408) (2,435) 2,146 Total intangible assets 100,819 33,099 46,416 (2,268) (2,541) (29,141) 12,466 146,384 “Tangible assets” amounted to 146,384 thousand euro (100,819 thousand euro at December 31, 2020) and show, net of the effect of non-recurring transactions positive for 33,099 thousand euro, an increase of 12,466 thousand euro resulting from the following transactions: capex for 46,416 thousand euro; other negative changes amounting to 2,268 thousand euro; disposal of assets, net of accumulated depreciation, for 2,541 thousand euro; depreciation for 29,141 thousand euro accounted for in the period. More specifically, capex during the period refer to the following: 6,326 thousand euro for “industrial patents and intellectual property rights” mainly concerning the development of information technology projects; 27,803 thousand euro for “concessions, licences, trademarks and similar rights” related to the purchase of software; 12,287 thousand euro for “intangible assets under construction”. Included in the total balance of “Intangible assets” are “Assets in progress” which amounted to 15,978 thousand euro (18,648 thousand euro as at December 31, 2020), resulting in a decrease of 2,670 thousand euro due to the combined effect of the following: the increase of 158 thousand euro following the extraordinary merger by incorporation of the subsidiary Linea Group Holding S.p.A., with effect from January 1, 2021; the increase of 12,287 thousand euro mainly relating to the development of new IT projects; the decrease of 12,574 thousand euro due to the transition to use of software and computer applications; the decrease of 2,541 thousand euro following the sale to A2A Energia S.p.A. of software (repricing project). For more in-depth information, refer to annex “2\. Statement of changes in intangible assets”. Goodwill thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 Invest. Reclass./ Other changes Disposals/Sales Write-down /Reversal Amort. Total changes Goodwill 35,641 29,503 65,144 Total goodwill 35,641 29,503 - - - - - - 65,144 Goodwill equal to 65,144 thousand euro at December 31, 2021 (35,641 thousand euro at December 31, 2020), was formed as a result of non-recurring transactions with third parties. The increase due to the effect of non-recurring transactions refers to the merger by incorporation of Linea Group Holding S.p.A., which led to the recognition of goodwill of 29,503 thousand euro allocated to the “A2A Ambiente” CGU, as was the case in the Consolidated Financial Statements as of December 31, 2020. 45 A2A Separate financial statements 2021 Goodwill has been allocated to the following CGUs, which for A2A S.p.A. correspond to investments in subsidiaries: “A2A Reti Gas” for 3,700 thousand euro, “A2A Gas” for 6,800 thousand euro, “A2A Calore” for 18,000 thousand euro and “A2A Ambiente” for 36,644 thousand euro. Under IAS 36 goodwill, an intangible asset with an indefinite useful life, is not amortized systematically but tested at least once a year (“Impairment Test”). As goodwill neither generates independent cash flow nor can it be sold separately, IAS 36 calls for a secondary audit of its recoverable amount, determining cash flows generated by a set of assets that constitute the business to which it belongs, i.e. the Cash Generating Unit (CGU). The verification of the recoverability of the recognized value, carried out as part of the broader Impairment Test activity of the various CGUs for the Consolidated Financial Statements, which includes the goodwill in question, as well as specific sensitivity analyzes carried out, confirmed recoverability thereof. 3) Shareholdings and other non-current financial assets Shareholdings in subsidiaries “Shareholdings in subsidiaries” amounted to 4,203,179 thousand euro (3,952,425 thousand euro at December 31, 2020). The following table shows the changes in the item: Shareholdings in subsidiaries thousands of euro TOTAL Balance at 12 31 2020 3,952,425 Effect of non-recurring transactions 188,344 Changes: \- acquisitions and capital increases 67,929 \- sales and decreases - \- reversals - \- write-downs (1,800) \- reclassifications - \- other changes (3,719) Total changes 62,410 Balance at 12 31 2021 4,203,179 The value of shareholdings in subsidiaries, net of the effect of non-recurring transactions for 188,344 thousand euro, a total increase of 62,410 thousand euro compared to the previous year-end. The merger by incorporation of Linea Group Holding S.p.A., with effect from January 1, 2021, following the acquisition of 49% of its share capital by means of the assignment of treasury shares, amounting to 2.75% of the share capital of A2A S.p.A., led to a net merger increase of 201,714 thousand euro and changes for the year totalling 53,820 thousand euro, broken down as follows: increase in the investment in A2A Energia S.p.A., now wholly owned by A2A S.p.A., of 25,506 thousand euro; increase in the investment in A2A Smart City S.p.A., now wholly owned by A2A S.p.A., of 5,234 thousand euro; recognition of the investment in LD Reti S.r.l., equal to 95.60% of the share capital, for 153,895 thousand euro; thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Shareholdings in subsidiaries 3,952,425 188,344 62,410 4,203,179 Shareholdings in affiliates 1,612 - (735) 877 Other non-current financial assets 1,476,272 (244,901) 103,307 1,334,678 1,468,848 1,312,273 Total shareholdings and other non-current financial assets 5,430,309 (56,557) 164,982 5,538,734 1,468,848 1,312,273 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 46 3 Notes recognition of the investment in Linea Green S.p.A., equal to 100.00% of the share capital, for 124,191 thousand euro; recognition of the investment in Linea Gestioni S.r.l., equal to 100.00% of the share capital, for 22,864 thousand euro; at December 31, 2021, the company was subject to an impairment test that led to a write-down of 1,800 thousand euro; recognition of the investment in Linea Ambiente S.r.l., equal to 100% of the share capital, with a negative valuation of 25,959 thousand euro due to the negative result of the company at December 31, 2020; during the year, a capital contribution was made to cover losses for 45,000 thousand euro, net of the use of a provision for risks on equity investments for 1,376 thousand euro; at December 31, 2021, the value of the investment was reduced by 1,037 thousand euro following the derecognition of the earn-out payable due at the end of the year for which the conditions for its realization were not met; recognition of the investment in Fragea S.r.l., equal to 100.00% of the share capital, for 245 thousand euro; increase in the investment in A2A Security S.c.p.A., now 45.96% owned by A2A S.p.A., for 1 thousand euro; decrease of 104,263 thousand euro in the investment in Linea Group Holding S.p.A., given the value of the investment at the end of the previous year, amounting to 106,385 thousand euro, net of the reclassification of payables for earn-out of 2,122 thousand euro; acquisition during the year of 100% of the share capital of AGRIPOWER S.r.l. for 10,155 thousand euro and subsequent capital contribution of 5,000 thousand euro. The merger by incorporation of Suncity Energy S.r.l., wholly owned by A2A S.p.A., led to a negative change of 4,275 thousand euro and the recognition of the investment in ES Energy S.r.l. for 5 thousand euro, representing 50% of the company’s share capital. In January, A2A S.p.A. acquired 100% of the investment in A2A Telecommunications S.r.l. from the subsidiary A2A Smart City S.p.A. for 9,100 thousand euro, after which the merger by incorporation of the acquired company into A2A S.p.A. took effect from February 1, 2021. The merger by incorporation of A2Abroad S.p.A. into A2A Ambiente S.p.A. took effect from January 1, 2021, resulting in a reclassification of 4,586 thousand euro in the value of investments in the financial statements of A2A S.p.A.. The liquidation of Plurigas S.p.A. was completed in June, resulting in a decrease of 560 thousand euro. ROMEO GAS S.p.A. was incorporated in October with fully paid-up share capital of 50 thousand euro. Further information regarding movements involving shareholdings in subsidiary companies may be found within annexes 3a and 4a to compare their book value and corresponding portions of net assets. Shareholdings in affiliates and joint ventures “Shareholdings in affiliates and joint ventures” amounted to 877 thousand euro (1,612 thousand euro as at December 31, 2020); the decrease of 735 thousand euro refers to: Investments in affiliates thousands of euro TOTAL Balance at 12 31 2020 1,612 Changes: \- reclassifications (735) \- other changes - Total changes (735) Balance at 12 31 2021 877 The negative change compared to December 31, 2020 refers to the reclassification, in application of the IFRS5 standard, to the item “Non-current assets held for sale” of the investment in the company Sviluppo Turistico Lago d’Iseo S.p.A., equal to 24.29% of the share capital, for which the company exercised the right of withdrawal for the share held, which will be effective in 2022. Further details regarding shareholdings in affiliates may be found in annexes 3/b and 4/b. 47 A2A Separate financial statements 2021 Impairment of shareholdings in subsidiaries, associates and joint ventures The recoverable value of shareholdings has been measured based on the present value of the corresponding expected net cash flows attributable to the shareholdings of A2A S.p.A.. The cash flows used are in line with those used for the Impairment Test of the CGU for the consolidated financial statements. The same applies to the methodological approach and discount rates adopted further detailed in the Consolidated Annual Financial Report (note 2). It shall be recalled that the Impairment Test is carried out for all shareholdings which have a carrying value higher than the corresponding fraction of shareholders’ equity of competence and/or in the presence of specific impairment indicators. During the year under review, the results of the impairment test led to a write-down of the investment in Linea Gestioni S.r.l. of 1,800 thousand euro, as shown in the table below. In the previous year, no investment had required any write-down/reversal. Participations Pre-impairment test book value in million of euro at 12 31 2021 WACC Growth rate g Recoverable value (use value) in millions of euro at 12 31 2021 Write-down Linea Gestioni S.r.l. 22.8 5.3% 0.0 21.0 (1.8) Other non-current financial assets “Other non-current financial assets” amounted to 1,334,678 thousand euro (1,476,272 thousand euro at December 31, 2020), of which: financial assets measured at amortized cost (HTC) for 1,312,273 thousand euro (1,468,848 thousand euro at December 31, 2020), which refer: for 1,298,289 thousand euro (1,468,752 thousand euro at December 31, 2020) to financial assets with related parties. This item refers to loans to subsidiaries, the significant decrease of which is due in particular to the merger of Linea Group Holding into A2A S.p.A. during the year and to the reclassification of the short-term portion of these loans to the item Current financial assets, partially offset by the granting of new intra-group loans; financial receivables related to rights of use in accordance with IFRS16 (subleases) from subsidiaries for 9,449 thousand euro (no value at December 31, 2020); for 4,439 thousand euro (no value at December 31, 2020) to financial assets from third parties related to a non-interest-bearing loan granted during the year to the company Sinergie Italiane S.r.l. in liquidation; other securities for 96 thousand euro (96 thousand euro at December 31, 2020), related to other government securities; financial assets measured at fair value through profit or loss (FVTPL) for 4,988 thousand euro (897 thousand euro at December 31, 2020), relating to minority interests; other financial assets of 17,417 thousand euro (6,527 thousand euro at December 31, 2020) relating to shareholdings in innovative start-ups through corporate venture capital projects. 4) Deferred tax assets thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 Deferred tax assets 41,586 18 61,281 102,885 The item, equal to 102,885 thousand euro, includes the net effect, as detailed in the table below to which reference is made, of deferred tax liabilities and deferred tax assets as per corporate income tax (IRES) and regional tax (IRAP) as well as provisions made solely for tax purposes. The recoverability of “Deferred tax assets” recorded in the financial statements for IRES purposes is considered likely, as the future plans envisage IRES taxable income sufficient for the absorption of the temporary differences that will be reversed at tax consolidation level. Deferred tax assets are calculated using the tax rate applicable at the time of repayment. For IRES purposes, the recoverability of “Deferred tax assets” recorded in the financial statements is considered likely, as the future Business Plans of the A2A Group envisage taxable income sufficient to use the deferred tax assets on a consolidated basis in accordance with articles 117-129 of Presidential Decree 917/1986, in which the company acts as consolidating company. For IRAP purposes, the recoverability of “Deferred tax assets” recorded in the financial statements was assessed on the basis of the company’s future Business Plan: for the years of the plan between 2022 and 2030, IRAP taxable income is expected to be sufficient to absorb the IRAP temporary differences, and therefore the related IRAP deferred tax assets and liabilities were maintained. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 48 3 Notes During the year, deferred tax liabilities were released totalling 65,569 million euro and a substitute tax of 7,037 thousand euro was recognized following the realignment option provided by Decree Law 104/2020, exercised by the company, which allowed the realignment of the differences between higher statutory values and lower values for tax purposes on tangible assets and the consequent deduction of higher tax amortization starting from the current year. Deferred tax assets are calculated using the tax rate applicable at the time of repayment. At December 31, 2021, the amounts relative to deferred tax assets/deferred tax liabilities have been expressed as net (“offsetting”) as per IAS 12 standards. This item is detailed within the table below: thousands of euro Balance at 12 31 2021 Operations non-recurring transactions Balance at 12 31 2020 Value differences of tangible assets 43,868 3 114,412 Measurement differences of intangible assets 3,185 696 2,557 Deferred capital gains 8 \- 8 Other deferred tax liabilities 4,057 370 4,294 IFRS 5 reclassification (4,245) \- - Deferred tax liabilities (A) 46,873 1,069 121,271 Taxed risk provisions 45,017 235 43,622 Amortization, depreciation and write-downs 49,526 126 54,810 Bad debts provision 1,994 1 2,550 Provisions and employee benefits 21,393 213 12,152 Goodwill 42,596 39 47,338 Other deferred tax assets (10,688) 473 2,385 IFRS 5 reclassification (80) \- - Deferred tax assets (B) 149,758 1,087 162,857 Net effect deferred tax assets (B-A) 102,885 18 41,586 For further details and information, please refer to the item “Expenses for income tax” on the income statement. 5) Other non-current assets “Other non-current assets” presented a balance of 13,054 thousand euro (11,918 thousand euro at December 31, 2020), a decrease of 465 thousand euro with respect to the previous year, net of non-recurring transactions, positive for 1,601 thousand euro and consist mainly of security deposits with third parties. thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Other non-current assets 11,918 1,601 (465) 13,054 Total other non-current assets 11,918 1,601 (465) 13,054 - - 49 A2A Separate financial statements 2021 CURRENT ASSETS 6) Inventories thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 \- Materials and spare parts 1,332 114 (177) 1,269 \- Material obsolescence provision (670) (10) 30 (650) Total materials 662 104 (147) 619 \- Fuel 63,639 16 39,593 103,248 Total raw and ancillary materials and consumables 64,301 120 39,446 103,867 Total inventory 64,301 120 39,446 103,867 At December 31, 2021, inventories amounted to 103,867 thousand euro (64,301 thousand euro at December 31, 2020); changes for the period are positive for 39,446 thousand euro, net of the effect of non-recurring transactions positive for 120 thousand euro, and refer to the increase in gas inventories compared to the end of the previous year, which reflects the trend in fuel prices. Raw and ancillary materials and consumables consist of inventories of: materials and spare parts amounting to 619 thousand euro, net of relative provisions for obsolescence for 650 thousand euro; fuels, amounting to 103,248 thousand euro, which include gas inventories arising from the sale and storage of gas, as well as inventories of fuels for the production of electricity. 7) Trade receivables thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 Trade receivables \- invoices issued 36,304 3,567 95,982 135,853 Trade receivables \- invoices to be issued 841,934 14,837 1,167,347 2,024,118 Bad debts provision (6,122) (26) 1,686 (4,462) Total trade receivables 872,116 18,378 1,265,015 2,155,509 At December 31, 2021, trade receivables amounted to 2,155,509 thousand euro (872,116 thousand euro at December 31, 2020), with an increase of 1,265,015 thousand euro, net of the effect of non-recurring transactions positive for 18,378 thousand euro. These receivables include: for 1,217,907 thousand euro receivables from customers (487,237 thousand euro at December 31, 2020); for 937,602 thousand euro receivables from subsidiaries, controlling entities and associates (384,879 thousand euro at December 31, 2020). The increase in trade receivables is primarily linked to the rise in prices on both the electricity and gas wholesale markets, as well as to the growth in volumes sold. At December 31, 2021, the bad debt provision, calculated in accordance with IFRS 9, amounted to 4,462 thousand euro, representing a decrease of 1,686 thousand euro, net of the effect of non-recurring transactions totalling 26 thousand euro. This provision is considered adequate to cover the risks to which it relates. The detailed changes in the provisions to adjust the values of receivables are outlined in the following table: thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Provisions Uses Other changes Balance at 12 31 2021 Bad debts provision 6,122 26 (1,643) (43) - 4,462 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 50 3 Notes The following is the aging of trade receivables: thousands of euro Balance at 12 31 2020 Balance at 12 31 2021 Trade receivables of which: 872,116 2,155,509 Current 27,101 125,039 Past due of which: 9,203 10,814 \- Up to 30 days past due 2,646 5,612 \- 31 to 180 days past due 559 794 \- 181 to 365 days past due 56 1,071 \- Over 365 days past due 5,942 3,337 Invoices to be issued 841,934 2,024,118 Bad debts provision (6,122) (4,462) 8) Other current assets thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Current derivatives 425,952 - 3,311,246 3,737,198 - - Other current assets of which: 79,582 10,710 84,880 175,172 \- - \- advances to suppliers 616 10 29,794 30,420 \- receivables from employees 194 - (20) 174 \- tax receivables 7,280 5 4,765 12,050 \- receivables from subsidiaries for tax consolidation 54,171 5,351 15,327 74,849 \- receivables related to future years 6,967 70 3,230 10,267 \- receivables from social security entities 829 - (31) 798 \- receivables from stamp office 123 - - 123 \- receivables for damage compensation 62 - (54) 8 \- receivables for security deposits 1,341 110 34,562 36,013 \- other sundry receivables 7,999 5,164 (2,693) 10,470 Total other current assets 505,534 10,710 3,396,126 3,912,370 - - “Other current assets” presented a balance of 3,912,370 thousand euro (505,534 thousand euro at December 31, 2020), an increase of 3,396,126 thousand euro with respect to the previous year, net of non-recurring transactions, positive for 10,710 thousand euro. “Current derivative instruments” amounting to 3,737,198 thousand euro (425,952 thousand euro at December 31, 2020) refer to the fair value valuation of commodity derivatives at the end of the year under review. The increase is related to the significant differentials between subscription prices and forward prices, influenced by price volatility in commodity markets despite a significant reduction in overall volumes traded during the year. It should be noted that “Other current liabilities” include 3,708,394 thousand euro in “Current derivatives”. “Advances to suppliers” of 30,420 thousand euro (616 thousand euro at December 31, 2020) refer to prepayments on gas purchases. “Tax receivables”, amounting to 12,050 thousand euro (7,280 thousand euro at December 31, 2020) refer to tax credits relating to district heating acquired by the subsidiary A2A Calore & Servizi S.r.l. for 6,983 thousand euro, receivables from the tax authorities for excise duties for 2,110 thousand euro, receivables for VAT for 1,010 thousand euro, a tax credit from the tax authorities for research and development activities recognized for the purposes provided for by article 3 of Decree Law no. 145 of December 23, 2013 and the Decree of May 27, 2015 issued by the Minister of Economy and Finance in agreement with the Minister of Economic Development for 1,547 thousand euro, to a tax credit from the tax authorities 51 A2A Separate financial statements 2021 for sanitization and the purchase of protection devices pursuant to article 125 of Decree Law 34/2020 (Relaunch Decree) for 26 thousand euro, tax credits for ecobonus acquired by the subsidiary A2A Energy Solution S.r.l. for 173 thousand euro, as well as other receivables for 201 thousand euro. “Receivables from subsidiaries for tax consolidation” and Group VAT amounted to 74,849 thousand euro (54,171 thousand euro at December 31, 2020). “Receivables for guarantee deposits” of 36,013 thousand euro (1,341 thousand euro at December 31, 2020) mainly refer to the deposit with the Electricity Market Operator (GSE) for operations on the electricity market. Receivables from Ergosud S.p.A., amounting to 1,903 thousand euro (2,175 thousand euro at the end of the previous year), refer to the receivable due for new entry plants (Scandale Plant), regarding portions of emission allowances as provided by ARERA Resolutions no. ARG/elt no. 194/10 and no. 117/10. Other sundry receivables include prepayments on electricity and gas futures contracts, the effects of which will manifest in the following financial year, as well as receivables relating to the sale of the equity investment in Ge.S.I. S.r.l. 9) Current financial assets thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Other financial assets - 4,486 (1,180) 3,306 - 3,306 Other financial assets from related parties 412,777 53,726 735,165 1,201,668 412,777 1,201,668 Total current financial assets 412,777 58,212 733,985 1,204,974 412,777 1,204,974 “Current financial assets” amounted to 1,204,974 thousand euro (412,777 thousand euro at December 31, 2020) and show an increase, net of the effect of non-recurring transactions, positive for 58,212 thousand euro, of 733,985 thousand euro and refer: for 1,204,078 thousand euro to “Loans and receivables originated by HTC (Hold to Collect)”: (412,777 thousand euro at December 31, 2020); from subsidiaries 1,200,772 thousand euro (412,777 thousand euro at December 31, 2020) for both the balance of intra-group current accounts on which interest rates are applied, at market conditions, with a variable Euribor basis with specific spreads for companies and for the current portion of loans granted to subsidiaries. The increase is mainly related to the increase in the current accounts of the subsidiaries A2A Ambiente S.p.A., Unareti S.p.A., A2A Energia S.p.A. and A2A Rinnovabili S.p.A.; from third parties 3,306 thousand euro, no value at December 31, 2020, related to financial receivables from Seca S.p.A. shareholders for payment of the consideration for the sale of the investment; for 896 thousand euro “IFRS 16 financial receivables (subleases)” from subsidiaries (no value at December 31, 2020). 10) Current tax assets thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 Current tax assets 62,592 2,786 (4,786) 60,592 At December 31, 2021, this item amounted to 60,592 thousand euro (62,592 thousand euro at December 31, 2020) and refers to IRAP receivables (10,202 thousand euro), IRES receivables (49,061 thousand euro), relating to both current IRES of the period and IRES for amounts requested for reimbursement on payments of previous years, and the remaining credit for Robin Tax (1,299 thousand euro) paid in previous years and that will be recovered in subsequent years from foreign tax authorities (30 thousand euro). 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 52 3 Notes 11) Cash and cash equivalents thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Cash and cash equivalents 947,294 969 (61,909) 886,354 947,294 886,354 “Cash and cash equivalents” at December 31, 2021 amounted to 886,354 thousand euro (947,294 thousand euro at December 31, 2020), with a decrease of 61,909 thousand euro compared with the end of the previous year, net of the effect of non-recurring transactions, positive for 969 thousand euro. Bank deposits include accrued interest not yet credited by the end of the period. Cash and cash equivalents at December 31, 2021 are free from any kind of restriction, block, even temporary, and pledge. 12) Non-current assets held for sale thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Non-current assets held for sale 466 - 46,322 46,788 - - The item “Non-current assets held for sale” at December 31, 2021 amounted to 46,788 thousand euro (466 thousand euro at December 31, 2020) and includes the reclassification of tangible assets regarding the properties located in Milan in Corso di Porta Vittoria (Signora), in Via Gonin and in Via Balduccio da Pisa (Orobia), which have been sold in February 2022, net of depreciation and deferred taxes related to them, as well as the reclassification of the equity investment, equal to 24.29% of the share capital, in the company Sviluppo Turistico Lago d’Iseo S.p.A., for which the company exercised its right of withdrawal. At December 31, 2020, this item amounted to 466 thousand euro and referred to the reclassification of the investment in Ge.S.I. S.r.l., equal to 47% of the share capital, following the exercise of the put option subscribed on November 23, 2020 of the entire investment, the sale of which took place in September 2021. 53 A2A Separate financial statements 2021 EQUITY AND LIABILITIES EQUITY Equity, which at December 31, 2021 amounted to 3,332,380 thousand euro (3,176,611 thousand euro at December 31, 2020), is set forth within the following table: thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 Equity Share capital 1,629,111 - - 1,629,111 (Treasury shares) (53,661) 162,407 (108,746) - Reserves 1,055,432 (136,388) 298,747 1,217,791 Result of the year 545,729 - (60,251) 485,478 Equity 3,176,611 26,019 129,750 3,332,380 13) Share capital At December 31, 2021, the “Share capital” amounted to 1,629,111 thousand euro and is comprised of 3,132,905,277 ordinary shares with a unitary value of 0.52 euro each. 14) Treasury shares “Treasury shares” had no value at December 31, 2021 (53,661 thousand euro at December 31, 2020). At December 31, 2020, the treasury shares held by A2A S.p.A. were 23,721,421, amounting to 53,661 thousand euro. During the second quarter of 2021, the company purchased treasury shares for a value of 108,746 thousand euro, by virtue of the share buyback program initiated on May 13, 2021 and concluded on June 24, 2021, thus coming to hold 86,154,895 treasury shares, equal to 2.75% of the share capital. The company then proceeded to acquire 49% of the share capital of Linea Group Holding S.p.A. by assigning these treasury shares to minority shareholders. 15) Reserves thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 Reserves of which: 1,055,432 (136,388) 298,747 1,217,791 Change in the fair value of cash flow hedge derivatives and Bond fair value (6,949) (1) 47,084 40,134 Tax effect 1,040 - (13,498) (12,458) Reserves of cash flow hedges and fair value bonds (5,909) (1) 33,586 27,676 Change in the IAS 19 Revised reserve \- Employee Benefits (42,157) (870) (31,066) (74,093) Tax effect 12,157 209 9,128 21,494 IAS 19 Revised reserve \- Employee Benefits (30,000) (661) (21,938) (52,599) “Reserves”, which at December 31, 2021 amounted to 1,217,791 thousand euro (1,055,432 thousand euro at December 31, 2020), were positive for 298,747 thousand euro, net of the effect of non-recurring transactions negative for 136,388 thousand euro, mainly due to the allocation of the profit for the year 2020, net of dividends distributed. This item includes the following unavailable reserves: for 81,605 thousand euro the reserve arising from the corporate separation occurred in 1999\. Such reserve will be available for distribution in portions in the following years based on the amortization carried out by the receiving company on the higher values determining capital gains from contribution; 27,676 thousand euro for the positive cash flow hedge reserve including the fair value of hedging derivatives and bonds in foreign currency, net of tax; 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 54 3 Notes for 52,599 thousand euro, the negative reserve arising from the adoption of IAS 19 Revised \- Employee Benefits which requires actuarial profits and losses to be recognized directly in an equity reserve, net of the tax effect. for 462 thousand euro, the negative available-for-sale reserve including the fair value of certain available-for-sale shareholdings net of the tax effect; for 282,065 thousand euro, the legal reserve, whose increase of 27,286 thousand euro compared with the previous year derives from the allocation of profit for the previous year. It shall be noted that the company opted, pursuant to L.D. 104/2020, for the realignment of differences between the higher statutory value and the lower tax value of tangible assets via payment of a substitute tax equal to 3% of the realigned value in three annual installments. The company’s reserves are therefore subject to a tax suspension restriction amounting to 227,530 thousand euro, calculated as the difference between the realigned value and the substitute tax due. The distribution of these reserves or their allocation to uses other than loss coverage will result in taxation of the same. The additional reserves and the profits that in case of distribution must be considered as IRES tax suspension amounted to 34,419 thousand euro. It should be noted that during 2021, dividends amounting to 247,698 thousand euro corresponding to 0.08 euro per share were distributed, as approved by the shareholders’ meeting on April 29, 2021. 16) Net result of the year Positive result for 485,478 thousand euro. LIABILITIES NON-CURRENT LIABILITIES 17) Non-current financial liabilities thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Non-convertible bonds 2,690,035 - 489,550 3,179,585 2,690,035 3,179,585 Payables to banks 834,439 - (79,416) 755,023 834,439 755,023 Payables to other lenders 199,807 - 31 199,838 199,807 199,838 Non-current financial payables for rights of use to third parties 5,816 11,361 706 17,883 5,816 17,883 Non-current financial payables for rights of use to related parties 41,191 853 (3,133) 38,911 41,191 38,911 Total non-current financial liabilities 3,771,288 12,214 407,738 4,191,240 3,771,288 4,191,240 “Non-current financial liabilities” amounted to 4,191,240 thousand euro (3,771,288 thousand euro at December 31, 2020), an increase of 407,738 thousand euro, net of the effect of non-recurring transactions positive for 12,214 thousand euro. “Non-convertible bonds” amounting to 3,179,585 thousand euro (2,690,035 thousand euro at December 31, 2020) relate to the following bonds, which are accounted for at amortized cost: 299,702 thousand euro, Private Placement maturing in December 2023 and coupon of 4.00%, the nominal value of which is equal to 300,000 thousand euro; 299,675 thousand euro, Private Placement maturing in March 2024 and coupon of 1.25%, the nominal value of which is equal to 300,000 thousand euro; 298,660 thousand euro, maturing in February 2025 and coupon of 1.75%, the nominal value of which is equal to 300,000 thousand euro; 296,831 thousand euro, maturing in October 2027 and coupon of 1.625%, the nominal value of which is equal to 300,000 thousand euro; 107,029 thousand euro, Private Placement in yen maturing in August 2036 and fixed rate of 5.405%, the nominal value of which is equal to 14 billion yen; 55 A2A Separate financial statements 2021 394,801 thousand euro, maturing in July 2029 and coupon of 1.00%, the nominal value of which is equal to 400,000 thousand euro; 493,143 thousand euro, maturing in October 2032 and coupon of 0.625%, the nominal value of which is equal to 500,000 thousand euro; 495,603 thousand euro, maturing in July 2031 and coupon of 0.625%, the nominal value of which is equal to 500,000 thousand euro; 494,141 thousand euro, maturing in November 2033 and coupon of 1%, the nominal value of which is equal to 500,000 thousand euro. The increase in the non-current component of “Non-convertible bonds” of 489,550 thousand euro compared to December 31, 2020 was due to the counter effect of the subscription of the new bonds maturing in 2031 and 2033 (both with nominal value 500,000 thousand euro recorded net of amortized cost), partly offset by the reclassification to “Current financial liabilities” of the bond maturing in 2022 (499,358 thousand euro) and the decrease in the ECB exchange rate applied to the yen bond. Non-current “Payables to banks” amounted to 755,023 thousand euro (834,439 thousand euro at December 31, 2020) and showed a net decrease of 79,416 thousand euro compared to the end of the previous year due to the installments repaid during the year and consequent reclassification in current liabilities of the capital installments maturing in 2022. “Payables to other lenders” amounted to 199,838 thousand euro (199,807 thousand euro at December 31, 2020) and refer to a loan granted by the Cassa Depositi e Prestiti. “Financial payables for non-current rights of use”, in application of IFRS 16 for leases previously classified as operating, both to third parties and related parties, amounted to 56,794 thousand euro, with a decrease of 2,427 thousand euro compared to the end of the previous year, net of the effect of non-recurring transactions positive for 12,214 thousand euro. The following table shows the comparison, for each long-term debt category, between the book value and the fair value, including the portion falling due in the next 12 months. For listed debt instruments, the fair value is determined using stock prices, while for unlisted securities the fair value is determined using valuation models for each category of financial instrument and using market data relating to the closing date of the financial year, including the credit spreads of A2A S.p.A.. thousands of euro Nominal value Book value Current portion Non-current portion Fair Value Bonds 3,698,000 3,713,032 533,447 3,179,585 3,761,772 Loans Loans and Other lenders 1,034,818 1,034,025 79,164 954,861 1,040,471 Total 4,732,818 4,747,057 612,611 4,134,446 4,802,243 18) Employee benefits “Employee Benefits” amounted to 149,175 thousand euro (122,952 thousand euro at December 31, 2020) with changes as follows: thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Accruals Uses Other changes Balance at 12 31 2021 Employee leaving entitlement (TFR) 24,077 1,820 6,886 (2,705) (6,674) 23,404 Employee benefits 98,875 258 - (4,703) 31,341 125,771 Total employee benefits 122,952 2,078 6,886 (7,408) 24,667 149,175 The change in the item, net of the effect of non-recurring transactions positive for 2,078 thousand euro, is attributable for 6,886 thousand euro to provisions for the period, for 7,408 thousand euro to the decrease due to the disbursements of the year and for 24,667 thousand euro to the net increase referred to actuarial valuations, deriving from the combined effect of the increase for interest cost equal to 763 thousand euro, of the increase for actuarial gains/losses equal to 30,924 thousand euro, mainly due to the increase in electricity costs, net of other negative changes for 7,020 thousand euro. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 56 3 Notes Technical valuations were carried out on the basis of the following assumptions: 2021 2020 Discount rate from -0.17% to 0.98% from -0.3% to 0.3% Annual inflation rate 1.75% 0.80% Annual seniority bonus increase rate 2.0% 2.0% Annual additional months increase rate 0.0% 0.0% Annual cost of electricity increase rate 2.0% 2.0% Annual cost of gas increase rate 0.0% 0.0% Annual salary increase rate 1.0% 1.0% Annual TFR increase rate 2.8125% 2.1% Average annual increase rate of supplementary pensions 1.125% 1.1% Annual turnover frequencies 5.0% 5.0% Annual TFR advance frequencies 2.0% 2.0% It is noted that: the annual discount rate used to determine the present value of the bond has been derived, in line with paragraph 83 of IAS 19, from the Iboxx Corporate AA index recognized at the measurement date. For this purpose, the yield with duration comparable to the duration of the work group evaluated was chosen; the annual rate of salary increase applied exclusively to companies with fewer than 50 employees on average in 2006 was determined on the basis of the reference data communicated by Group companies; the annual rate of TFR increase, according to art. 2120 of the Civil Code, is equal to 75% of inflation plus 1.5 percentage points; the annual advance and turnover frequencies are derived from historical experiences of the Group and the frequencies arising from the experience of the Actuary on a significant number of similar companies; for the demographic technical bases, it is noted that: for “death”, the tables TG62 (Premungas) AS62 (Electricity and gas discount) and RG48 (other plans) were used; for “inability”, the INPS tables divided by age and gender were used; for “retirement”, the 100% parameter was used upon reaching the requirements of AGO (Obligatory General Insurance) in accordance with LD no. 04/2019; for the “probability of leaving the family”, the table in the INPS model was used for projections to 2010 updated; for the “frequency of the various structures of surviving nuclei and average age of members”, the table in the INPS model was used for projections to 2010. As required by IAS 19, the sensitivity for post-employment employee benefit obligations is outlined below: thousands of euro Turnover rate +1.00% Turnover rate -1.00% Inflation rate +0.25% Inflation rate -0.25% Discount rate +0.25% Discount rate -0.25% TFR 22,963 23,261 23,340 22,875 22,732 23,490 thousands of euro Discount rate +0.25% Discount rate -0.25% Mortality table increased by 10% Mortality table decreased by 10% Premungas 15,127 15,617 14,545 16,295 Electricity and gas discount 102,737 108,747 108,902 102,707 Additional months 2,752 2,871 n.s. n.s. 57 A2A Separate financial statements 2021 19) Provisions for risks, charges and liabilities for landfills thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Provisions Releases Uses Other changes Balance at 12 31 2021 Decommissioning provisions 7,211 - 66 - (852) 357 6,782 Tax provisions 500 - 2,113 - - - 2,613 Personnel lawsuits and disputes provisions 14,388 8 1,000 (892) (121) (585) 13,798 Other risk provisions 82,494 2,914 15,937 (4,363) (3,393) (15,351) 78,238 Provisions for risks, charges and liabilities for landfills 104,593 2,922 19,116 (5,255) (4,366) (15,579) 101,431 “Decommissioning provisions”, which amounted to 6,782 thousand euro, include charges for costs of dismantling and recovery of production sites related to hydroelectric plants of Valtellina and Calabria. Changes in this item regard provisions of 66 thousand euro, uses of 852 thousand euro and other increases of 357 thousand euro, which refer to the revision of the discount rates used to estimate future charges. “Tax Provisions”, which amounted to 2,613 thousand euro, refer to provisions for pending or potential litigation with the tax authorities or territorial entities for levies and direct and indirect taxes. Changes regarded provisions of 2,113 thousand euro. The “Personnel lawsuits and disputes provisions” amounted to 13,798 thousand euro and refer to lawsuits pending with social security institutions, for contributions not paid for 998 thousand euro, to lawsuits with third parties for 12,499 thousand euro and with employees for 301 thousand euro, to cover the liabilities that could arise from litigations in progress. Changes during the period regard provisions of 1,000 thousand euro, releases of 892 thousand euro, uses of 121 thousand euro and other negative changes of 585 thousand euro. “Other risk provisions” of 78,238 thousand euro refer to provisions relating to public water derivation fees for 55,344 thousand euro, provisions for contractual expenses for 14,717 thousand euro, to the mobility provision for the costs arising from the corporate restructuring plan for 570 thousand euro, as well as other provisions for risks for 7,607 thousand euro. Changes during the period regard provisions of 15,937 thousand euro, uses of 3,393 thousand euro, releases of 4,363 thousand euro and other decreases of 15,351 thousand euro. 20) Other non-current liabilities thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Other non-current liabilities 5,595 9 (2,149) 3,455 - - Non-current derivatives 18,221 - (7,619) 10,602 18,221 10,602 Total other non-current liabilities 23,816 9 (9,768) 14,057 18,221 10,602 “Other non-current liabilities” amounted to 14,057 thousand euro and refer to: “Non-current derivative instruments” of 10,602 thousand euro (18,221 thousand euro at December 31, 2020), which refer to the fair value of financial derivatives to hedge interest rate risk on variable rate mortgages; “Other non-current liabilities to third parties” amounted to 3,455 thousand euro (5,595 thousand euro at December 31, 2020), of which: “Other non-current payables” totalling 3,354 thousand euro (5,496 thousand euro at December 31, 2020), which refer to payables linked to Long Term Service Agreements relating to plant maintenance; “Security deposits” of 101 thousand euro (99 thousand euro at December 31, 2020). 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 58 3 Notes At the end of the previous year, this item included 2,142 thousand euro relating to the payable linked to earn-out clauses towards the minority shareholders of LGH S.p.A. which was reclassified as a reduction of the investment following the merger between A2A S.p.A. and LGH S.p.A. at the end of the year under review, as described in greater detail in the section “Significant events during the year” in the 2021 Report on Operations. CURRENT LIABILITIES 21) Trade payables and other current liabilities thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Advances 8 - 985 993 Payables to suppliers 626,562 7,591 1,106,972 1,741,125 Trade payables to related parties of which: 223,567 436 206,745 430,748 \- subsidiaries 180,455 436 184,316 365,207 \- joint ventures 43,056 - 22,328 65,384 \- associates - - 1 1 \- Municipalities of Milan and Brescia 56 - 100 156 Total trade payables 850,137 8,027 1,314,702 2,172,866 - - Payables to pension and social security institutions 13,892 260 497 14,649 Current derivatives 403,141 1 3,305,252 3,708,394 Other current liabilities of which: 103,813 7,600 322,453 433,866 \- payables to employees 22,079 1,011 995 24,085 \- payables to Cassa per i Servizi Energetici e Ambientali 3 - (3) - \- tax payables 14,796 239 29,693 44,728 \- payables to subsidiaries for tax consolidation 29,967 4,669 14,168 48,804 \- payables for tax transparency 7,167 - - 7,167 \- payables to third-party shareholders - - 362 362 \- payables for liabilities of competence of the following year 52 98 (21) 129 \- payables for collections to be allocated 7,434 1 1,809 9,244 \- sundry payables 22,315 1,582 275,450 299,347 Total other current liabilities 520,846 7,861 3,628,202 4,156,909 - - Total trade payables and other current liabilities 1,370,983 15,888 4,942,904 6,329,775 - - “Trade payables and other current liabilities” amounted to 6,329,775 thousand euro (1,370,983 thousand euro at December 31, 2020) and show an overall increase of 4,942,904 thousand euro, net of the effect of non-recurring transactions positive for 15,888 thousand euro. “Trade payables” amounted to 2,172,866 thousand euro and include advances for 993 thousand euro, debt exposure to third-party suppliers (1,741,125 thousand euro) and trade payables to related parties (430,748 thousand euro). “Payables to social security institutions” amounted to 14,649 thousand euro and relate to the company’s debt position with social security and pension institutions, related to contributions of the month of December not yet paid. “Current derivative instruments” amounted to 3,708,394 thousand euro and refer to the fair value valuation of derivatives. The increase is related to the significant differentials between subscription prices and forward prices, influenced by price volatility in commodity markets despite a significant reduction in overall volumes traded during the year. It should be noted that “Other current assets” include 3,737,198 thousand euro in “Current derivative instruments”. 59 A2A Separate financial statements 2021 “Other current liabilities” amounting to 433,866 thousand euro (103,813 thousand euro at December 31, 2020) mainly refer to: Group “payables to subsidiaries for tax consolidation” amounting to 48,804 thousand euro (29,967 thousand euro at December 31, 2020); “payables to employees” for 24,085 thousand euro (22,079 million euro at December 31, 2020), relating to payables to employees for the productivity bonus accrued during the year, as well as the expense for holidays accrued but not taken at December 31, 2021; “tax payables” amounting to 44,728 thousand euro (14,796 thousand euro at December 31, 2020) essentially regarding VAT payables, payables for water diversion fees, as well as payables to the tax authorities for withholding tax and excise duties; “payables for fiscal transparency” for 7,167 thousand euro (7,167 thousand euro at December 31, 2020) to the associate Ergosud S.p.A.; other payables relating to the advance collection of electricity and gas futures contracts, the economic effect of which will be seen in the following year, amounting to 276,354 thousand euro (17,601 thousand euro at December 31, 2020). 22) Current financial liabilities thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 of which included in the NFP 12 31 2020 12 31 2021 Non-convertible bonds 397,603 - 135,844 533,447 397,603 533,447 Payables to banks 79,124 - 40 79,164 79,124 79,164 Financial payables to related parties 393,047 24,300 (59,781) 357,566 393,047 357,566 Current financial payables for rights of use to third parties 4,477 1,158 (22) 5,613 4,477 5,613 Current financial payables for rights of use to related parties 5,636 80 230 5,946 5,636 5,946 Total current financial liabilities 879,887 25,538 76,311 981,736 879,887 981,736 “Current financial liabilities” amounted to 981,736 thousand euro and show an overall increase of 76,311 thousand euro, net of the effect of non-recurring transactions positive for 25,538 thousand euro. “Non-convertible bonds” amounted to 533,447 thousand euro and show a positive change of 135,844 thousand euro, due to the reclassification from “Non-current financial liabilities” of the bond maturing in January 2022\. At December 31, 2021, the calculation of interest coupons amounted to 33,469 thousand euro (46,165 thousand euro at December 31, 2020). Current “Payables to banks”, totalling 79,164 thousand euro, rose by 40 thousand euro during the period, primarily due to the change in accrued interest and amortized cost on lines of credit. “Financial payables to related parties” amounted to 357,566 thousand euro with a decrease of 59,781 thousand euro, net of the effect of positive extraordinary transactions for 24,300 thousand euro and relate to intra-group current accounts on which rates are applied at market conditions, with variable Euribor base with specific spreads for companies. “Financial payables for current rights of use”, in application of IFRS 16 for leases previously classified as operating leases, both to third parties and to related parties amounted to 11,559 thousand euro, an increase of 208 thousand euro compared with the end of the previous year, net of the positive effect of non-recurring transactions for 1,238 thousand euro. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 60 3 Notes 23) Tax liabilities thousands of euro Balance at 12 31 2020 Effect of non-recurring transactions Changes Balance at 12 31 2021 Tax liabilities - - 5,935 5,935 At December 31, 2021, tax liabilities amounted to 5,935 thousand euro (no value at December 31, 2020) and refer to both the substitute tax recorded following the realignment pursuant to L.D. 104/2020, net of the portion paid during the year, and to the recognition of current IRAP for 2021\. 61 A2A Separate financial statements 2021 3.7 Net debt 24) Net debt (pursuant to CONSOB Communication no. DEM/6064293 of July 28, 2006 and ESMA/2013/319) The following table provides details of net debt. thousands of euro Notes 12 31 2021 Effect of non-recurring transactions 12 31 2020 Bonds \- non-current portion 17 3,179,585 - 2,690,035 Bank loans \- non-current portion 17 755,023 - 834,439 Non-current payables to other lenders 17 199,838 - 199,807 Non-current financial payables for rights of use 17 56,794 12,214 47,007 Other non-current liabilities 20 10,602 - 18,221 Total medium/long-term debt 4,201,842 12,214 3,789,509 Non-current financial assets \- related parties 3 (1,307,738) 249,170 (1,468,752) Non-current financial assets 3 (4,535) - (96) Total medium/long-term financial receivables (1,312,273) 249,170 (1,468,848) Total non-current net debt 2,889,569 261,384 2,320,661 Bonds \- current portion 22 533,447 - 397,603 Bank loans \- current portion 22 79,164 - 79,124 Current financial payables for rights of use 22 11,559 1,238 10,113 Current financial payables to related parties 22 357,566 24,300 393,047 Total short-term debt 981,736 25,538 879,887 Other current financial assets 9 (3,306) (4,486) - Current financial assets \- related parties 9 (1,201,668) (53,726) (412,777) Total short-term financial receivables (1,204,974) (58,212) (412,777) Cash and cash equivalents 11 (886,354) (969) (947,294) Total current net debt (1,109,592) (33,643) (480,184) Net financial debt 1,779,977 227,741 1,840,477 Pursuant to IAS 7 “Cash Flow Statement”, the following are the changes in financial assets and liabilities: thousands of euro 12 31 2020 Cash flow Non-cash flow 12 31 2021 Effect of non-recurring transactions Change in fair value Other changes Bonds 3,087,638 635,846 \- (3,302) (7,150) 3,713,032 Financial payables 1,563,537 (149,178) 37,752 - 7,833 1,459,944 Other liabilities 18,221 - - (7,619) - 10,602 Financial assets (1,881,625) (826,578) 190,958 - (2) (2,517,247) Other activities - - - - - - Net liabilities deriving from financing activities 2,787,771 (339,910) 228,710 (10,921) 681 2,666,331 Cash and cash equivalents (947,294) 61,909 (969) - - (886,354) Net financial debt 1,840,477 (278,001) 227,741 (10,921) 681 1,779,977 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 63 A2A Separate financial statements 2021 3.8 Notes to the income statement The year 2021 includes the effects of the non-recurring transactions as further specified in the paragraph “Notes to the items of the Statement of Financial Position” to which reference should be made. It should also be noted that, in order to make the figures in the Income Statement at December 31, 2020 consistent with those at December 31, 2021, the depreciation of tangible assets relating to three buildings in the Milan area were reclassified from the item “Depreciation, amortization, provisions and write-downs” to the item “Net result from operating assets held for sale”, which, in compliance with IFRS 5, were reclassified to “Assets held for sale” at December 31, 2021\. 25) Revenues Revenues at December 31, 2021 amounted to 8,255,984 thousand euro (3,988,772 thousand euro at December 31, 2020). Revenues thousands of euro 12 31 2021 12 31 2020 Change Percentage change Revenues from the sale of goods 7,952,044 3,741,880 4,210,164 n.s. Revenues from services 243,971 201,471 42,500 21.1% Total revenues from the sale of goods and services 8,196,015 3,943,351 4,252,664 n.s. Other operating income 59,969 45,421 14,548 32.0% Total Revenues 8,255,984 3,988,772 4,267,212 n.s. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 64 3 Notes Details of the more significant items are as follows: thousands of euro 12 31 2021 12 31 2020 Change Percentage change Sales of electricity of which: 5,144,815 2,299,687 2,845,128 n.s. \- third-party customers 3,720,278 1,575,564 2,144,714 n.s. \- subsidiaries 1,419,176 722,463 696,713 96.4% \- associates 5,361 1,660 3,701 n.s. Sales of gas and fuels of which: 2,229,449 1,260,059 969,390 76.9% \- third-party customers 1,397,222 786,048 611,174 77.8% \- subsidiaries 828,776 471,830 356,946 75.7% \- associates 3,451 2,181 1,270 58.2% Sales of heat of which: 789 329 460 n.s. \- subsidiaries 789 329 460 n.s. Sales of materials and equipment of which: 9,705 8,034 1,671 20.8% \- third-party customers 19 74 (55) (74.3%) \- subsidiaries 9,686 7,960 1,726 21.7% Sales of emission certificates and allowances of which: 567,286 173,771 393,515 n.s. \- third-party customers and inventory change 213,814 27,547 186,267 n.s. \- subsidiaries 308,738 121,947 186,791 n.s. \- associates 44,734 24,277 20,457 84.3% Total revenues from the sale of goods 7,952,044 3,741,880 4,210,164 n.s. \- Services to third parties 2,354 930 1,424 n.s. \- Services to subsidiaries 238,730 197,698 41,032 20.8% \- Services to associates 143 175 (32) (18.3%) \- Services to parent companies 2,744 2,668 76 2.8% Total revenues from services 243,971 201,471 42,500 21.1% Total revenues from the sale of goods and services 8,196,015 3,943,351 4,252,664 n.s. Damage compensation 786 56 730 n.s. Contingent assets 9,580 8,432 1,148 13.6% Gains on disposals of assets 4,477 2,753 1,724 62.6% Incentives for production from renewable sources (feed-in tariff) 36,446 24,498 11,948 48.8% Rent income of which: 5,390 6,117 (727) (11.9%) \- third-party customers 510 525 (15) (2.9%) \- subsidiaries 4,876 5,592 (716) (12.8%) \- associates 4 - 4 n.s. Other revenues of which: 3,290 3,565 (275) (7.7%) \- third-party customers 3,250 3,533 (283) (8.0%) \- subsidiaries 40 32 8 25.0% Total other operating revenues 59,969 45,421 14,548 32.0% Total revenues 8,255,984 3,988,772 4,267,212 n.s. 65 A2A Separate financial statements 2021 “Sales revenues” amounted to 7,952,044 thousand euro (3,741,880 thousand euro at December 31, 2020), up 4,210,164 thousand euro from the previous year. Sales revenues mainly refer to the sale of electricity (5,144,815 thousand euro) to wholesalers and institutional operators (Gestore Mercato Elettrico S.p.A. and Terna S.p.A.), also through sales on the IPEX markets (Italian Power Exchange) as well as to subsidiaries and associates for 16,477 million kWh (+22% compared to December 31, 2020); to the sale of gas and fuel to third parties and subsidiaries (2,229,449 thousand euro) from the commercialization of 3,815 million cubic meters of gas (+3% compared to the previous year); to the sale of heat (789 thousand euro); the sale of materials and plants to both third parties and subsidiaries (9,705 thousand euro); the sale of environmental certificates to third parties and subsidiaries and associates (567,286 thousand euro). The increase in sales revenues is due to higher prices in the wholesale markets for both electricity and gas, as well as growth in volumes sold. The higher revenues from the sale of environmental certificates during the year relate to higher sales of CO2 for the recognition of revenue from subsidiaries and associates whose plants are managed by A2A S.p.A. through tolling contracts. “Revenues from services” amounted to 243,971 thousand euro (201,471 thousand euro at December 31, 2020) and mainly relate to revenues from administrative, fiscal, legal, managerial and technical services to subsidiaries, and revenues from the Municipality of Milan for the video surveillance service. “Other operating revenues”, amounting to 59,969 thousand euro (45,421 thousand euro at December 31, 2020), mainly refers to incentives for production from renewable sources (36,446 thousand euro). The increase recorded is attributable to both the higher volumes generated and the higher price recognized compared to 2020\. Other revenues were also recorded relating to rent from subsidiaries, contingent assets recorded following the difference in provisions for previous years, reimbursements for damages and penalties received from customers, insurance companies and private individuals, as well as the capital gain realized on the sale of a building and land during the year. 26) Operating expenses “Operating expenses” totalled 7,903,709 thousand euro (3,736,101 thousand euro at December 31, 2020). The main components of this item are as follows: Operating expenses thousands of euro 12 31 2021 12 31 2020 Change Percentage change Costs for raw materials and consumables 6,973,208 3,025,450 3,947,758 n.s. Costs for services 349,024 287,784 61,240 21.3% Total costs for raw materials and services 7,322,232 3,313,234 4,008,998 n.s. Other operating expenses 581,477 422,867 158,610 37.5% Total operating expenses 7,903,709 3,736,101 4,167,608 n.s. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 66 3 Notes The following table sets out details of the more significant components: thousands of euro 12 31 2021 12 31 2020 Change Percentage change Purchases of electricity of which: 3,246,899 1,300,140 1,946,759 n.s. \- third-party suppliers 2,997,434 1,170,409 1,827,025 n.s. \- subsidiaries 249,465 129,731 119,734 92.3% Purchases of gas of which: 3,238,253 1,491,011 1,747,242 n.s. \- third-party suppliers 3,208,477 1,473,820 1,734,657 n.s. \- subsidiaries 29,776 17,191 12,585 73.2% Purchases of fuel of which: 2,718 21,635 (18,917) (87.4%) \- third-party suppliers 2,714 21,627 (18,913) (87.5%) \- subsidiaries 4 8 (4) (50.0%) Change in inventories of fuel (41,793) 36,948 (78,741) n.s. Purchases of heat of which: 450 362 88 24.3% \- third-party suppliers 7 - 7 n.s. \- subsidiaries 443 362 81 22.4% Purchases of water of which: 58 39 19 48.7% \- third-party suppliers 53 36 17 47.2% \- subsidiaries 5 3 2 66.7% Purchases of materials of which: 11,857 10,960 897 8.2% \- third-party suppliers 11,725 10,503 1,222 11.6% \- subsidiaries 132 457 (325) (71.1%) Change in inventories of materials 146 (73) 219 n.s. Hedging losses on operating derivatives 3,633 9,232 (5,599) (60.6%) Hedging gains on operating derivatives (12,434) (12,586) 152 (1.2%) Purchases of emission certificates and allowances of which: 523,421 167,782 355,639 n.s. \- third-party suppliers 522,970 165,603 357,367 n.s. \- subsidiaries 451 2,179 (1,728) (79.3%) Total expenses for raw materials and consumables 6,973,208 3,025,450 3,947,758 n.s. Delivery and transmission costs of which: 189,446 155,669 33,777 21.7% \- third-party suppliers 178,271 147,517 30,754 20.8% \- subsidiaries 11,175 8,152 3,023 37.1% Maintenance and repairs 51,548 42,373 9,175 21.7% Services of which: 108,030 89,742 18,288 20.4% \- third-party suppliers 93,227 74,613 18,614 24.9% \- subsidiaries 14,803 15,129 (326) (2.2%) Total costs for services 349,024 287,784 61,240 21.3% Total costs for raw materials and services 7,322,232 3,313,234 4,008,998 n.s. Leaseholds of which: 490,923 354,848 136,075 38.3% \- third-party suppliers 21,195 26,827 (5,632) (21.0%) \- subsidiaries 406,193 283,661 122,532 43.2% \- associates 63,535 44,360 19,175 43.2% Other operating expenses of which: 90,554 68,019 22,535 33.1% \- Concession fees 62,079 41,173 20,906 50.8% \- Contributions to territorial entities, consortia and ARERA 4,214 3,798 416 11.0% \- Damages and penalties 845 815 30 3.7% \- Contingent liabilities 2,457 603 1,854 n.s. \- Losses on disposal of tangible assets 2 6 (4) (66.7%) \- Taxes and duties 14,829 14,823 6 0.0% \- Other costs of which: 6,128 6,801 (673) (9.9%) \- other operating expenses 6,091 6,601 (510) (7.7%) \- subsidiaries 37 200 (163) (81.5%) Other operating expenses 581,477 422,867 158,610 37.5% Total operating expenses 7,903,709 3,736,101 4,167,608 n.s. 67 A2A Separate financial statements 2021 “Expenses for raw materials and services” amounted to 7,322,232 thousand euro (3,313,234 thousand euro at December 31, 2020). The cost of raw materials and consumables, amounting to 6,973,208 thousand euro, refers to the cost of purchasing energy, fuel and heat (6,488,320 thousand euro) from third parties and subsidiaries, both for electricity production and for resale to customers and wholesalers. The increase recorded in 2021 derives mainly from: the increase in unit prices of procurement due to the growth recorded in the reference scenario, as well as to the higher quantities purchased; the change in fuel inventories (-41,793 thousand euro) due to the higher valuation price; to charges/income from hedging derivatives (-8,801 thousand euro); the purchase of materials and water (12,061 thousand euro including change in inventories); as well as the purchase of environmental certificates (523,421 thousand euro), the increase in which refers in particular to higher CO2 purchases primarily due to the increase in the average unit cost. Service costs amounted to 349,024 thousand euro and relate to the logistics costs for transport on the natural gas network (189,446 thousand euro), costs for maintenance and repairs (51,548 thousand euro) related to both the plants and information systems of the company, as well as costs for services from third parties and subsidiaries and associates (108,030 thousand euro) that include costs for administrative and technical professional services, costs for certification activities, gas storage costs, expenses for insurance, monitoring, banking and other services. The increase compared to the previous year is mainly due to higher costs for the transport of natural gas and for IT services related to the development of new projects. “Other operating expenses” amounted to 581,477 thousand euro (422,867 thousand euro at December 31, 2020). This item includes the use of third-party assets for 490,923 thousand euro mainly relating to the contracting of thermoelectric production plants “tolling agreement” owned by the subsidiaries A2A Energiefuture S.p.A. and A2A gencogas S.p.A. and costs related to the use of part of a portion of the electricity capacity of Ergosud S.p.A.. Other costs amounted to 90,554 thousand euro and mainly refer to public water derivation fees, damages and penalties and contingent liabilities. During the year, the Company paid 2,000 thousand euro in donations to the AEM and ASM Foundations. Trading margin The following table sets out the results arising from the Trading Portfolio, including the effect of changes in derivative instruments; these figures relate to trading in electricity, gas and environmental certificates. Trading margin thousands of euro 12 31 2021 12 31 2020 Change Percentage change Revenues 247,231 1,367,930 (1,120,699) (81.9%) Operating expenses (221,699) (1,358,401) 1,136,702 (83.7%) Total trading margin 25,532 9,529 16,003 n.s. The trading margin was positive for 25,532 thousand euro, an increase of 16,003 thousand euro compared to December 31, 2020\. Thanks to the persistence of significant volatility in the commodity market and exceptional price levels especially in the second half of 2021, systematic trading activity contributed steadily to margin growth during the year. The scarcity of price liquidity combined with high volatility over a sufficiently large period created an ideal context for operating in Market Making mode. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 68 3 Notes 27) Labour costs At December 31, 2021, labour costs, net of capitalized costs, totalled 160,014 thousand euro (150,969 thousand euro as at December 31, 2020), the increase for the year includes both the effect of the extraordinary merger transactions and an increase related to new personnel additions materialized in 2021\. “Labour costs” may be analyzed as follows: Labour costs thousands of euro 12 31 2021 12 31 2020 Change Percentage change Wages and salaries 106,549 97,850 8,699 8.9% Social security charges 34,066 31,454 2,612 8.3% Employee leaving entitlement (TFR) 6,886 5,976 910 15.2% Other costs 17,050 18,669 (1,619) (8.7%) Total labour costs before capitalizations 164,551 153,949 10,602 6.9% Capitalized labour costs (4,537) (2,980) (1,557) 52.2% Total labour costs 160,014 150,969 9,045 6.0% The table below shows the average number of employees during the period, broken down by category: 2021 2020 Change Managers 109 98 11 Middle Managers 341 311 30 White-collar workers 1,217 1,084 133 Blue-collar workers 160 167 (7) Total 1,827 1,660 167 At December 31, 2021, A2A S.p.A. employees totalled 1,847, while at December 31, 2020, they were equal to 1,648. Other personnel costs include 456 thousand euro (952 thousand euro at December 31, 2020) relating to the total cost of the company’s restructuring plan related to future staff leaving for redundancy. The item also includes the remuneration paid by A2A S.p.A. to the members of the Board of Directors in the period for a total of 1,948 thousand euro; for further details, reference is made to the specific file “Remuneration Report \- 2021”. 28) Gross operating income In light of the dynamics explained above, the “Gross operating income” was positive for 192,260 thousand euro (positive for 101,702 thousand euro at December 31, 2020). 69 A2A Separate financial statements 2021 29) Depreciation, amortization, provisions and write-downs “Depreciation, amortization, provisions and write-downs” equalled 123,140 thousand euro (107,121 thousand euro at December 31, 2020). The following table provides details of the individual items: Depreciation, amortization, provisions and write-downs thousands of euro 12 31 2021 12 31 2020 Change Percentage change Amortization of intangible assets 29,141 20,811 8,330 40.0% Depreciation of tangible assets 80,668 78,025 2,643 3.4% Net write-downs of fixed assets 1,113 - 1,113 n.s. Total depreciation, amortization, provisions and write-downs 110,922 98,836 12,086 12.2% Provisions for risks 13,861 8,126 5,735 70.6% Bad debt provision on receivables recognized as current assets (1,643) 159 (1,802) n.s. Total depreciation, amortization, provisions and write-downs 123,140 107,121 16,019 15.0% In particular, “Amortization and depreciation” amounted to 109,809 thousand euro (98,836 thousand euro at December 31, 2020 adjusted by the portion of depreciation relating to buildings subject to future sale in the item “Net result from operating assets sold/held for sale”). The increase compared to December 31, 2020 results from the combined effect of higher depreciation and amortization for non-recurring transactions during the period and capital expenditures, net of the decrease associated with disposals during the period and fixed assets that completed their depreciation and amortization process in the prior year. Depreciation is calculated on the basis of technical and economic rates considered representative of the remaining useful life of the related tangible assets. At December 31, 2021, write-downs of fixed assets amounted to 1,113 thousand euro (no value at December 31, 2020) and refer to the write-down of electronic equipment that is no longer functional for the company’s activities. The balance of “Provisions for risks and charges” shows a net effect of 13,861 thousand euro (8,126 thousand euro at December 31, 2020) due to allocations of 19,116 thousand euro, offset by the 5,255 thousand euro of risk provisions made in previous years and released in the current year since the original disputes have ceased to exist. Provisions, net of releases in the year, included for 11,574 thousand euro provisions to “Other risk provisions” mainly related to public water derivation fees, for 108 thousand euro provisions to “Personnel lawsuits and disputes provision”, for 2,113 thousand euro provisions to “Tax provisions” and 66 thousand euro provisions to “Decommissioning provisions”. For further details, reference is made to note 19) Provisions for risks, charges and liabilities for landfills. The “Bad debt provision” showed a positive balance of 1,643 thousand euro (negative for 159 thousand euro at December 31, 2020) and is related to the releases during the year under review. 30) Net operating income The “Net operating income” was positive for 69,120 thousand euro (negative for 5,419 thousand euro at December 31, 2020 net of the reclassification, for 1,955 thousand euro, of the depreciation relating to the buildings subject to future sale to the item “Net result from discontinued operations”). 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 70 3 Notes 31) Financial balance The “Financial balance” showed a positive balance of 375,773 thousand euro (positive for 499,574 thousand euro at December 31, 2020), and the breakdown is as follows: thousands of euro 12 31 2021 12 31 2020 Change Percentage change Financial income 448,739 581,056 (132,317) (22.8%) Financial expenses (72,966) (81,482) 8,516 (10.5%) Total financial balance 375,773 499,574 (123,801) (24.8%) Financial income Financial income thousands of euro 12 31 2021 12 31 2020 Change Percentage change Gains on disposals of financial assets 970 - 970 n.s. Valuation of share exchange - 139,588 (139,588) n.s. Income from financial assets: 447,769 441,468 6,301 1.4% Income from dividends: 415,304 413,715 1,589 0.4% \- subsidiaries 415,304 413,325 1,979 0.5% \- associates - 390 (390) n.s. Income on receivables/securities recorded as current assets: 30,082 27,075 3,007 11.1% \- subsidiaries 29,082 26,727 2,355 8.8% \- associates 212 274 (62) (22.6%) \- third parties of which: 788 74 714 n.s. \- on bank accounts 37 56 (19) (33.9%) \- discounting income 209 - 209 n.s. \- on other receivables 542 18 524 n.s. Foreign exchange gains 2,383 678 1,705 n.s. Total financial income 448,739 581,056 (132,317) (22.8%) “Financial income” totalled 448,739 thousand euro (581,056 thousand euro at December 31, 2020) and refers to: gains from the disposal of financial assets amounting to 970 thousand euro, which refer to the higher value deriving from the closure of the liquidation process of the equity investments in Plurigas S.p.A. and Ergon Energia S.r.l. during the year; dividend income of 415,304 thousand euro (413,715 thousand euro at December 31, 2020) referring to dividends distributed by subsidiaries; income on receivables/securities recognized under current assets for 30,082 thousand euro (27,075 thousand euro at December 31, 2020). This primarily regards interest to subsidiaries accrued on current accounts and intra-group loans totalling 29,082 thousand euro, financial income from associates of 212 thousand euro, interest on bank deposits and interest on sundry receivables of 788 thousand euro; foreign exchange gains for 2,383 thousand euro (678 thousand euro at December 31, 2020). In the previous year, this item included 139,588 thousand euro relating to the exchange valuation of the investment of A2A S.p.A. in AEB S.p.A., which led to the recognition of a higher value compared to the carrying amount. 71 A2A Separate financial statements 2021 Financial expenses Financial expenses thousands of euro 12 31 2021 12 31 2020 Change Percentage change Expenses on derivatives 1,851 2,339 (488) (20.9%) Write-downs of financial assets 1,868 - 1,868 n.s. Expenses on financial assets: 69,247 79,143 (9,896) (12.5%) \- subsidiaries 503 414 89 21.5% \- associates 3 1 2 n.s. \- third parties of which: 68,741 78,728 (9,987) (12.7%) \- interest on bond loans 62,478 72,603 (10,125) (13.9%) \- interest charged by banks 2,752 2,570 182 7.1% \- decommissioning charges 45 13 32 n.s. \- discounting charges 1,060 1,008 52 5.2% \- financial expenses IFRS16 256 61 195 n.s. \- other expenses 579 624 (45) (7.2%) \- foreign exchange losses 1,571 1,849 (278) (15.0%) Total financial expenses 72,966 81,482 (8,516) (10.5%) “Financial expenses” amounted to 72,966 thousand euro (81,482 thousand euro in 2020) and referred to: expenses on financial derivatives for 1,851 thousand euro (2,339 thousand euro at December 31, 2020) related to the negative “realized” of the year; write-downs of financial assets totalling 1,868 thousand euro (no value at December 31, 2020), of which 1,800 thousand euro refers to the write-down of the investment in Linea Gestioni S.r.l. following the results of the specific impairment test carried out on the investment by an external expert and 68 thousand euro to losses on minor investments; other expenses from financial liabilities amounting to 69,247 thousand euro (79,143 thousand euro at December 31, 2020), broken down as follows: interest charged by subsidiaries in the amount of 503 thousand euro (414 thousand euro at December 31, 2020) for financial expenses accrued on intra-group accounts; interest charged by associates for 3 thousand euro (1 thousand euro at December 31, 2020); other financial expenses in the amount of 68,741 thousand euro (78,728 thousand euro at December 31, 2020), which essentially relate to interest on bonds and interest on the revolving credit lines used with various banks and other financial expenses. The nature and content of derivatives are described in the section “Other information”. 32) Income taxes Income taxes thousands of euro 12 31 2021 12 31 2020 Change Percentage change Current IRES 17,193 (7,814) 25,007 n.s. Current IRAP 3,290 - 3,290 n.s. Effect of differences \- taxes of previous years 222 (53,291) 53,513 n.s. Total current taxes 20,705 (61,105) 81,810 n.s. Deferred tax assets IRES 9,829 9,217 612 6.6% Deferred tax assets IRAP (193) 14,345 (14,538) n.s. Deferred tax assets 9,636 23,562 (13,926) (59.1%) Deferred tax liabilities IRES (61,949) (6,988) (54,961) n.s. Deferred tax liabilities IRAP (9,281) (10,840) 1,559 (14.4%) Deferred tax liabilities (71,230) (17,828) (53,402) n.s. Total gains for income taxes (40,889) (55,371) 14,482 (26.2%) 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 72 3 Notes It is noted that for IRES purposes, the company filed for tax on a consolidated basis, together with its main subsidiaries, in accordance with arts. 117-129 of Presidential Decree 917/86. To this end, a contract has been entered into with each of the subsidiaries to regulate the tax benefits and burdens transferred, with specific reference to current items. The deferred tax assets and liabilities calculated when determining the subsidiaries’ taxable income, again only for IRES purposes, are not transferred to the parent company, A2A S.p.A., but are recognized in the income statement of the individual subsidiary each time there is an effective divergence between net income calculated for tax reporting purposes and net income calculated for financial reporting purposes due to any temporary differences. The deferred tax assets and liabilities shown in the income statement of A2A are therefore calculated exclusively on the divergences between its income for taxable purposes and income for financial reporting purposes. Current income tax (IRES) of A2A S.p.A. is calculated on its own taxable income net of the adjustments relating to the national tax consolidation filing, in accordance with appendix E of accounting standard OIC 25 of August 2014. In compliance with accounting standard OIC 25, the “income/expense related to consolidation”, which constitute the remuneration/counter-entry for the transfer to the parent company A2A of a tax loss or taxable income, are recognized in the balance sheet. The total amount of current IRAP is calculated at 4.20% of the net value of production, suitably adjusted for the items foreseen in the relevant tax legislation. The deferred tax assets and liabilities for IRAP purposes are booked to the income statement so as to show the total tax charge for the year, taking into account the tax effects of temporary differences. The recoverability of the IRES deferred tax assets recorded in the financial statements is considered probable, as the future plans provide for IRES taxable income sufficient for the absorption of the temporary differences that will be reversed; on the other hand, deferred tax assets and liabilities recorded for IRAP purposes are those considered adequate with respect to the best forecast of absorption from future taxable income. No items have been excluded from the calculation of deferred taxation for IRES or IRAP purposes, with the exceptions highlighted above, and deferred tax liabilities and assets are recognized according to the balance sheet method. At December 31, 2021, income taxes for the year (IRES and IRAP), amounted to -40,889 thousand euro (-55,371 thousand euro at the end of the previous year) and were made up as follows: 10,801 thousand euro in current IRES for the year; 3,290 thousand euro in current IRAP for the year; -32 thousand euro for remuneration for the transfer of interest payable to the tax consolidation system; 102 thousand euro for transfer to Equity reserve of part of income taxes; -715 thousand euro for the recognition of tax receivables on “art bonus” disbursements; 222 thousand euro related to taxes of previous years; -61,949 thousand euro for deferred tax liabilities for IRES purposes; -9,281 thousand euro for deferred tax liabilities for IRAP purposes; 9,829 thousand euro in deferred tax assets for IRES purposes; -193 thousand euro in deferred tax assets for IRAP purposes; 7,037 thousand euro for substitute tax on IRES and IRAP for the year, paid to benefit from the realignment of the differences between the statutory and tax values of tangible assets, as provided for by Decree Law no. 104/2020. The main temporary increases in IRES include reversals for non-deductible amortization for 23,804 thousand euro; among the main permanent increases for IRES purposes include recoveries for allocations to non-deductible provisions for risks for 20,036 thousand euro, as well as property taxes (IMU) for 5,234 thousand euro. Reconciliation between the statutory tax rate and the effective tax rate for IRES and IRAP purposes are presented in the statements below. 73 A2A Separate financial statements 2021 IRES \- reconciliation between statutory and effective taxation Profit before tax 444,589,127 Theoretical tax charge 24.00 % 106,701,390 Permanent differences (381,407,331) Income before taxes adjusted for permanent differences 63,181,796 Current gains/losses on income for the year 15,163,631 Temporary differences deductible in subsequent years 22,495,839 Temporary differences taxable in subsequent years (120,058) Reversal of prior year temporary differences (40,552,165) Taxable income 45,005,412 Current gains/losses on income for the year 10,801,299 IRAP \- reconciliation between statutory and effective taxation Difference between production value and costs 242,725,798 Costs not relevant for IRAP purposes (168,373,634) Total 74,352,164 Theoretical tax expense 4.20 % 3,122,791 Temporary differences deductible in subsequent years 17,609,448 Temporary differences taxable in subsequent years (151,596) Reversal of prior year temporary differences (13,478,813) Taxable income for IRAP purposes 78,331,203 Current IRAP on income for the year 3,289,911 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 74 3 Notes Details are provided below on the analytic situation of the deferred tax assets and liabilities which, as required by international accounting standards, also shows the changes in equity reserves. Case description amounts in euro Previous year Non-recurring transactions Deferred taxes previous year Adjustments (+/-) Uses in current year Sub-total Changes in tax rate Increases for the year Equity Total deferred tax liabilities Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Value differences of tangible assets 422,738,585 12,760 422,751,345 24% 101,460,323 (234,237,097) 24% (56,216,903) 21,809,315 24% 5,234,236 166,704,934 24% 40,009,184 166,704,934 24% 40,009,184 0 24% 0 0 24% 0 166,704,934 24% 40,009,184 Adoption of the finance lease standard (IAS 17) 16,235,860 0 16,235,860 24% 3,896,606 0 24% 0 267,751 24% 64,260 15,968,109 24% 3,832,346 15,968,109 24% 3,832,346 0 24% 0 0 24% 0 15,968,109 24% 3,832,346 Application of the financial instrument standard (IAS 39) 0 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 Measurement differences of intangible assets 10,582,601 0 10,582,601 24% 2,539,824 0 24% 0 0 24% 0 10,582,601 24% 2,539,824 10,582,601 24% 2,539,824 120,058 24% 28,814 0 24% 0 10,702,659 24% 2,568,638 Deferred capital gains 31,345 0 31,345 24% 7,523 0 24% 0 0 24% 0 31,345 24% 7,523 31,345 24% 7,523 0 24% 0 0 24% 0 31,345 24% 7,523 Employee leaving entitlement (TFR) 0 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 Other deferred tax liabilities 16,884,648 3,895,005 20,779,653 24% 4,987,117 (924,587) 24% (221,901) 1,001,728 24% 240,415 18,853,338 24% 4,524,801 18,853,338 24% 4,524,801 0 24% 0 34,199 24% 8,208 18,887,537 24% 4,533,009 IFRS 5 reclassification 0 0 0 24% 0 (17,687,301) 24% (4,244,952) 0 24% 0 (17,687,301) 24% (4,244,952) (17,687,301) 24% (4,244,952) 0 24% 0 0 24% 0 (17,687,301) 24% (4,244,952) Total 466,473,039 3,907,765 470,380,804 112,891,393 (252,848,985) (60,683,756) 23,078,794 5,538,911 194,453,026 46,668,726 194,453,026 46,668,726 120,058 28,814 34,199 8,208 194,607,283 46,705,748 IRES \- Deferred tax assets and liabilities for the year Taxable temporary differences Case description amounts in euro Previous year Non-recurring transactions Deferred taxes previous year Adjustments (+/-) Uses in current year Sub-total Changes in tax rate Increases for the year Equity Total deferred tax assets Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxed risk provisions 185,111,693 1,013,395 186,125,088 24% 44,670,021 902,300 24% 216,552 16,873,110 24% 4,049,546 170,154,278 24% 40,837,027 170,154,278 24% 40,837,027 20,000,817 24% 4,800,196 30,612,142 24% 7,346,914 220,767,237 24% 52,984,137 Amortization, depreciation and write-downs 227,309,150 523,671 227,832,821 24% 54,679,877 0 24% 0 24,454,901 24% 5,869,176 203,377,919 24% 48,810,701 203,377,919 24% 48,810,701 1,915,021 24% 459,605 0 24% 0 205,292,941 24% 49,270,306 Application of the financial instrument standard (IAS 39) 18,220,653 0 18,220,653 24% 4,372,957 0 24% 0 0 24% 0 18,220,653 24% 4,372,957 18,220,653 24% 4,372,957 0 24% 0 (7,619,007) 24% (1,828,562) 10,601,646 24% 2,544,395 Bad debt provision 10,624,960 4,784 10,629,744 24% 2,551,138 (678,365) 24% (162,808) 1,643,271 24% 394,385 8,308,108 24% 1,993,946 8,308,108 24% 1,993,946 0 24% 0 0 24% 0 8,308,108 24% 1,993,946 Costs for business combinations 0 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 Grants 0 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 Goodwill 192,936,263 130,751 193,067,014 24% 46,336,083 0 24% 0 19,921,874 24% 4,781,250 173,145,140 24% 41,554,834 173,145,140 24% 41,554,834 0 24% 0 0 24% 0 173,145,140 24% 41,554,834 Other deferred tax assets (171,772) 2,807,711 2,635,939 24% 632,625 (44,606) 24% (10,706) 737,801 24% 177,072 1,853,532 24% 444,848 1,853,532 24% 444,848 580,000 24% 139,200 (39,573,856) 24% (9,497,725) (37,140,324) 24% (8,913,678) IFRS 5 reclassification 0 0 0 24% 0 (281,772) 24% (68,728) 0 24% 0 (281,772) 24% (68,728) (281,772) 24% (68,728) 0 24% 0 0 24% 0 (281,772) 24% (68,728) Total 634,030,947 4,480,312 638,511,259 153,242,701 (102,443) (25,690) 63,630,957 15,271,429 574,777,858 137,945,585 574,777,858 137,945,585 22,495,838 5,399,001 (16,580,721) (3,979,373) 580,692,976 139,365,212 Deductible temporary differences 75 A2A Separate financial statements 2021 Case description amounts in euro Previous year Non-recurring transactions Deferred taxes previous year Adjustments (+/-) Uses in current year Sub-total Changes in tax rate Increases for the year Equity Total deferred tax liabilities Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Value differences of tangible assets 422,738,585 12,760 422,751,345 24% 101,460,323 (234,237,097) 24% (56,216,903) 21,809,315 24% 5,234,236 166,704,934 24% 40,009,184 166,704,934 24% 40,009,184 0 24% 0 0 24% 0 166,704,934 24% 40,009,184 Adoption of the finance lease standard (IAS 17) 16,235,860 0 16,235,860 24% 3,896,606 0 24% 0 267,751 24% 64,260 15,968,109 24% 3,832,346 15,968,109 24% 3,832,346 0 24% 0 0 24% 0 15,968,109 24% 3,832,346 Application of the financial instrument standard (IAS 39) 0 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 Measurement differences of intangible assets 10,582,601 0 10,582,601 24% 2,539,824 0 24% 0 0 24% 0 10,582,601 24% 2,539,824 10,582,601 24% 2,539,824 120,058 24% 28,814 0 24% 0 10,702,659 24% 2,568,638 Deferred capital gains 31,345 0 31,345 24% 7,523 0 24% 0 0 24% 0 31,345 24% 7,523 31,345 24% 7,523 0 24% 0 0 24% 0 31,345 24% 7,523 Employee leaving entitlement (TFR) 0 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 Other deferred tax liabilities 16,884,648 3,895,005 20,779,653 24% 4,987,117 (924,587) 24% (221,901) 1,001,728 24% 240,415 18,853,338 24% 4,524,801 18,853,338 24% 4,524,801 0 24% 0 34,199 24% 8,208 18,887,537 24% 4,533,009 IFRS 5 reclassification 0 0 0 24% 0 (17,687,301) 24% (4,244,952) 0 24% 0 (17,687,301) 24% (4,244,952) (17,687,301) 24% (4,244,952) 0 24% 0 0 24% 0 (17,687,301) 24% (4,244,952) Total 466,473,039 3,907,765 470,380,804 112,891,393 (252,848,985) (60,683,756) 23,078,794 5,538,911 194,453,026 46,668,726 194,453,026 46,668,726 120,058 28,814 34,199 8,208 194,607,283 46,705,748 Case description amounts in euro Previous year Non-recurring transactions Deferred taxes previous year Adjustments (+/-) Uses in current year Sub-total Changes in tax rate Increases for the year Equity Total deferred tax assets Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxed risk provisions 185,111,693 1,013,395 186,125,088 24% 44,670,021 902,300 24% 216,552 16,873,110 24% 4,049,546 170,154,278 24% 40,837,027 170,154,278 24% 40,837,027 20,000,817 24% 4,800,196 30,612,142 24% 7,346,914 220,767,237 24% 52,984,137 Amortization, depreciation and write-downs 227,309,150 523,671 227,832,821 24% 54,679,877 0 24% 0 24,454,901 24% 5,869,176 203,377,919 24% 48,810,701 203,377,919 24% 48,810,701 1,915,021 24% 459,605 0 24% 0 205,292,941 24% 49,270,306 Application of the financial instrument standard (IAS 39) 18,220,653 0 18,220,653 24% 4,372,957 0 24% 0 0 24% 0 18,220,653 24% 4,372,957 18,220,653 24% 4,372,957 0 24% 0 (7,619,007) 24% (1,828,562) 10,601,646 24% 2,544,395 Bad debt provision 10,624,960 4,784 10,629,744 24% 2,551,138 (678,365) 24% (162,808) 1,643,271 24% 394,385 8,308,108 24% 1,993,946 8,308,108 24% 1,993,946 0 24% 0 0 24% 0 8,308,108 24% 1,993,946 Costs for business combinations 0 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 Grants 0 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24% 0 Goodwill 192,936,263 130,751 193,067,014 24% 46,336,083 0 24% 0 19,921,874 24% 4,781,250 173,145,140 24% 41,554,834 173,145,140 24% 41,554,834 0 24% 0 0 24% 0 173,145,140 24% 41,554,834 Other deferred tax assets (171,772) 2,807,711 2,635,939 24% 632,625 (44,606) 24% (10,706) 737,801 24% 177,072 1,853,532 24% 444,848 1,853,532 24% 444,848 580,000 24% 139,200 (39,573,856) 24% (9,497,725) (37,140,324) 24% (8,913,678) IFRS 5 reclassification 0 0 0 24% 0 (281,772) 24% (68,728) 0 24% 0 (281,772) 24% (68,728) (281,772) 24% (68,728) 0 24% 0 0 24% 0 (281,772) 24% (68,728) Total 634,030,947 4,480,312 638,511,259 153,242,701 (102,443) (25,690) 63,630,957 15,271,429 574,777,858 137,945,585 574,777,858 137,945,585 22,495,838 5,399,001 (16,580,721) (3,979,373) 580,692,976 139,365,212 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 76 3 Notes Case description amounts in euro Previous year Non-recurring transactions Deferred taxes previous year Adjustments (+/-) Uses in current year Sub-total Changes in tax rate Increases for the year Equity Total deferred tax assets Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxed risk provisions 179,448,723 65,383 179,514,106 5.57% 9,998,879 (300,016) 5.57% (16,711) 13,850,688 5.57% 771,483 165,363,402 5.57% 9,210,741 165,363,402 5.57% 9,210,741 17,609,448 5.57% 980,846 30,660,644 5.57% 1,707,798 213,633,494 5.57% 11,899,386 Amortization, depreciation and write-downs 4,583,715 0 4,583,715 5.57% 255,313 0 5.57% 0 0 5.57% 0 4,583,715 5.57% 255,313 4,583,715 5.57% 255,313 0 5.57% 0 0 5.57% 0 4,583,715 5.57% 255,313 Costs for business combinations 0 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 Grants 0 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 Goodwill 18,557,353 130,751 18,688,104 5.57% 1,040,927 0 5.57% 0 0 5.57% 0 18,688,104 5.57% 1,040,927 18,688,104 5.57% 1,040,927 0 5.57% 0 0 5.57% 0 18,688,104 5.57% 1,040,927 Other deferred tax assets (10,682,878) 8,639 (10,674,239) 5.57% (594,559) 0 5.57% 0 0 5.57% 0 (10,674,239) 5.57% (594,555) (10,674,239) 5.57% (594,555) 0 5.57% 0 (39,464,437) 5.57% (2,198,169) (50,138,676) 5.57% (2,792,724) IFRS 5 reclassification 0 0 0 5.57% 0 (116,853) 5.57% (10,898) 0 5.57% 0 (116,853) 5.57% (10,898) (116,853) 5.57% (10,898) 0 5.57% 0 0 5.57% 0 (116,853) 5.57% (10,898) Total 191,906,913 204,773 192,111,686 10,700,560 (416,869) (27,609) 13,850,688 771,483 177,844,129 9,901,528 177,844,129 9,901,528 17,609,448 980,846 (8,803,793) (490,371) 186,649,784 10,392,004 Deductible temporary differences Case description amounts in euro Previous year Non-recurring transactions Deferred taxes previous year Adjustments (+/-) Uses in current year Sub-total Changes in tax rate Increases for the year Equity Total deferred tax liabilities Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Measurement differences for tangible assets 162,623,631 0 162,623,631 5.57% 9,058,136 (162,144,363) 5.57% (9,031,441) 0 5.57% 0 479,268 5.57% 26,695 479,268 5.57% 26,695 0 5.57% 0 0 5.57% 0 479,268 5.57% 26,695 Adoption of the finance lease standard (IAS 17) 0 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 Measurement differences of intangible assets 316,050 2,355,208 2,671,258 5.57% 148,789 67,045 5.57% 3,734 371,875 5.57% 20,713 2,366,428 5.57% 131,810 2,366,428 5.57% 131,810 151,596 5.57% 8,444 0 5.57% 0 2,518,024 5.57% 140,254 Other deferred tax liabilities 4,339,361 0 4,339,361 5.57% 241,702 (4,339,361) 5.57% (241,702) 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 IFRS 5 reclassification 0 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 Total 167,279,042 2,355,208 169,634,250 9,448,627 (166,416,679) (9,269,409) 371,875 20,713 2,845,696 158,505 2,845,696 158,505 151,596 8,444 0 0 2,997,292 166,949 IRAP \- Deferred tax assets and liabilities for the year Taxable temporary differences 77 A2A Separate financial statements 2021 Case description amounts in euro Previous year Non-recurring transactions Deferred taxes previous year Adjustments (+/-) Uses in current year Sub-total Changes in tax rate Increases for the year Equity Total deferred tax assets Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxed risk provisions 179,448,723 65,383 179,514,106 5.57% 9,998,879 (300,016) 5.57% (16,711) 13,850,688 5.57% 771,483 165,363,402 5.57% 9,210,741 165,363,402 5.57% 9,210,741 17,609,448 5.57% 980,846 30,660,644 5.57% 1,707,798 213,633,494 5.57% 11,899,386 Amortization, depreciation and write-downs 4,583,715 0 4,583,715 5.57% 255,313 0 5.57% 0 0 5.57% 0 4,583,715 5.57% 255,313 4,583,715 5.57% 255,313 0 5.57% 0 0 5.57% 0 4,583,715 5.57% 255,313 Costs for business combinations 0 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 Grants 0 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 Goodwill 18,557,353 130,751 18,688,104 5.57% 1,040,927 0 5.57% 0 0 5.57% 0 18,688,104 5.57% 1,040,927 18,688,104 5.57% 1,040,927 0 5.57% 0 0 5.57% 0 18,688,104 5.57% 1,040,927 Other deferred tax assets (10,682,878) 8,639 (10,674,239) 5.57% (594,559) 0 5.57% 0 0 5.57% 0 (10,674,239) 5.57% (594,555) (10,674,239) 5.57% (594,555) 0 5.57% 0 (39,464,437) 5.57% (2,198,169) (50,138,676) 5.57% (2,792,724) IFRS 5 reclassification 0 0 0 5.57% 0 (116,853) 5.57% (10,898) 0 5.57% 0 (116,853) 5.57% (10,898) (116,853) 5.57% (10,898) 0 5.57% 0 0 5.57% 0 (116,853) 5.57% (10,898) Total 191,906,913 204,773 192,111,686 10,700,560 (416,869) (27,609) 13,850,688 771,483 177,844,129 9,901,528 177,844,129 9,901,528 17,609,448 980,846 (8,803,793) (490,371) 186,649,784 10,392,004 Case description amounts in euro Previous year Non-recurring transactions Deferred taxes previous year Adjustments (+/-) Uses in current year Sub-total Changes in tax rate Increases for the year Equity Total deferred tax liabilities Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Taxable amount Rate Tax Measurement differences for tangible assets 162,623,631 0 162,623,631 5.57% 9,058,136 (162,144,363) 5.57% (9,031,441) 0 5.57% 0 479,268 5.57% 26,695 479,268 5.57% 26,695 0 5.57% 0 0 5.57% 0 479,268 5.57% 26,695 Adoption of the finance lease standard (IAS 17) 0 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 Measurement differences of intangible assets 316,050 2,355,208 2,671,258 5.57% 148,789 67,045 5.57% 3,734 371,875 5.57% 20,713 2,366,428 5.57% 131,810 2,366,428 5.57% 131,810 151,596 5.57% 8,444 0 5.57% 0 2,518,024 5.57% 140,254 Other deferred tax liabilities 4,339,361 0 4,339,361 5.57% 241,702 (4,339,361) 5.57% (241,702) 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 IFRS 5 reclassification 0 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0 Total 167,279,042 2,355,208 169,634,250 9,448,627 (166,416,679) (9,269,409) 371,875 20,713 2,845,696 158,505 2,845,696 158,505 151,596 8,444 0 0 2,997,292 166,949 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 78 3 Notes 33) Net result from discontinued operations The “Net result from discontinued operations” was negative and equal to 304 million euro (negative for 3,797 million euro at December 31, 2020) and refers: for -1,959 thousand euro to the reclassification of depreciation relating to three buildings in the Milan area which, in compliance with IFRS5, at December 31, 2021, have been reclassified under “Assets held for sale” (for consistency, depreciation for the year 2020 was also reclassified here for 1,955 thousand euro); for -295 thousand euro for the recognition of a loss on the investment in Sviluppo Turistico Lago d’Iseo S.p.A., equal to 24.29% of the share capital, for which the company exercised its right of withdrawal and which was reclassified under “Assets held for sale”; for 1,950 thousand euro to the gain realized on the sale of the investment held in Ge.S.I. S.r.l. of 47% of the share capital. In 2020, this item was negative, net of the reclassification of amortization, for 1,842 thousand euro and referred to the sale of the shares, equal to 4.16%, of the company Ascopiave S.p.A. for which A2A S.p.A. had exercised the right of withdrawal, net of dividends collected. 34) Net result for the year The result, net of taxes for the year, was positive for 485,478 thousand euro (545,729 thousand euro at December 31, 2020). 79 A2A Separate financial statements 2021 3.9 Note on related party transactions 35) Note on related party transactions The definition of “related parties” is included in the international accounting standard describing the disclosures which must be made for related party transactions in financial statements (revised IAS 24). Relationships with parent companies and their subsidiaries On October 5, 2007, the Municipalities of Milan and Brescia signed a Shareholders’ Agreement to regulate the ownership structure of A2A S.p.A.; this gave the Municipalities joint control over the company. Specifically, the merger effective January 1, 2008, regardless of the legal structure established, was considered a joint venture, whose joint control was exercised by the Municipalities of Milan and Brescia, each of which owned a share equal to 27.5%. On June 13, 2014, the Shareholders’ Meeting modified the company’s governance system, passing from the original two-tier system, adopted in 2007, to a “traditional” system of management and control through the appointment of the Board of Directors. In December 2014, the Municipalities of Milan and Brescia sold a total shareholding of 0.51% of A2A S.p.A., while in the first two months of 2015, the Municipalities of Milan and Brescia sold an additional shareholding of 4.5% of A2A S.p.A.. On October 4, 2016, the Municipalities of Milan and Brescia renewed for another three years, with effect from January 1, 2017, the Shareholders’ Agreement signed on December 30, 2013, concerning 1,566,452,642 ordinary shares representing 50% plus two shares of the share capital of A2A S.p.A.. On May 20, 2016, the two Municipalities had proceeded to sign an appendix to the Agreement, whichenvisaged reducing from six months to three months the term of the agreement, during which it is possible to terminate the same. On October 26, 2016, the Municipality of Milan received from the Municipality of Brescia the proposal, approved by the Council of said Municipality on October 25, 2016, to partially amend the shareholders’ agreement relating to A2A S.p.A. existing between the two Municipalities. In particular, said proposal requires the commitment of the two Municipalities to maintain syndicated and bound, in the new agreement, a number of shares held by them in equal measure, equal to 42% of the share capital of A2A S.p.A.. On November 4, 2016, the Council of the Municipality of Milan, after having favourably examined the proposal of the Municipality of Brescia of a partial amendment to the shareholders’ agreement, submitted to the Municipal Council the proposal of the new shareholders’ agreement for the final determinations of competence. On January 23, 2017, the Milan City Council approved the new Shareholders’ Agreement between the Municipality of Milan and the Municipality of Brescia regarding the shareholding in A2A S.p.A. and has undertaken the commitment not to proceed with the disposal of any shares owned by the Municipality of Milan. On August 2, 2019, the Municipality of Milan, also on behalf of the Municipality of Brescia, announced that the aforementioned Shareholders’ Agreement was not subject to termination. Consequently, the agreement is to be considered renewed with effect from February 1, 2020 to January 31, 2023. At the date of approval of these Separate Financial Statements at December 31, 2021, the two shareholders held a shareholding of 50% plus two shares that enables the two municipalities to maintain control over the Company. The A2A Group companies and the Municipalities of Milan and Brescia routinely entertain commercial relationships related to the supply of electricity, gas, heat, and potable water, management of public lighting systems and street lights, management of water purification and sewers, garbage collection and street sweeping and video surveillance. Similarly, the A2A Group companies entertain commercial relationships with the companies directly and indirectly controlled by the Municipalities of Milan and Brescia, for example, Metropolitana Milanese S.p.A., ATM S.p.A., Brescia Mobilità S.p.A., Brescia Trasporti S.p.A. and Centrale del Latte di Brescia S.p.A., supplying them with electrical energy, gas, heat, water purification and sewer service at market rates appropriate to the supply conditions and providing the services required. Note that these companies are considered related parties in the preparation of the financial statement schedules pursuant to Consob Resolution 17221 of March 12, 2010. The relationships between the Municipalities of Milan and Brescia and the A2A Group, in relation to granting the services associated with public lighting, street lights, management and supply of electricity, gas, heat, and water purification and sewer service are regulated by special conventions and specific contracts. The relationships between the companies controlled by the Municipalities of Milan and Brescia, which refer to the supply of electricity, are at arm’s length conditions. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 80 80 3 Notes On April 12, 2017, Amsa S.p.A., a subsidiary of A2A S.p.A., signed a contract with the Municipality of Milan for the management of environmental protection services for the period January 1, 2017 \- February 8, 2021, extended until April 30, 2022\. On December 30, 2021, the Municipality of Milan sent to the Republic of Italy Official Journal the call for tenders for the European open procedure for the contracting of the municipal waste management service with reduced environmental impact from a life-cycle perspective, pursuant to the action plan for the environmental sustainability of consumption in the public administration sector (PAN GPP) and the Decree of the Ministry of the Environment and Protection of Land and Sea of February 13, 2014\. The call for tenders stipulated that bids had to be submitted by the deadline of July 11, 2022; therefore, it is foreseeable in any case that the Municipality of Milan will extend the technical extension for the time necessary to reach final awarding of the tender. Furthermore, the Municipality of Milan has communicated through the official channels where the tender is notified that, by means of Orders no. 264/2022 and no. 265/2022, published on March 2, 2022, the Lombardy Regional Administrative Court, Milan, Section I, granted the precautionary requests submitted by two economic operators and, as a result, suspended the tender procedure, setting the public hearing on November 9, 2022 for discussion of the merits of the appeal. Pending the deadlines and the suspension, Amsa is preparing documentation for participation in the call. Relationships with subsidiaries and affiliates The parent company A2A S.p.A., operates like a centralized treasury for the majority of the subsidiaries. Relations between the companies are regulated through current accounts between the parent company and the subsidiaries, on which rates are applied, at market conditions, based on variable Euribor, with specific spreads for companies. For the financial year 2020, A2A S.p.A. and its subsidiaries have adopted the VAT procedure of the Group. Note that for IRES purposes, A2A S.p.A. files for tax on a consolidated basis, together with its main subsidiaries, in accordance with arts. 117-129 of DPR 917/86. To this end, with each of the subsidiaries joining, a special contract was drawn up to regulate the tax advantages/disadvantages transferred, with specific reference to the current entries. These contracts also govern the transfer of any excess of ROL as set forth by prevailing legislation. The parent company provides the subsidiaries and affiliates with administrative, fiscal, legal, management and technical services in order to optimize the resources available in the company and to use the existing expertise in terms of economic convenience. These services are governed by specific service contracts stipulated annually. A2A S.p.A. also makes office space and operating areas at its own premises available to subsidiaries and associates, as well as associated services. These are provided at market conditions. The companies A2A gencogas S.p.A. and A2A Energiefuture S.p.A., for a monthly fee related to the actual availability of the thermoelectric plants, provide to the Parent Company the power generation service. As of July 1, 2018, the ACSM-AGAM Group’s related-party transactions with related parties of the A2A Group are shown as related parties. As of November 1, 2020, the AEB Group’s related-party transactions with related parties of the A2A Group are shown as related parties. Lastly, in compliance with the requirements of the “Regulation on provisions relating to related party transactions” adopted by Consob with Resolution no. 17221 of March 12, 2010 and subsequently amended by Resolution no. 17389 of June 23, 2010, by way of a resolution of November 11, 2010 the Management Board approved, following the favorable opinion of the Internal Control Committee, the prescribed procedure for identifying the rules and controls designed to ensure the transparency and substantial and procedural correctness of the related party transactions carried out by A2A S.p.A. directly or through its subsidiaries. The aforementioned Procedure was applied effective January 1, 2011 and subsequently amended on August 1, 2012, November 7 and December 18, 2013 and June 22, 2015. Following a periodic review, the Procedure was subsequently amended/supplemented and approved by the Board of Directors on June 20, 2016, subject to the favourable opinion of the Audit and Risks Committee and then updated on June 22, 2017, in view of Consob Resolution no. 19925 of March 22, 2017 and on December 16, 2019, in view of the amendments to art. 192-quinquies of Legislative Decree February 24, 1998, no. 58 (“TUF”) (art. 4 of Legislative Decree May 10, 2019, no. 49). Lastly, by resolution of the Board of Directors on June 25, 2021, subject to the favourable opinion of the Related Parties Committee established by board resolution of May 13, 2021, the Procedure was amended \- effective as of July 1, 2021 \- to comply with the Related Parties Regulation, as amended by Consob resolution no. 21624 of December 10, 2020, in implementation of the so-called “Shareholders’ Rights II” Directive. The aforementioned Procedure can be found on the website 81 A2A Separate financial statements 2021 Below are the tables with detail of the related party transactions, in accordance with the Consob Resolution no. 17221 of March 12, 2010: Balance sheet thousands of euro Total 12 31 2021 Of which with related parties Companies subsidiaries Companies associated/related and subsidiaries of associates Municipality of Milan Subsidiaries direct and indirect Municipality of Milan Municipality of Brescia Subsidiaries direct and indirect Municipality of Brescia Related parties individuals Total related parties % effect on the balance sheet item TOTAL ASSETS OF WHICH: 15,105,729 7,713,596 59,308 3,486 3 222 139 \- 7,776,754 51.5% Non-current assets 6,735,274 5,552,469 9,585 \- \- \- 139 \- 5,562,193 82.6% Tangible assets 934,219 41,540 \- \- 41,540 4.4% Shareholdings 4,204,056 4,203,179 877 \- 4,204,056 100.0% Other non-current financial assets 1,334,678 1,307,739 8,708 139 \- 1,316,586 98.6% Other non-current assets 13,054 11 11 0.1% Current assets 8,323,667 2,161,127 49,283 3,486 3 222 \- \- 2,214,121 26.6% Trade receivables 2,155,509 884,612 49,283 3,486 3 222 \- 937,606 43.5% Other current assets 3,912,370 74,847 \- 74,847 1.9% Current financial assets 1,204,974 1,201,668 \- 1,201,668 99.7% Non-current assets held for sale 46,788 440 440 0.9% TOTAL LIABILITIES OF WHICH: 11,773,349 829,631 72,561 156 59 \- 1 113 902,521 7.7% Non-current liabilities 4,455,903 38,911 \- \- \- \- \- \- 38,911 0.9% Non-current financial liabilities 4,191,240 38,911 \- \- \- \- \- 38,911 0.9% Current liabilities 7,317,446 790,720 72,561 156 59 \- 1 113 863,610 11.8% Trade payables 2,172,866 365,207 65,394 156 59 1 430,817 19.8% Other current liabilities 4,156,909 62,001 7,167 113 69,281 1.7% Current financial liabilities 981,736 363,512 363,512 37.0% Income statement thousands of euro Total 12 31 2021 Of which with related parties Companies subsidiaries Companies associated/related and subsidiaries of associates Municipality of Milan Subsidiaries direct and indirect Municipality of Milan Municipality of Brescia Subsidiaries direct and indirect Municipality of Brescia Related parties individuals Total related parties % effect on the balance sheet item REVENUES 8.255.984 2.810.810 53.695 2.595 \- 149 \- \- 2.867.249 34.7% Revenues from the sale of goods and services 8.196.015 2.805.894 53.691 2.595 149 2.862.329 34.9% Other operating income 59.969 4.916 4 4.920 8.2% OPERATING EXPENSES 7.903.709 712.483 63.645 \- 231 \- 29 290 776.678 9.8% Expenses for raw materials and services 7.322.232 306.253 110 231 29 290 306.913 4.2% Other operating expenses 581.477 406.230 63.535 469.765 80.8% LABOUR COSTS 160.014 \- \- \- \- \- \- 1.742 1.742 1.1% AMORTIZATION, DEPRECIATION, PROVISIONS AND WRITE-DOWNS 123.140 5.784 \- \- \- \- \- \- 5.784 4.7% FINANCIAL BALANCE 375.773 442.083 209 \- \- \- \- \- 442.292 n.s. Financial income 448.739 444.386 212 444.598 99.1% Financial expenses 72.966 2.303 3 2.306 3.2% Net result from discontinued operations (304) (295) (295) 97.0% Section 2 of this file provides complete schedules as required under Consob Resolution no. 17221 of March 12, 2010. It should be noted that during the year, A2A S.p.A. made grants totalling 2,859 thousand euro to foun-dations that have been included on a voluntary basis among related parties. Specifically, these involve: Fondazione AEM, Fondazione ASM, Comitato Banco dell’Energia Onlus, Fondazione Teatro alla Scala and Fondazione Brescia Musei. * * * With regard to the compensation paid to the corporate governance bodies, reference shall be made to the document “Remuneration Report – 2022” available on the website 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 82 82 3 Notes 3.10 Consob Communication no. DEM/6064293 of July 28, 2006 36) Consob Communication no. DEM/6064293 of July 28, 2006 It should also be noted that the company exercised the realignment option, as provided for by Decree Law 104/2020, which made it possible to realign the differences between higher statutory values and lower values for tax purposes on tangible assets by releasing deferred tax liabilities as better specified in note 4) Deferred tax assets. Moreover, the year in question has seen the following non-recurring transactions: the merger by incorporation of the subsidiary Linea Group Holding S.p.A., with effect from January 1, 2021, following the acquisition by A2A S.p.A. of 49% of the share capital of that company by means of the assignment of treasury shares amounting to 2.75% of the share capital of A2A S.p.A., as described in greater detail in the section “Significant events during the year” in the Report on operations. The values of the merged company’s assets and liabilities are the same as those shown in the Group’s consolidated financial statements; the merger by incorporation of the subsidiary Suncity Energy S.r.l., with effect from January 1, 2021; the merger by incorporation of the subsidiary A2A Telecommunications S.r.l., with effect from February 1, 2021. Below is the table with the effects of the non-recurring transactions described above. 83 A2A Separate financial statements 2021 Detail of non-recurrering transactions amounts in euro Note Merger by incorporation of Linea Group Holding S.p.A. 01/01/2021 Merger by incorporation of Suncity Energy S.r.l. 01/01/2021 Merger by incorporation of A2A Telecommunication S.r.l. 02/01/2021 EFFECT OF NON-RECURRING TRANSACTIONS 2021 ASSETS NON-CURRENT ASSETS Tangible assets 1 8,175,212 164,921 6,988,238 15,328,371 Intangible assets 2 30,300,192 2,460,523 339,192 33,099,907 Shareholdings 3 201,713,395 (4,269,000) (9,100,000) 188,344,395 Other non-current financial assets 3 (244,901,127) (244,901,127) Deferred tax assets 4 654,776 306,215 125,628 1,086,619 Other non-current assets 5 1,573,165 28,039 1,601,204 Total non-current assets (2,484,387) (1,309,302) (1,646,942) (5,440,631) CURRENT ASSETS Inventories 6 120,196 120,196 Trade receivables 7 16,864,683 1,514,474 (863) 18,378,294 Other current assets 8 10,583,535 127,336 10,710,871 Current financial assets 9 58,212,226 58,212,226 Current tax assets 10 2,758,425 28,051 2,786,476 Cash and cash equivalents 11 958,869 10,000 968,869 Total current assets 89,497,934 1,669,861 9,137 91,176,932 NON-CURRENT ASSETS HELD FOR SALE 12 - TOTAL ASSETS 87,013,547 360,559 (1,637,805) 85,736,301 EQUITY AND LIABILITIES EQUITY Share capital 13 - (Treasury shares) 14 162,406,701 162,406,701 Reserves 15 (132,315,304) (1,844,154) (2,228,376) (136,387,834) Net result of the year 16 - Equity 30,091,397 (1,844,154) (2,228,376) 26,018,867 LIABILITIES NON-CURRENT LIABILITIES Non-current financial liabilities 17 12,115,161 98,809 12,213,970 Deferrex tax liabilities 4 369,551 696,092 3,062 1,068,705 Employee benefits 18 1,639,406 50,238 388,911 2,078,555 Provisions for risks, charges and liabilities for landfills 19 2,614,150 307,500 2,921,650 Other non-current liabilities 20 8,817 8,817 Total non-current liabilities 16,738,268 1,161,456 391,973 18,291,697 CURRENT LIABILITIES Trade payables 21 4,714,453 3,312,515 8,026,968 Other current liabilities 21 7,723,144 (61,150) 198,598 7,860,592 Current financial liabilities 22 27,746,285 (2,208,108) 25,538,177 Tax payables 23 - Total current liabilities 40,183,882 1,043,257 198,598 41,425,737 TOTAL LIABILITIES 56,922,150 2,204,713 590,571 59,717,434 LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE - TOTAL EQUITY AND LIABILITIES 87,013,547 360,559 (1,637,805) 85,736,301 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 85 A2A Separate financial statements 2021 3.11 Guarantees and commitments with third parties thousands of euro 12 31 2021 12 31 2020 Guarantees received 412,033 330,144 Guarantees provided 218,187 103,142 Guarantees received Guarantees received amounted to 412,033 thousand euro (330,144 thousand euro at December 31, 2020) and include 94,159 million euro for sureties and security deposits issued by subcontractors to guarantee the proper execution of the work assigned and 317,874 thousand euro for sureties and security deposits received from customers to guarantee the regularity of payments. Guarantees provided and commitments with third parties Guarantees provided amounted to 218,187 thousand euro (103,142 thousand euro at December 31, 2020), of which for obligations undertaken in the loan agreements of 1,300 thousand euro. Said guarantees include bank sureties for 216,568 thousand euro, insurance for 64 thousand euro and parent company guarantees related to associated companies for 1,555 thousand euro. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 86 86 3 Notes 3.12 Other information 1) Significant events after December 31, 2021 Reference should be made to the specific section of this Report on Operations for a description of subsequent events. 2) Information on treasury shares A2A S.p.A. does not hold any treasury shares at December 31, 2021\. At December 31, 2020, the treasury shares held by the company were 23,721,421, amounting to 53,661 thousand euro. During the second quarter of 2021, the company purchased treasury shares for a value of 108,746 thousand euro, by virtue of the share buyback program initiated on May 13, 2021 and concluded on June 24, 2021, thus coming to hold 86,154,895 treasury shares, equal to 2.75% of the share capital. A2A S.p.A. then proceeded to acquire 49% of the share capital of Linea Group Holding S.p.A. by assigning these treasury shares to minority shareholders. At December 31, 2021, no treasury shares were held through subsidiaries, finance companies or nominees. 3) Information on non-current assets held for sale and discontinued operations (IFRS 5) The item “Non-current assets held for sale” at December 31, 2021 amounted to 46,788 thousand euro and includes the reclassification of tangible assets regarding the properties located in Milan in Corso di Porta Vittoria (Signora), in Via Gonin and in Via Balduccio da Pisa (Orobia), which will be sold in the following year, net of depreciation and deferred taxes related to them, as well as the reclassification of the equity investment, equal to 24.29% of the share capital, in the company Sviluppo Turistico Lago d’Iseo S.p.A., for which the company exercised its right of withdrawal. The impact on the Income Statement of the reclassification of amortization and depreciation and recognition of the loss on the investment amounted to 2,254 thousand euro. 4) Rules on public funding (Compliance with art. 1, paragraphs 125 et seq. of Law 124/17) Pursuant to art. 1, paragraphs 125 et seq. of Law 124/17, considering that the Group companies have not received “subsidies, grants, advantages, contributions or aid, whether in cash or in kind, not general and with no consideration, remuneration or compensation”, this note is negative. It is understood that other information is (also in line with the principle set out in art. 18 of Law 241/1990) available elsewhere, including the State Aid Register, also under the criterion set out in paragraph 127 of the same art. 1 of Law 124/17, which prescribes to “avoid the accumulation of irrelevant information”. It should also be noted that the companies of the A2A Group operate (for the most part) in regulated sectors. Therefore, some sums are recognized by public bodies, but not as subsidies/contributions, but as recognition of the activities they provide or as forms of compensation for costs incurred to meet specific regulatory obligations and in any case by virtue of a general regime (e.g. energy incentives). Also all these forms of payment have not been indicated: also in compliance with both the literal aspect of the regulations and with the interpretation criteria that the Group companies have identified (see above). 5) Financial risk management The parent company, A2A S.p.A., provides centralized risk management for Group companies. The A2A Group operates in the electricity, natural gas and district heating industry and is exposed to various financial risks in performing its activity: a) commodity risk; b) interest rate risk; c) exchange rate risk not related to commodities; d) liquidity risk; e) credit risk; f) equity risk; g) default and covenant non-compliance risk. The commodity price risk, related to the volatility of energy commodity prices (gas, electricity, fuel oil, coal, etc.) and prices of environmental securities (EUA/ETS emission rights, green certificates, white certificates, etc.), consists of the possible negative effects that a change in the market price of one or 87 A2A Separate financial statements 2021 more commodities may have on the cash flows and income prospects of the company, including the exchange rate risk related to the same commodities. Interest rate risk is the risk of additional financial costs as the result of an unfavourable change in interest rates. Currency risk not related to commodities is the risk of higher costs or lower revenues because of an unfavourable change in exchange rates between currencies. Liquidity risk is the risk that financial resources will not be sufficient to meet established financial and business obligations in a timely manner. Credit risk is the exposure to potential losses deriving from non-performance of commitments by commercial, trading and financial counterparties. Equity risk is the possibility of incurring losses due to an unfavourable change in the price of shares. Default and covenant non-compliance risk represent the possibility that loan agreements or bond regulations to which one or more Group companies are party contain provisions allowing the counterparties, banks or bondholders, to ask the debtor for immediate reimbursement of the amounts lent if certain events take place. Details on the risks to which A2A S.p.A. is exposed are provided below. a. Commodity risk a.1) Commodity price risk and exchange rate risk involved in commodity activities A2A S.p.A. is exposed to price risk, including the related exchange rate risk, on all of the energy commodities that it handles, namely electricity, natural gas, heat, coal, fuel oil, and environmental certificates; the financial performance of production, purchasing and sales activities is affected by the related price fluctuations. These fluctuations act both directly and indirectly, through formulas and indexing in the pricing structure. To stabilize cash flows and to assure the Group’s economic and financial stability, A2A S.p.A. has an Energy Risk Policy that sets out clear guidelines to manage and control the above risks, based on guidance by the Committee of Chief Risk Officers Organizational Independence and Governance Working Group (“CCRO”) and the Group on Risk Management of Euroelectric. Reference was also made to the Accords of the Basel Committee on bank supervision and the requirements laid down in international accounting standards on how to recognize the volatility of commodity price and financial derivatives in the income statement and balance sheet. In the A2A Group, assessment of this kind of risk is centralized at the holding company, which has established a Group Risk Management Organizational Unit as part of the Planning, Finance and Control Organizational Unit. This unit has the task to manage and monitor market and commodity risks, to create and evaluate structured products, to propose financial energy risk hedging strategies, and to support senior management in defining the Group’s energy risk management policies. Each year, the Board of Directors of A2A S.p.A. sets the Group’s commodity risk limits approving the PaR and VaR proposed (prepared in the Risk Committee) in conjunction with approval of the Budget/Business Plan; Group Risk Management supervises the situation to ensure compliance with these limits and proposes to senior management the hedging strategies designed to bring risk within the set limits, if exceeded. The activities that are subject to risk management include all of the positions on the physical market for energy products, both purchasing/production and sales, and all of the positions in the energy derivatives market taken by Group companies. For the purpose of monitoring risks, industrial and trading portfolios have been separated and are managed in different ways. The industrial portfolio consists of the physical and financial contracts directly relating to the Group’s industrial operations, namely where the objective is to enhance production capacity also through the wholesaling and retailing of gas, electricity and heat. The trading portfolio comprises all contracts, both physical and financial, entered into to supplement the profits made from the industrial activities, i.e. all contracts that are ancillary though not strictly necessary to the industrial activity. In order to identify trading activity, the A2A Group follows the Capital Adequacy Directive and the definition of assets held for trading provided by International Accounting Standard (IFRS) 9: namely assets held for the purpose of short-term profit taking on market prices or margins, without being for hedging purposes, and designed to create a high-turnover portfolio. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 88 88 3 Notes Given that they exist for different purposes, the two portfolios have been segregated and are monitored separately with specific tools and limits. More specifically, the trading portfolio is subject to particular risk control and management procedures as laid down in Deal Life Cycle documents. Senior management is systematically updated on changes in the Group’s commodity risk by the Group Risk Management Unit, which controls the Group’s net exposure. This is calculated centrally on the entire asset and contract portfolio and monitors the overall level of economic risk assumed by the industrial and trading portfolios (Profit at Risk \- PaR, Value at Risk \- VaR, Stop Loss). a.2) Commodity derivatives, analysis of transactions Derivatives of the industrial portfolio considered hedges The hedging of price risk by means of derivatives focuses on protecting against the volatility of energy prices on the power exchange (IPEX-EEX), stabilizing electricity price margins on the wholesale market with particular attention being paid to fixed price energy sales and purchases and stabilizing price differences deriving from various indexing mechanisms for the pricing of gas and electricity. To that end, hedging contracts were executed during the year on electricity purchase and sale agreements and on contracts to hedge the fee for the use of electricity transport capacity between the areas of the IPEX market (CCC contracts); hedging contracts were also concluded for the purchase and sale of gas so as to protect sales margins and at the same time keep the risk profile to within the limits set by the Group’s Energy Risk Policy. As part of the optimization of the portfolio of greenhouse gas emission allowances (see Directive 2003/87/EC), A2A S.p.A. has stipulated Future contracts on the ICE ECX (European Climate Exchange) price. These are considered hedging transactions from an accounting point of view in the event of demonstrable surplus/deficit quotas. The fair value at December 31, 2021 was 60,114 thousand euro (23,952 thousand euro at December 31, 2020). Derivatives of the industrial portfolio not considered hedges Again with a view to optimising the Industrial Portfolio, A2A S.p.A. entered into Future contracts on the ICE ECX (European Climate Exchange) stock exchange price. These do not qualify as hedging transactions from an accounting point of view as they fail to meet the requirement set out in the accounting standards. The fair value at December 31, 2021 was 252 thousand euro (-488 thousand euro at December 31, 2020). Derivatives of the Trading Portfolio As part of its trading activity, A2A S.p.A. has taken out Future contracts on major European energy stock exchanges (EEX, ICE) and forward contracts on the price of electricity with delivery in Italy and neighboring countries such as France, Germany and Switzerland. A2A S.p.A. has also stipulated Future contracts on the ICE ECX (European Climate Exchange) stock exchange price. Also as part of trading activities, both Future and Forward contracts were also stipulated for the market price of gas (ICE-Endex CEGH, PEGAS). The fair value at December 31, 2021 was -31,562 thousand euro (-654 thousand euro at December 31, 2020). a.3) Energy Derivatives, risk assessment of Industrial Portfolio derivatives PaR1(Profit at Risk) is used to assess the impact that fluctuations in the market price of the underlying have on the financial derivatives taken out by A2A S.p.A. that are attributable to the industrial portfolio. It is the change in the value of a financial instruments portfolio within set probability assumptions as the result of a shift in the market indices. The PaR is calculated using the Montecarlo Method (at least 10,000 trials) and a 99% confidence level. It simulates scenarios for each relevant price driver depending on the volatility and correlations associated with each one, using as the central level the forward market curves at the balance sheet date, if available. By means of this method, after having obtained a distribution of probability associated with changes in the result of outstanding financial contracts, it is possible to extrapolate the maximum change expected over a time horizon given by the accounting period at a set level of probability. Based on this methodology, over the time horizon of the accounting period and in the event of extreme market movements and at a 99% confidence level, the expected maximum negative change in financial derivatives outstanding at December 31, 2021 was 310,036 thousand euro (54,679 thousand euro at December 31, 2020). 1 Profit at Risk: statistical measurement of the maximum potential negative deviation of the margin of an asset portfolio in case of unfavourable market changes over a given time horizon and with a defined confidence interval. 89 A2A Separate financial statements 2021 The following are the results of the simulation with the related maximum variances: thousands of euro 12 31 2021 12 31 2020 Profit at Risk (PaR) Worst case Best case Worst case Best case Confidence level 99% (310,036) 468,517 (54,679) 73,733 This means that with a 99% probability, A2A S.p.A. expects not to have changes in fair value exceeding 310,036 thousand euro in the fair value of its entire portfolio of financial instruments at December 31, 2021 due to commodity price fluctuations in the 12 months following. The increase over the prior year is attributable to the combined effect of higher prices and volatility of energy commodities that occurred at the end of 2021\. If there are any negative changes in the fair value of hedge derivatives, these would be compensated by changes in the underlying physical. a.4) Energy Derivatives, risk assessment of Trading Portfolio derivatives VaR2(Value at Risk) is used to assess the impact that fluctuations in the market price of the underlying have on the financial derivatives taken out by A2A S.p.A. that are attributable to the trading portfolio. It is the negative change in the value of a financial instruments portfolio within set probability assumptions as the result of an unfavourable shift in the market indices. VaR is calculated using the RiskMetrics method with a holding period of 3 days and a confidence level of 99%. Alternative methods are used for contracts where it is not possible to perform a daily estimate of VaR such as stress test analysis Under this method, in the case of extreme market movements, with a confidence level of 99% and a holding period of 3 days, the maximum estimated loss on the derivatives in question was 1,673 thousand euro at December 31, 2021 (315 thousand euro at December 31, 2020). In order to ensure closer monitoring of activities, VaR and Stop Loss (the sum of VaR, P&L Realized and P&L Unrealized) limits are also set. The following are the results of the assessments: thousands of euro 12 31 2021 12 31 2020 Value at Risk (VaR) VaR Stop Loss VaR Stop Loss Confidence level 99%, holding period 3 days (1,673) (1,673) (315) (315) b. Interest rate risk The volatility of financial expenses associated to the performance of interest rates is monitored and mitigated through a policy of interest rate risk management aimed at identifying a balanced mix of fixed-rate and floating rate loans and the use of derivatives that limit the effects of fluctuations in interest rates. The book value of bank borrowings and other financing may be analyzed as follows at December 31, 2021: 2 Value at Risk: statistical measurement of the maximum potential drop in the fair value of an asset portfolio in the event of unfavourable movements in the market with a given time horizon and confidence level. millions of euro 12 31 2021 12 31 2020 Without derivatives With derivatives % with derivatives Without derivatives With derivatives % with derivatives Fixed rate 3,603 3,750 79% 2,975 3,145 75% Variable rate 1,144 997 21% 1,226 1,056 25% Total 4,747 4,747 100% 4,201 4,201 100% 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 90 90 3 Notes At December 31, 2021, the following are the hedging instruments for interest rate risk: millions of euro 12 31 2021 12 31 2020 HEDGING INSTRUMENT HEDGED ASSET Fair value Notional Fair value Notional Collar Finanz. tasso variabile (1.6) 38.1 (3,5) 57.1 Total (1.6) 38.1 (3.5) 57.1 With reference to the accounting treatment, hedging derivatives for interest rate risk can be classified as follows: The table below shows the technical characteristics and accounting treatment of derivatives existing at December 31, 2021: Hedged loan Derivative Accounting A2A S.p.A. loan with BEI: expiring in November 2023, residual balance at December 31, 2021 amounting to 38.1 million euro, at variable rate. Collar to fully cover the loan and the same maturity, with a floor on Euribor rate 2.99% and 4.65% cap. At December 31, 2021, the fair value was negative for 1.6 million euro. The loan is measured at amortized cost. The collar is a cash flow hedge, with 100% recognized in a specific equity reserve. A2A performs sensitivity analysis by estimating the effects on the value of financial statement items relating to the portfolio of financial instruments deriving from changes in the level of interest rates. In particular, the sensitivity analysis measures the potential impact on the Income Statement and shareholders’ equity of different market scenarios that would determine the change in fair value of derivative financial instruments and the change in financial expenses related to the portion of gross debt not hedged. These market scenarios are obtained by shifting the reference interest rate curve at the reporting date up and down in parallel. Keeping all other variables constant, the pre-tax result is impacted by changes in the level of interest rates as follows: millions of euro Effect on the Income Statement (before tax) Effect on Equity (before tax) -50 bps +50 bps -50 bps +50 bps Change in financial expenses on gross variable-rate debt after hedging 0.1 (2.4) - - Change in fair value of derivative financial instruments classified as non-hedge - - - - Change in fair value of derivative financial instruments classified as hedge (excluding BCVA as per IFRS 13): Cash flow hedge - - (0.2) 0.2 Fair value hedge - - - - millions of euro ACCOUNTING TREATMENT TYPE OF DERIVATIVES FINANCIAL ASSETS FINANCIAL LIABILITIES Notional at Fair value at Notional at Fair value at 12/31/2021 12/31/2020 12/31/2021 12/31/2020 12/31/2021 12/31/2020 12/31/2021 12/31/2020 Cash flow hedge Collar - - - - 38.1 57.1 1.6 3.5 Total - - - - 38.1 57.1 1.6 3.5 91 A2A Separate financial statements 2021 c. Exchange rate risk not related to commodities In relation to exchange rate risk other than that included in the price of commodities, the hedging instrument at December 31, 2021 is as follows: millions of euro 12 31 2021 12 31 2020 HEDGING INSTRUMENT HEDGED ASSET Fair value Notional Fair value Notional Cross Currency IRS Fixed rate loan in foreign currency (9.0) 98.0 (14.7) 98.0 Total (9.0) 98.0 (14.7) 98.0 The accounting treatment of the derivative indicated above is as follows: In particular, the underlying of the Cross Currency IRS derivative refers to the bond at fixed rate of 14 billion yen with maturity 2036 bullet issued in 2006. A cross currency swap contract was stipulated for the entire duration of this loan, which converts the principal and interest payments from yen into euro. At December 31, 2021, the fair value of the hedge was negative for 9.0 million euro. The fair value and, as a consequence, the effect on equity, would improve by 17.8 million euro in the event of a 10% increase in the forward curve of the euro/yen exchange rate with an appreciation of the yen, while it would worsen by 4.3 million euro in the event of a 10% drop in the forward curve of the euro/yen exchange rate with a depreciation of the yen. The sensitivity analysis was performed with the aim of calculating the effect of changes in the forward curve of the euro/yen exchange rate on the fair value ignoring any impact on the adjustment due to the bCVA. d. Liquidity risk Liquidity risk is the risk that the company, despite being solvent, is unable to meet its obligations in a timely manner or that it is able to do so under unfavourable economic conditions. The profile of the gross debt maturities of A2A is as follows: millions of euro Accounting Balance 12 31 2021 Portions maturing within 12 months Portions maturing beyond 12 months Portions maturing by 12 31 2023 12 31 2024 12 31 2025 12 31 2026 After Bonds 3,713 533 3,180 300 300 299 - 2,281 Loans 1,034 79 955 129 69 76 61 620 Total 4,747 612 4,135 429 369 375 61 2,901 The risk management policy is realized through (i) a debt management strategy diversified by funding sources and maturities, and (ii) maintenance of financial resources sufficient to meet scheduled and unexpected commitments over a given time horizon. At December 31, 2021, the company had a total of 1,986 million euro, as follows: (i) committed revolving credit lines of 1,100 million euro, of which 600 million euro maturing in 2023 and 500 million euro maturing in 2026, unused; (ii) cash and cash equivalents for a total of 886 million euro. A2A also maintains a Bond Issue Program (Euro Medium Term Note Programme) of 6 billion euro, of which 2,400 million euro still available at December 31, 2021 and 2,900 million euro available at the date of preparation of this report. millions of euro ACCOUNTING TREATMENT TYPE OF DERIVATIVES FINANCIAL ASSETS FINANCIAL LIABILITIES Notional at Fair value at Notional at Fair value at 12/31/2021 12/31/2020 12/31/2021 12/31/2020 12/31/2021 12/31/2020 12/31/2021 12/31/2020 Cash flow hedge CCIRS - - - - 98.0 98.0 9.0 14.7 Total - - - - 98.0 98.0 9.0 14.7 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 92 92 3 Notes The following table analyses the worst case for financial liabilities (including trade payables) in which all of the flows shown are undiscounted future nominal cash flows determined on the basis of residual contractual maturities for both principal and interest; they also include the undiscounted nominal flows of derivative contracts on interest rates. 12 31 2020 millions of euro 1-3 MONTHS 4-12 MONTHS AFTER 12 MONTHS Bonds 397 27 2,947 Payables and other financial liabilities - 81 1,049 Total financial flows 397 108 3,996 Payables to suppliers 102 4 - Total trade payables 102 4 - e. Credit risk Credit risk relates to the possibility that a counterparty may be in default, or fail to respect its commitment in the manner and timing provided by contract. This type of risk is managed by the Group through specific procedures (Credit Policy, Energy Risk Management procedure) and appropriate mitigation actions. This risk is overseen by both the Credit Management function allocated centrally (and the corresponding functions of the operating companies) and the Group Risk Management Organizational Unit responsible for supporting the Group companies. Risk mitigation is through the prior assessment of the creditworthiness of the counterparty and the constant verification of compliance with exposure limit as well as through the request for adequate guarantees. The credit terms granted to customers as a whole have a variety of deadlines, in accordance with applicable law and market practice. In cases of delayed payment, default interest is charged as explicitly prescribed by the underlying supply contracts or by current law (application of the default rate as per Legislative Decree 231/2002). Trade receivables are recognized on the balance sheet net of any write-downs. It is felt that the amount shown provides and accurate representation of the fair value of the trade receivables portfolio. For the aging of trade receivables, reference is made to note 7) Trade receivables. f. Equity risk A2A S.p.A. was not exposed to equity risk at December 31, 2021. In particular, it is noted that A2A S.p.A. does not hold any treasury shares at December 31, 2021, as described in greater detail in note 14) Treasury shares of the Notes to the balance sheet. As prescribed by IAS/IFRS, treasury shares do not constitute an equity risk as their purchase cost is deducted from equity, and even if they are sold any gain or loss on the purchase cost does not have any effect on income statement. g. Covenants non-compliance risk Bonds, loans and committed revolving bank lines present Terms and Conditions in line with the market for each type of instrument. In particular, they envisage: (i) negative pledge clauses under which A2A S.p.A. undertakes not to pledge, with exceptions, guarantees on its assets or those of its directly held subsidiaries over and above a specific threshold; (ii) cross- default/acceleration clauses which entail immediate reimbursement of the loans in the event of serious non-performance; and (iii) clauses that 12 31 2021 millions of euro 1-3 MONTHS 4-12 MONTHS AFTER 12 MONTHS Bonds 530 35 3.474 Payables and other financial liabilities 1 80 989 Total financial flows 531 115 4,463 Payables to suppliers 172 12 4 Total trade payables 172 12 4 93 A2A Separate financial statements 2021 provide for immediate repayment in the event of declared insolvency on the part of certain direct subsidiaries. Bonds include: (i) 3,600 million euro nominal (book value of 3,604 million euro at December 31, 2021) issued as part of the EMTN Programme, which provide to investors a Change of Control Put in the event of a change of control of the company resulting in a rating downgrade at sub-investment grade level in the following 180 days (if within said 180 days, the company’s rating should return to investment grade, the option may not be exercised); (ii) 98 million euro nominal (book value at December 31, 2020 109 million euro) relating to the private bond in yen with maturity 2036 with a Put right clause in favour of the investor in the event that the rating is lower than BBB- or equivalent level (sub-investment grade). The loans stipulated with the European Investment Bank, with value of 683 million euro contain a Credit Rating clause (if rating below BBB- or equivalent level to sub-investment grade), and a change of control clause of A2A S.p.A., with the right for the bank to invoke, upon notice to the company containing indication of the reasons, the early repayment of the loan. The committed revolving bank lines available, for a total of 1,100 million euro, provide a Change of Control clause which, in the event of a change of control of the parent company causing a Material Adverse Effect, allows the banks to request the facility to be extinguished and any amounts drawn down to be repaid. At December 31, 2021, there was no situation of non-compliance with the covenants of A2A S.p.A.. Analysis of forward transactions and derivatives Tests were performed to determine whether these transactions qualify for hedge accounting in accordance with International Accounting Standard IFRS 9\. In particular: 1) transactions qualifying for hedge accounting under IFRS 9: can be analyzed between transactions to hedge cash flows (cash flow hedges) and transactions to hedge fair value of assets and liabilities (fair value hedges). For the cash flow hedges, the accrued result is included in gross operating margin when realized on commodity derivatives and in the financial balance for interest rate and currency derivatives, whereas the future value is shown in equity. For fair value hedge transactions, the impacts in the Income Statement are recorded within the same line of the financial statements. 2) transactions not considered as hedges for the purposes of IFRS 9, can be: a. margin hedges: for all hedging transactions of cash flows or the market value in line with internal risk policies, the accrued result and future value are included in gross operating margin for commodity derivatives and in the financial balance for interest rate and currency derivatives; b. trading transactions: the accrued result and future value are recognized above gross operating margin for commodities transactions and in financial income and expense for interest rate and currency transactions. The use of derivatives in the A2A Group is governed by a coordinated set of procedures (Energy Risk Policy, Deal Life Cycle) which are based on industry best practices and designed to limit the risk of the Group being exposed to commodity price fluctuations, based on a cash flow hedging strategy. The derivatives are measured at fair value based on the forward market curve at the balance sheet date, if the asset underlying the derivative is traded on markets with a forward pricing structure. In the absence of a forward market curve, fair value is measured on the basis of internal estimates using models that refer to industry best practices. A2A S.p.A. uses “continuous-time” discounting to measure fair value. As a discount factor, it uses the interest rate for risk-free assets, identified in the Euro Overnight Index Average (EONIA) rate and represented in its forward structure by the Overnight Index Swap (OIS) curve. The fair value of the cash flow hedges has been classified on the basis of the underlying derivative contracts in accordance with IFRS 9\. In compliance with the provisions of IFRS 13, the fair value of an over-the-counter (OTC) financial instrument is determined taking into account the non-performance risk. To quantify the fair value adjustment attributable to this risk, A2A S.p.A. has, in line with best market practices, developed a proprietary model called the “bilateral Credit Value Adjustment” (bCVA), which takes into account changes in the creditworthiness of the counterpart as well as the changes in its own creditworthiness. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 94 94 3 Notes The bCVA has two addends, calculated by considering the possibility that both counterparties go bankrupt, known as the Credit Value Adjustment (CVA) and the Debit Value Adjustment (DVA): the CVA is a negative component and contemplates the probability that a counterparty defaults and, at the same time, A2A S.p.A. has a claim against the counterparty; the DVA is a positive component and contemplates the probability that A2A S.p.A. defaults and, at the same time, a counterparty has a claim against A2A S.p.A.. The bCVA is therefore calculated with reference to the exposure, measured on the basis of the market value of the derivative at the time of the default, the probability of default (PD) and the loss given default (LGD). This latter item, which represents the non- recoverable portion of the receivable in the case of default, is measured on the basis of the IRB Foundation Methodology as stated in the Basel 2 accords, whereas the PD is measured on the basis of the rating of the counterparties (internal rating based where not available) and the historic probability of default associated with this and published annually by Standard & Poor’s. Applying the above method did not result in significant changes in fair value measurements. 95 A2A Separate financial statements 2021 Instruments outstanding at December 31, 2021 A) On interest and exchange rates The following analyses show the outstanding amounts of derivative contracts stipulated and not expired at the balance sheet date, by maturity. thousands of euro Notional value (a) Balance sheet value (b) Progressive effect to Income statement at 12 31 2021 (c) Due within 1 year Due in 1 to 5 years Due over 5 years to be received to be paid to be received to be paid to be received to be paid Interest rate risk management cash flow hedges as per IFRS 9 19,048 19,048 (1,637) not considered hedges as per IFRS 9 Total derivatives on interest rates - 19,048 - 19,048 - - (1,637) - Exchange rate risk management considered hedges as per IFRS 9 \- on commercial transactions \- on non-commercial transactions 98,000 (8,965) not considered hedges as per IFRS 9 \- on commercial transactions \- on non-commercial transactions Total derivatives on exchange rates - - - - - 98,000 (8,965) - (a) Represents the sum of the notional value of the elementary contracts that derive from any dismantling of complex contracts. (b) Represents the net receivable (+) or payable (-) recognized in the balance sheet following the measurement of derivatives at fair value. (c) Represents the adjustment of derivatives to fair value recognized progressively over time in the income statement from the stipulation of the contract to the present day. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 96 96 3 Notes B) On commodities The following is an analysis of the commodity derivative contracts outstanding at the balance sheet date set up for the purpose of managing the risk of the fluctuations in the market prices of commodities. Energy product price risk management Volume by Maturity Notional Value Fair Value Due within 1 year Due within two years Due within five years Balance sheet value (*) Progressive effect to Income statement (**) Unit of measurement Quantity Thousands of euro A. Cash flow hedges as per IFRS 9, including: 60,114.0 - \- Electricity TWh 5.4 0.1 0.1 498,364.8 (17,811.0) \- Oil Bbl \- Coal Tons \- Natural Gas TWh 4.5 429,775.2 59,293.2 \- Natural Gas Millions of cubic metres \- Natural Gas Degrees day \- Exchange rate Millions of dollars \- Emission rights Tons 766,000 43,146.1 18,631.8 B. considered fair value hedges as per IFRS 9 - \- C. not considered hedges as per IFRS 9 of which: (31,309.8) (30,168.5) C.1 hedge margin 251.8 739.4 \- Electricity TWh \- Oil Bbl \- Natural Gas TWh \- Natural Gas Millions of cubic metres \- CO2Emission rights Tons 183,000 13,446.8 251.8 739.4 \- Exchange rate Millions of dollars C.2 trading transactions (31,561.6) (30,907.9) \- Electricity TWh 29.5 4.5 0.3 4,296,309.1 (1,595.8) 3,205.6 \- Natural Gas TWh 101.9 18.6 3.1 5,001,808.0 (29,595.7) (33,739.4) \- CO2Emission rights Tons 716,000 49,370.4 (370.1) (374.1) \- Environmental Certificates MWh \- Environmental Certificates Tep Total 28,804.2 (30,168.5) (*) Represents the net receivable (+) or payable (-) recognized in the balance sheet following the measurement of derivatives at fair value. (**) Represents the adjustment of derivatives to fair value recognized over time in the Income Statement from stipulation of the contract to the present date. 97 A2A Separate financial statements 2021 C) On investments At December 31, 2021, there are no derivatives on shareholdings like in the previous year. Financial and operating effects for derivative transactions in 2021 Effects on the balance sheet The following table shows the balance sheet figures at December 31, 2021, for derivative transactions. thousands of euro NOTES TOTAL ASSETS NON-CURRENT ASSETS - Other non-current assets \- Derivatives 5 - CURRENT ASSETS 3,737,198 Other current assets \- Derivatives 8 3,737,198 TOTAL ASSETS 3,737,198 LIABILITIES NON-CURRENT LIABILITIES 10,602 Other non-current liabilities \- Derivatives 21 10,602 CURRENT LIABILITIES 3,708,394 Trade payables and other current liabilities \- Derivatives 22 3,708,394 TOTAL LIABILITIES 3,718,996 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 98 98 3 Notes Effect on the income statement The following table sets out the income statement figures at December 31, 2021 arising from the management of derivatives. thousands of euro Notes Realised during the year Change in fair value during the year Amounts recognized in the Income statement REVENUES 26 REVENUES FROM THE SALE OF GOODS Energy product price risk management and exchange rate risk management on commodities \- considered hedges as per IFRS 9 515,363 - 515,363 \- not considered hedges as per IFRS 9 121,803 (2,341,083) (2,219,280) Total revenues from the sale of goods 637,166 (2,341,083) (1,703,917) OPERATING EXPENSES 27 Expenses for raw materials and services Energy product price risk management and exchange rate risk management on commodities \- considered hedges as per IFRS 9 6,115 - 6,115 \- not considered hedges as per IFRS 9 (124,160) 2,310,914 2,186,754 Total costs for raw materials and services (118,045) 2,310,914 2,192,869 Total recognized in Gross Operating Income (*) 519,121 (30,169) 488,952 FINANCIAL BALANCE 33 Financial income Interest rate risk management and equity risk management Income on derivatives \- considered hedges as per IFRS 9 - - - \- not considered hedges as per IFRS 9 - - - Total - - - Total financial income - - - Financial expenses Interest rate risk management and equity risk management Expenses on derivatives \- considered hedges as per IFRS 9 (1,851) - (1,851) \- not considered hedges as per IFRS 9 - - - Total (1,851) - (1,851) Total financial expenses (1,851) - (1,851) TOTAL RECOGNIZED IN FINANCIAL BALANCE (1,851) - (1,851) (*) The figures do not include the effect of the net presentation of the negotiation margin of trading activities 99 A2A Separate financial statements 2021 Classes of financial instruments To complete the analyses required by IFRS 7 and IFRS 13, the following table sets out the various types of financial instrument that are to be found in the various balance sheet items, with an indication of the accounting policies used and, in the case of financial instruments measured at fair value, an indication of where changes are recognized (income statement or equity). The last column of the table shows the fair value of the instrument at December 31, 2021, where applicable. thousands of euro Criteria to measure the reported amount of financial instruments Notes Financial instruments measured at fair value with changes recognized in: Financial instruments measured at amortized cost Amount as stated in the Balance sheet at 12 31 2021 Fair value at 12 31 2021 (*) Income statement Balance sheet (1) (2) (3) (4) ASSETS Other non-current financial assets: Financial assets measured at fair value of which: \- unlisted 897 4,091 4,988 n.a. \- listed - - Financial assets held to maturity 96 96 96 Other non-current financial assets 1,329,594 1,329,594 1,329,594 Total other non-current financial assets 3 1,334,678 Other non-current assets 5 13,054 13,054 13,054 Trade receivables 7 2,155,509 2,155,509 2,155,509 Other current assets 8 3,580,818 156,380 175,172 3,912,370 3,912,370 Current financial assets 9 1,204,974 1,204,974 1,204,974 Cash and cash equivalents 11 886,354 886,354 886,354 LIABILITIES Financial liabilities Non-current and current bonds 17 and 22 109,087 3,603,945 3,713,032 3,713,032 Other non-current and current financial liabilities 17 and 22 1,459,944 1,459,944 1,459,944 Other non-current liabilities 20 10,602 3,455 14,057 14,057 Trade payables 21 2,172,866 2,172,866 2,172,866 Other current liabilities 21 3,612,128 96,266 448,515 4,156,909 4,156,909 (*) The fair value has not been calculated for receivables and payables not related to derivative contracts and loans as the corresponding carrying amount is a good approximation to this. (1) Financial assets and liabilities measured at fair value with the changes in fair value recognized in the Income statement. (2) Cash flow hedges. (3) Financial assets available for sale measured at fair value with profit/loss recognized in equity. (4) Loans and receivables and financial liabilities measured at amortized cost. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 100 100 3 Notes Fair value hierarchy IFRS 7 and IFRS 13 require that fair value classification of financial instruments to be based on the quality of the input source used to calculate the fair value. In particular, IFRS 7 and IFRS 13 set out three levels of fair value: level 1: this level consists of financial assets and liabilities for which fair value is based on (unadjusted) prices for identical assets or liabilities quoted on active official or over-the-counter markets; level 2: this level consists of financial assets and liabilities for which fair value is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly; level 3: this level consists of financial assets and liabilities for which fair value is based on unobservable market data. This level includes instruments measured on the basis of internal estimates made using proprietary methods based on best sector practice. An analysis of the assets and liabilities included in the three fair value levels is set out in the following fair value hierarchy table. thousands of euro NOTE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Assets measured at fair value 3 897 4,091 4,988 Other current assets 8 3,712,321 24,877 3,737,198 TOTAL ASSETS 3,712,321 897 28,968 3,742,186 Non-current financial liabilities 17 107,029 107,029 Other non-current liabilities 20 10,602 10,602 Other current liabilities 21 3,692,516 15,878 3,708,394 TOTAL LIABILITIES 3,799,545 10,602 15,878 3,826,025 101 A2A Separate financial statements 2021 6) Main regulatory provisions regarding concessions and agreements in the sectors of activity in which the company operates Large hydroelectric derivation concessions The national legislation on large-scale hydroelectric concessions (i.e. plants with a nominal power greater than or equal to 3 MW) was originally dictated by R.D. December 11, 1933, no. 1775, which was based on the granting of concessions by the state in a long-term logic. Said regulatory framework was subsequently superseded first by electricity sector nationalization Law no. 1643/1962, which resulted in Enel taking over the majority3of hydroelectric concessions with the relative recognition of an unlimited duration, and then by the liberalisation of the electricity market as a result of Legislative Decree no. 79/1999 (implementing Directive 96/92/EC), which introduced with art. 12 (and subsequent amendments) the principles of: the temporariness of the concessions, establishing a validity period (2029) for concessions without expiration because they are owned by Enel and assigning the term of December 31, 2010 for concessions that have already expired or are expiring by that date; contestability of concessions in the event of expiration, forfeiture or renunciation, providing, no later than 5 years before the expiration, the call for tenders by the competent administration (i.e. the Region) for the allocation of the same for consideration. Pending the reallocation of concessions, Legislative Decree 79/1999 (article 12, paragraph 8bis) provides that the outgoing concession holder is to continue to operate the concession under the same conditions as those laid down in the regulations and specifications in force. In this stalemate, some Regions have enacted laws aimed at regulating the “temporary continuation of operations” for expired concessions, also providing for the imposition of an additional fee. Article 11-quater of Law no. 12/2019 has, in part, further amended the rules governing large derivation hydroelectric concessions. The new rules provide that the Regions shall regulate with their own laws by March 31, 2020 (deadline extended to October 31, 2020 by the Cura Italia Decree Law, and to date not respected by many Regions) methods, procedures and criteria for the allocation of concessions, which may be entrusted to economic operators identified through a tender, or to public/private joint ventures with selection of the private partner through a tender, or through forms of partnership under Legislative Decree 50/2016. The procedure for awarding the contract must be started within 2 years of the entry into force of the individual Regional Laws and, in any case, no later than October 31, 2022 (D.L. 18/2020). The duration of the new concessions will have to be between 20 and 40 years, with the possibility of extending the maximum period by a further 10 years depending on the complexity of the project proposal and the amount of investment. The new rule also provides that a specific regional measure (after consulting ARERA) will define: a State fee to be paid on a six-monthly basis to the Regions, comprising a fixed component linked to the average nominal power of the concession and a variable calculated as a percentage of normalized revenues; the possible obligation for the concessionaires to supply annually and free of charge 220 kWh per kW of concession power for at least 50% destined to public services of the provincial territories involved in the derivation. For concessions expired or expiring before July 31, 2024, which are temporarily continued, an additional fee is also charged. In terms of compensation to outgoing operators, the rule prescribes: for wet works: the transfer without compensation of ownership to the Regions, except for the compensation only of investments not yet amortized; for dry works: the recognition of a residual value derived from accounting records or certified appraisal. In the event of non-inclusion in the project of the incoming concessionaire, removal and disposal of movable property is envisaged at the expense of the proposer, while immovable property remains the property of the entitled parties. In compliance with the provisions of the legislative framework in force and in line with the provisions of ARERA Resolution 490/2019/I/eel (“Guidelines for the issue of non-binding opinions on draft regional laws on state fees”4), the Lombardy Region, with article 31 of R.L. 23/2019 di Assestamento al Bilancio 3 With the exception of derivations in the ownership of self-producers, municipal companies and local authorities. 4 The variable component of the fee should be equal to a percentage, in any case defined by the Regions, of the sum of the products between the hourly quantity of electricity fed into the grid and the corresponding hourly zonal price recorded on the Day-Ahead Market (MGP), while the fixed component should derive from environmental and/or water-use-related assessments that are outside the Authority’s competence. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 102 102 3 Notes (Budget Reconciliation) 2020-22, has defined, starting from 2020, the obligation to supply free energy to the Region by all holders of concessions of large derivation (220 kWh for each kW of concession power), whether they are exercised before or after expiry, providing both the physical delivery and its monetization (even in full) to be calculated on the basis of an average hourly zonal price weighted on the quantity of electricity fed into the grid by the plant. Moreover, in April 2020, the Lombardy Region approved Regional Law no. 5/2020 (recently amended with Regional Law no. 19/2021), which regulates the procedures for assigning concessions for large hydroelectric derivations and determines the state fee based on the new two-component structure , in addition to the additional fee payable by the outgoing concessionaire for the temporary continuation of expired concessions until the award procedures are completed (and, in any case, no later than July 31, 2024), determined on a reconnaissance basis at 20 €/kW. The Law also defines the criteria for the acquisition of assets pertaining to the concession (see dry works and wet works) by the Region and the reconnaissance activity aimed at the subsequent putting out to tender. The large-scale derivation hydroelectric concessions held by A2A S.p.A. located in Valtellina (with a nominal concession capacity of over 200 MW) have for the most part expired: the Lombardy Region with Regional Council Resolution (D.G.R.) no. XI/5823 of December 29, 2021 allowed the temporary continuation of the year until December 31, 2022, establishing the payment of an additional fee and the non-application of the partial exemption from the state fee on the Premadio 1, Grosio, Lovero and Stazzona plants (both forecasts challenged by the company ). Other A2A S.p.A. concessions (plants in Mese, Udine and Calabria with a total nominal concession capacity of about 345 MW), originally owned by Enel, expire in 2029\. The three large-scale derivations of Linea Green S.p.A. (Resio, expired and under temporary continuation until December 31, 2022, Mazzuno and Darfo not yet expired), as well as the concession of Gravedona of AEVV Impianti S.r.l. (ACSM-AGAM Group) with an expiry date of 2029. 103 A2A Separate financial statements 2021 7) Update of the main legal and tax disputes still pending Adequate provisions are provided where necessary for the disputes and litigation described below. It is noted that if there is no explicit reference to the presence of a provision, the company assessed the corresponding risk as possible without appropriating provisions in the financial statements. It should be noted that certain disputes illustrated in previous financial statements and still pending are not further reported due to the absence of updates or the modification of the previous risk situation. Carlo Tassara: lawsuit for damages against EDF and A2A S.p.A. on the reorganization of Edison On March 24, 2015, Carlo Tassara S.p.A. notified A2A, Electricité de France (EDF) and Edison a summons requesting the Court of Milan to condemn A2A and EDF to compensation for damages allegedly suffered by Carlo Tassara, in its capacity as minority shareholder of Edison, in relation to the mandatory tender offer launched by EDF on Edison shares consequently to the transaction by which, in 2012, A2A sold its indirect shareholding in Edison to EDF and simultaneously acquired 70% of the capital of Edipower from Edison and Alpiq. In the summons notified, Carlo Tassara complained that, in the transaction, EDF and A2A agreed on a mutual “discount” on the price paid by EDF for the purchase of Edison shares, on the one hand, and on the price paid by A2A for the purchase of 70% of Edipower, on the other. This discount was expected to be the result of abusive conduct by EDF and A2A as shareholders of Edison and the violation, among other things, of the regulations on transactions with related parties. This \- according to Carlo Tassara \- was expected to allow maintaining artificially low the price of the Edison shares paid to A2A and consequently the tender offer price paid to minorities of Edison (which by law was expected to be equal to that paid to A2A). The writ of summons did not quantify the damage allegedly suffered by Carlo Tassara as a result of such transactions. However, with brief on February 20, 2017, Carlo Tassara requested the judge (who rejected the preliminary request) to have an expert witness to calculate the damages (specifying that they should have been quantified in the alleged difference between the tender offer price and the market value that the Edison shares had previously). Carlo Tassara also filed an appraisal in which such damages were quantified in a total amount between 197 and 232 million euro, amount to calculate the compensation due from each of the companies that will be considered responsible by the judge. After several postponements justified also by modifications of the judge, on October 17, 2018, the judge rejected the requests for investigation of the plaintiffs, setting March 19, 2019 as the hearing for clarification of conclusions. On September 8, 2021, the Milan Business Court filed Sentence 7859 rejecting all of the claims made by Carlo Tassara S.p.A., without accepting the reconstruction according to which the shareholders acted to cause an undervaluation of Edison and Edipower. According to the Business Court of First Instance, in the case submitted, the conditions for assessing management and coordination are not met. The court also found that the price of Edison shares, at which EDF purchased its shares during the tender offer, was not subject to review because it was the price defined by Consob pursuant to article 106 of the TUF; the sentence also highlights the difference between the price of Edison shares and the value of the Edipower subsidiary and, more importantly, the price at which the latter was sold to A2A. Carlo Tassara S.p.A. served a writ of summons on the appeal and A2A S.p.A. entered an appearance requesting that the Tassara S.p.A. appeal be declared inadmissible as well as groundless, and re-proposed the exceptions, defenses and requests raised in the first level of judgement for full protection. At the first hearing on March 2, 2022, the judge adjourned the case to March 1, 2023 for clarification of conclusions. The company, having fulfilled the requirements of the regulations in force, does not consider likely the risk for which it has not allocated any provisions. Derivations of public water for the production of hydroelectricity in Lombardy A number of appeals are still pending in which A2A and Linea Green have challenged the measures issued by the Lombardy Region to regulate the continuation of water derivation for hydroelectric use even after the expiry of their respective concessions. In particular, D.G.R. (Regional Council Resolution) of Lombardy no. 5130/2016 ordered, by implementing paragraph 5 of art. 53-bis of Regional Law 26/2003 introduced by Regional Law 19/2010, the subjection of the Lombardy hydroelectric concessions already expired to an “additional fee” established “provisionally” at 20 €/kW of nominal power of concession, and reserved the request for settlement at the outcome of the assessments by the regional offices regarding the profitability of expired concessions. The additional fee was imposed retroactively from the original expiry of each concession; therefore, for the Grosotto, Lovero and Stazzona concessions, it would be effective from January 1, 2011, for the Premadio 1 concession from July 29, 2013, for the Grosio concession from November 15, 2016 and for the Resio concession from December 31, 2010. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 104 104 3 Notes A2A and Linea Green, which, like other operators, have always contested, also in the courts, the legitimacy, also constitutional, of article 53-bis, paragraph 5, of Regional Law 26/2003, challenged before the Superior Court of Public Waters and other competent bodies the D.G.R. 5130/2016 and the related and consequent measures that governed the conditions for the temporary continuation of each concession, and which, where provided for, ordered the revocation of the exemption of part of the State fee. A2A has also more recently challenged the orders whereby the Lombardy Region ordered the company to pay the amount allegedly due for the operation of the large derivations of Grosio, Cancano \- Premadio I, Lovero and Stazzona due to the company’s failure to pay that part of the state fee that is exempt pursuant to article 73 of Royal Decree 1775/1933, a benefit allegedly revoked by some of the resolutions that governed the provisional continuation of the concession after its expiry. This and other related litigation are still ongoing. The case brought by A2A in order to obtain the cancellation of the regional resolutions that governed the temporary continuation of the Cancano \- Premadio I concession ended with the rejection sentence issued by the Joint Sections of the Supreme Court no. 15990/2020 and the judgement brought by A2A in order to obtain the cancellation of the regional resolutions that governed the temporary continuation of the Grosotto, Lovero and Stazzona concessions ended with the rejection sentence issued by the Joint Sections of the Supreme Court, no. 1043/2021. The provisions of the Regions concerning the temporary continuation of expired or expiring concessions could, as from 2019, be justified by the provisions introduced by the Conversion Law no. 12/2019 of Legislative Decree no. 135/2018, the constitutional compatibility of which is nevertheless controversial. In this last regard, it should be pointed out that A2A and Linea Green appealed before the TSAP for the annulment of General Director Decree (D.D.G.) no. 10544/2019 by means of which the Lombardy Region ascertained and determined the amounts allegedly owed by the concessionaires as additional fees for 2019, disputes subsequently integrated with reference to the additional fee for the years 2020 and 2021, and with these appeals, they also requested referral to the Constitutional Court of a matter of constitutional legitimacy in relation to the aforementioned provisions introduced by the law converting Decree Law Simplifications with regard to hydroelectric concessions. Also Regional Law 5/20 issued by the Lombardy Region in implementation of Law 12/2019 was submitted to the judgement of constitutionality by the Government, which, however, by Resolution of the Council of Ministers of November 24, 2021 after the amendments resulting from the entry into force of Regional Law no. 19 November 4, 2021, waived the appeal. With reference to hydroelectric concessions, national Law 12/2019 also established that regions may introduce an obligation for concessionaires to provide 220 kWh annually and free of charge to the same regions for each kW of average nominal capacity of the concession. Availing itself of this faculty, with art. 31 Regional Law L.R. 23/2019 and, therefore, with Regional Council Resolution D.G.R. 3347/2020, the Lombardy Region regulated the obligation of free transfer of electricity with effect from the year 2020 for expired and unexpired derivation concessions. A2A and Linea Green have challenged the regional measure on various grounds. For disputes relating to public water derivation fees, the Company allocated adequate provisions for risks on a prudent basis, the quantification of which also takes into account the payments \- subject to any subsequent repayment upon the final outcome of the respective legal proceedings \- of certain positions, for the sole purpose of preventing additional costs. Judgments on the integration transaction between A2A and AEB S.p.A. With two initial appeals with cautionary request (R.G. 971/2020 submitted by CST Centro Servizi Termici (Thermal Service Center), DE.CA.BO. S.r.l. and Lombardy Regional Councillor Marco Fumagalli; R.G. 983/2020 submitted by Seregno Municipal Councillor Tiziano Mariani) filed with the Milan Regional Administrative Court, the resolution of the Seregno Municipal Council approving the merger between A2A and AEB was challenged; this resolution was suspended by Ordinances no. 868/2020 and no. 869/2020 by which the Regional Administrative Court accepted the precautionary requests submitted by the appellants and set the merit hearing for December 2, 2020\. On December 2, 2020, the third appeal was also discussed (R.G. 1095/2020 submitted by Idrotech and Eco Term S.r.l.s.). A2A, the Municipality of Seregno and AEB have filed separate cautionary appeals before the Council of State to obtain the annulment and/or reform of the ordinances. The Council of State, at the outcome of the Council Chamber set for August 27, 2020, on August 28, 2020, upheld the appeals “due to the clear lack of legitimacy and interest of the claimants at first instance and the consequent clear lack of the assumption of direct and immediate harm involving the same claimants from the contested deeds, in view of the nature of the corporate change and the inapplicability of the transaction subject to the appeal at first instance”. The resolution of the Municipality of Seregno, therefore, also took effect for the purposes of the corporate deeds that were in fact carried out. The company has evaluated the content of the Council of State’s ordinances and the appeals and, also in light of the position of the appointed lawyers, performed the company transaction, considering the prevalence of the principles of legal certainty and market confidence given the performance of corporate acts. 105 A2A Separate financial statements 2021 On February 15, 2021, the Milan Regional Administrative Court published the judgments upholding the three appeals filed respectively by (i) CST Centro Servizi Termici di Calzolari Maurizio, Depositi Carboni Bovisa DE.CA.BO. S.r.l. and Marco Fumagalli (Councillor Lombardy Region) Sentence no. 412/21, (ii) Tiziano Mariani (Councillor Municipality of Seregno) Sentence no. 413/21 and (iii) Idrotech di Corno Irwin Maria Sentence no. 414/21. In order to enforce Sentence 413/21, Municipal Councillor Mariani has also appealed to the Milan TAR for a judgement of compliance. On March 2, 2021, the Regional Administrative Court, at the claimant’s request, issued a precautionary decree in which it denied single-court precautionary measures, but set a Council Chamber for March 24, 2021\. Following the hearing on the merits on April 28, 2021, with Sentence no. 1248 of May 20, 2021, the Regional Administrative Court rejected the appeal for compliance, on the grounds that delivery by AEB of the due diligence of the transaction to Councillor Mariani constituted full compliance with Sentence 413/21. In the same sentence, the Lombardy Regional Administrative Court (TAR) also specified that “not included in the compliance effect”of the ruling for which compliance was requested (i.e. of Sentence no. 413/21) are “the validity and effectiveness of the corporate deeds adopted as a consequence of the contested resolution, for which the administrative judge does not have jurisdiction (Civil Cassation, Joint Sections, Ordinance January 23, 2014, no. 1237; Sentence December 30, 2011, no. 30167; Council of State, Plenary Meeting, Sentence June 3, 2011 , no. 10)”, thus confirming that the acceptance of the appeal proposed by the Director Mariani did not produce immediate effects on the company deeds that have occurred in the meantime. AEB and the Municipality of Seregno have filed an appeal with the Council of State requesting a suspension of the effects of Sentence 413/21. On March 22, 2021, the Council of State denied the suspension because it found that the ruling did not jeopardize the stability of the corporate integration transaction and, given the peculiarity and delicacy of the matter, scheduled a merit hearing as early as July 1, 2021\. A similar appeal has been filed \- without a request for precautionary measures \- by A2A. The sentences 412 and 414 qualify the business combination as a transformation of AEB S.p.A. into a mixed company carried out in alleged violation of art. 17 Legislative Decree 175/16 and art. 3 Legislative Decree 50/16 and consider that the conditions do not exist for exemption from the procedures dictated by art. 10 of the same Legislative Decree no. 175/16. A2A, as well as AEB and the Municipality of Seregno, has notified appeal to the Council of State to request the annulment of the sentences. The public hearing to discuss the merits of the appeals was held on July 1, 2021, with the sole exception of the appeal notified by A2A against Sentence 413/21. On September 1, 2021, the State Board filed Sentence 6143 dismissing the appeals served by the Municipality and AEB against Sentence 413\. A2A was also notified of the sentence on September 2\. In light of Sentence 6143, A2A is assessing with its lawyers whether to request a hearing to be set or instead to leave the appeal undecided so as to prevent Sentence 413/21 becoming final. On September 1, 2021, the Council of State also filed Sentence 6142 by which it rejected the appeals notified by the Municipality, AEB and A2A against Sentence 414 of February 15, 2021 (which had upheld the appeals notified by Idrotech and Eco Term); and on September 6, 2021, the Council of State also filed Sentence 6213 by which it rejected the appeals notified by the Municipality, AEB and A2A against Sentence 412 of February 15, 2021 (which had upheld the appeal notified by Regional Councillor Fumagalli, CST and DE.CA.BO.). Also in these two cases, therefore, the annulment of the resolution passed by the Seregno City Council on April 20, 2020 with number 17 was confirmed. Moreover, on September 3, the legal counsel of the appellants, Idrotech and Eco Term, asked the Municipality, AEB and A2A to provide compensation for the damages suffered by the companies as a result of the illegitimate transaction carried out, announcing possible legal action in the event of inactivity. The Municipality replied, fulfilling its obligations to respond to the companies. A2A and AEB have appealed the sentences both by way of revocation and appeal by cassation. In its appeals for revocation, A2A claimed that the Council of State had made a factual error in two respects: on the one hand, in that it mistakenly deemed the companies claiming at first instance to be “operators in the sector” and, as such, legitimated to act against the merger between A2A and AEB; on the other, in that it mistakenly qualified the merger as a public-private partnership aimed at obtaining public assignments, without appreciating the fact that it was objectively unsuitable. In its appeals to the Supreme Court, A2A claimed both absolute lack of jurisdiction on the part of the administrative judge (since it decided on appeals lodged by parties without legitimacy) and excess of jurisdictional power due to exceeding the limits of administrative jurisdiction (since the Council of State’s pronouncements invaded the sphere of regulatory production reserved for the legislator, introducing an obligation to tender in corporate transactions with public companies that is not provided for by the law). The appellants have entered an appearance and none of the appeals have been discussed. The parties are evaluating the possibility of an out-of-court settlement of disputes with the original appellant companies with settlement of the claims made, without any recognition of liability. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 106 106 3 Notes Monza Public Prosecutor’s Office \- Criminal Proceeding no. 1931/2021 R.G.N.R. On July 5, 2021, officers and agents of the Guardia di Finanza of Seregno showed up at the headquarters of AEB S.p.A. in Seregno to execute “personal and local search orders” and “request for delivery \- local search order”. The proceedings, which in the initial phase were against unknown persons, originated from two complaints submitted to the Prosecutor’s Office on November 25, 2019 and on February 10, 2020 by Tiziano Mariani, Municipal Councillor of the Municipality of Seregno, who also notified an appeal to the TAR in the terms referred to above. The “personal and local search decree” concerns the Chair of the Board of Directors of AEB S.p.A and is also valid as “information of guarantee” pursuant to art. 369 of the Italian Code of Criminal Procedure for the person under investigation. On the basis of this decree, the Chair of AEB is being investigated, in conjunction with others (art. 110 of the Criminal Code), who have not been named, for the offences referred to in art. 353 bis Criminal Code (disturbance of the freedom of the procedure for choosing a contractor), 319 Criminal Code (bribery for an act contrary to the duties of office), 321 Criminal Code (penalties for the briber), committed between “October 2019 and in present permanency.” At the same time, AEB was served with a “request for delivery and a local search decree” with which the Monza Public Prosecutor’s Office ordered the acquisition of documentation concerning the transaction. Subsequently, on September 24, 2021, the Finance Police of Seregno, at the request of the Monza Public Prosecutor’s Office, appeared at the A2A Milan headquarters to serve, as part of Procedure no. 1931/2021 R.G.N.R. relating to the merger between the A2A and AEB Groups, a notice of non-repeatable technical checks on the IT supports already previously seized, with the appointment on October 8, 2021 of a consultant appointed by the Public Prosecutor’s Office to make the forensic copy. The deed in question was notified to persons, other than the current directors of A2A S.p.A., who in A2A S.p.A., Unareti S.p.A. and A2A Illuminazione Pubblica S.r.l. had positions of responsibility, or considered such, for various reasons in the project in question and also contains information about the guarantee and the right of defense in relation to the investigation concerning the hypotheses of crime pursuant to articles 110 of the Italian Criminal Code (conspiracy), 353 bis Criminal Code (disturbance of the freedom of the procedure for choosing a contractor), 319 Criminal Code (bribery for an act contrary to the duties of office), 321 Criminal Code (penalties for the corruptor). * * * The following information is provided in connection with the main litigation of a fiscal nature. A2A S.p.A. \- Registration tax for transfer of business unit and sale of the investment Chi.na.co. S.r.l. On April 4, 2016, the Provincial Directorate I of Milan \- Regional Office of Milan 1 \- notified the invitation to appear to provide clarifications on a business transfer in the company Chi.na.co. S.r.l. and the subsequent sale of the investment held in it under control for registration tax purposes. The invitation was followed by a contradictory with the Office and subsequent notification by the latter of the notice of liquidation to the acquiring counterparty, which filed an appeal on September 28, 2016\. The Provincial Tax Commission of Milan rejected the appeal with sentence filed on July 07, 2017\. On February 13, 2018, the acquiring company filed an appeal, which was rejected by the Milan Regional Administrative Court. On April 8, 2019, the Company filed an appeal with the Supreme Court. On February 21, 2020, the Office filed a counter-appeal and a cross-appeal with the Supreme Court. The risks provision recognized for 1.4 million euro was fully used for the payment of the amounts requested with the liquidation notice. A2A S.p.A. (merging company of AMSA Holding S.p.A.) \- VAT Tax assessments for tax years from 2001 to 2005 In early 2006, the Italian Finance Police – Lombardy Regional Unit, Milan – carried out a tax audit of AMSA Holding S.p.A. (now A2A S.p.A.) for VAT purposes for tax years 2001 to 2005. The audit ended with the issue of a final report contesting the legitimacy of the ordinary VAT rate, in place of the special rate applied by suppliers for waste disposal and plant maintenance, as well as the subsequent deduction made after the invoices issued for these services were duly paid. The report was followed by formal notices of assessment from the Tax Revenue Office (Milan 3 Office) for each year audited; appeals were then filed with the Provincial Tax Commission within the term provided by law. The appeals for 2001 and for 2004 and 2005 were discussed on January 25, 2010 and on February 17, 2010 respectively, with a favourable outcome for the company in all cases. The Tax Revenue Office appealed against the verdict of the first court. The Regional Tax Commission rejected this appeal for all three years, 2001, 2004 and 2005. For 2001, the Tax Revenue Office filed an appeal with the Supreme Court against which AMSA Holding S.p.A. (now A2A S.p.A.), filed a cross-appeal on November 9, 2012\. At the hearing on December 12, 2018, the Company requested that the case be suspended in order to assess the facilitated settlement of 107 A2A Separate financial statements 2021 the dispute. On May 24, 2019, the company filed an application for a facilitated settlement of pending tax disputes and definitively settled its tax claim. The outcomes of the 2002 and 2003 disputes were also favourable for the company but the Tax Revenue Office filed an appeal against both sentences. The appeal for 2002 was discussed on November 30, 2010, and by way of a sentence lodged on February 2, 2011 the Milan Regional Tax Commission overturned the sentence of the first court, upholding the Tax Revenue Office’s appeal on almost all counts with the exception of the hazardous waste category. The Company filed an appeal with the Supreme Court for 2002\. The hearing was held on December 12, 2018 and the appeal was upheld and the judgement was adjourned to the Regional Technical Committee (CTR). On December 23, 2019, the Company filed an appeal for reinstatement in CTR and an appeal for revocation with the Supreme Court. For 2003 the appeal made by the Tax Revenue Office was discussed on November 7, 2011 before the Regional Tax Commission which rejected it with a sentence filed on November 11, 2011\. The Tax Revenue Office has not appealed to the Supreme Court for 2003, 2004 and 2005 and the sentence has become final, thereby closing the litigation. No provisions for risks have been recognized. 8) Contingent assets arising from environmental certificates At December 31, 2021, A2A S.p.A. had no surplus of environmental certificates. 9) Auditors’ fees In accordance with Article 2427, paragraph 16-bis, of the Italian civil code, it is hereby reported that the company paid EY S.p.A. total fees for the legally required auditing of the annual accounts and for other services provided during the year in the amount of 337 thousand euro. 10) Registered office The registered office of the company is in Brescia in Via Lamarmora 230. 3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 4 Attachments 110 4 Attachments Tangible assets thousands of euro BALANCE AT 12 31 2020 EFFECT NON-RECURRING TRANSACTIONS CHANGES CHANGES BALANCE AT 12 31 2021 ACQUISITIONS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES WRITE-DOWN DEPRECIATION TOTAL CHANGES GROSS VALUE ACCUMULATED DEPRECIATION GROSS VALUE ACCUMULATED DEPRECIATION Land 32,497 - - - (3,879) - (629) - - - (4,508) 27,989 Buildings 204,422 - 1,233 5,317 (92,234) 43,527 (2,617) 1,761 - (7,694) (50,707) 153,715 Plant and machinery 672,245 4,039 2,382 11,350 313 1 (64) 46 - (56,113) (42,085) 634,199 Industrial and commercial equipment 2,452 2,588 702 - - (1) (113) 113 - (798) (97) 4,943 Other assets 9,321 1,368 8,228 96 - - (865) 732 - (4,600) 3,591 14,280 Construction in progress and advances 23,854 4,730 33,397 (16,947) (60) - (10) - (1,113) - 15,267 43,851 Leasehold improvements 50 417 56 169 1 - (192) 192 - (182) 44 511 Assets for rights of use 55,578 2,187 - - 2,705 5,542 - - - (11,281) (3,034) 54,731 Total tangible assets 1,000,419 15,329 45,998 (15) (93,154) 49,069 (4,490) 2,844 (1,113) (80,668) (81,529) 934,219 Historical Cost 2,893,903 24,700 45,998 (15) (93,154) - (4,490) - (1,113) - (52,774) 2,865,829 Accumulated depreciation (1,540,995) (9,371) - - 49,068 2,844 - (80,668) (28,756) (1,579,122) Write-downs (352,489) - - - - 1 - - - - 1 (352,488) Tangible assets thousands of euro BALANCE AT 12 31 2019 CHANGES CHANGES BALANCE AT 12 31 2020 ACQUISITIONS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS DEPRECIATION TOTAL CHANGES GROSS VALUE ACCUMULATED DEPRECIATION GROSS VALUE ACCUMULATED DEPRECIATION Land 32,335 214 (52) 162 32,497 Buildings 214,984 538 246 37 (29) (3,066) 1,358 (9,646) (10,562) 204,422 Plant and machinery 716,172 1,661 6,655 3,257 31 (336) 331 (55,526) (43,927) 672,245 Industrial and commercial equipment 2,096 722 1 (1) (380) 380 (366) 356 2,452 Other assets 11,776 2,787 6 (37) (521) 521 (5,211) (2,455) 9,321 Construction in progress and advances 15,560 15,409 (7,115) 8,294 23,854 Leasehold improvements 62 3 (15) (12) 50 Assets for rights of use 9,621 54,125 1,048 (9,216) 45,957 55,578 Total tangible assets 1,002,606 21,120 - 57,426 1,012 (4,355) 2,590 (79,980) (2,187) 1,000,419 4.1 1\. Statement of changes in tangible assets 111 A2A Separate financial statements 2021 Tangible assets thousands of euro BALANCE AT 12 31 2020 EFFECT NON-RECURRING TRANSACTIONS CHANGES CHANGES BALANCE AT 12 31 2021 ACQUISITIONS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES WRITE-DOWN DEPRECIATION TOTAL CHANGES GROSS VALUE ACCUMULATED DEPRECIATION GROSS VALUE ACCUMULATED DEPRECIATION Land 32,497 - - - (3,879) - (629) - - - (4,508) 27,989 Buildings 204,422 - 1,233 5,317 (92,234) 43,527 (2,617) 1,761 - (7,694) (50,707) 153,715 Plant and machinery 672,245 4,039 2,382 11,350 313 1 (64) 46 - (56,113) (42,085) 634,199 Industrial and commercial equipment 2,452 2,588 702 - - (1) (113) 113 - (798) (97) 4,943 Other assets 9,321 1,368 8,228 96 - - (865) 732 - (4,600) 3,591 14,280 Construction in progress and advances 23,854 4,730 33,397 (16,947) (60) - (10) - (1,113) - 15,267 43,851 Leasehold improvements 50 417 56 169 1 - (192) 192 - (182) 44 511 Assets for rights of use 55,578 2,187 - - 2,705 5,542 - - - (11,281) (3,034) 54,731 Total tangible assets 1,000,419 15,329 45,998 (15) (93,154) 49,069 (4,490) 2,844 (1,113) (80,668) (81,529) 934,219 Historical Cost 2,893,903 24,700 45,998 (15) (93,154) - (4,490) - (1,113) - (52,774) 2,865,829 Accumulated depreciation (1,540,995) (9,371) - - 49,068 2,844 - (80,668) (28,756) (1,579,122) Write-downs (352,489) - - - - 1 - - - - 1 (352,488) Tangible assets thousands of euro BALANCE AT 12 31 2019 CHANGES CHANGES BALANCE AT 12 31 2020 ACQUISITIONS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS DEPRECIATION TOTAL CHANGES GROSS VALUE ACCUMULATED DEPRECIATION GROSS VALUE ACCUMULATED DEPRECIATION Land 32,335 214 (52) 162 32,497 Buildings 214,984 538 246 37 (29) (3,066) 1,358 (9,646) (10,562) 204,422 Plant and machinery 716,172 1,661 6,655 3,257 31 (336) 331 (55,526) (43,927) 672,245 Industrial and commercial equipment 2,096 722 1 (1) (380) 380 (366) 356 2,452 Other assets 11,776 2,787 6 (37) (521) 521 (5,211) (2,455) 9,321 Construction in progress and advances 15,560 15,409 (7,115) 8,294 23,854 Leasehold improvements 62 3 (15) (12) 50 Assets for rights of use 9,621 54,125 1,048 (9,216) 45,957 55,578 Total tangible assets 1,002,606 21,120 - 57,426 1,012 (4,355) 2,590 (79,980) (2,187) 1,000,419 4 Attachments 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3/a. Statement of changes in investments in subsidiaries 3/b. Statement of changes in investments in affiliates 3/c. Statement of changes in investments in other companies 4/a. List of investments in subsidiaries 4/b. List of investments in affiliates Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 112 4 Attachments Intangible assets thousands of euro BALANCE AT 12 31 2020 EFFECT NON-RECURRING TRANSACTIONS CHANGES CHANGES BALANCE AT 12 31 2021 ACQUISITIONS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES DEPRECIATION TOTAL CHANGES GROSS VALUE ACCUMULATED DEPRECIATION GROSS VALUE ACCUMULATED DEPRECIATION Industrial patent and intellectual property rights 16,495 94 6,326 10,885 (45) - (9,875) 7,291 23,880 Concessions, licences, trademarks and similar rights 27,810 988 27,803 1,616 (123) - (18,858) 10,438 39,236 Goodwill 35,641 29,503 - - - - - - 65,144 Assets in progress 18,648 158 12,287 (12,486) (88) (2,541) - (2,828) 15,978 Other intangible assets 2,225 2,356 - - (2,027) (408) (2,435) 2,146 Total intangible assets 100,819 33,099 46,416 15 (2,283) - (2,541) - (29,141) 12,466 146,384 Intangible assets thousands of euro BALANCE AT 12 31 2019 CHANGES CHANGES BALANCE AT 12 31 2020 ACQUISITIONS CHANGES IN CATEGORY OTHER CHANGES DISPOSALS/SALES DEPRECIATION TOTAL CHANGES GROSS VALUE ACCUMULATED DEPRECIATION GROSS VALUE ACCUMULATED DEPRECIATION Industrial patent and intellectual property rights 16,226 5,581 3,331 (427) 38 (8,254) 269 16,495 Concessions, licences, trademarks and similar rights 21,290 18,202 1,066 (218) 1 (12,531) 6,520 27,810 Goodwill 35,641 - 35,641 Assets in progress 9,080 14,276 (4,412) (2) (294) 9,568 18,648 Other intangible assets 4,881 96 15 (2,739) (2) (26) (2,656) 2,225 Total intangible assets 87,118 38,155 - (3,386) 37 (294) - (20,811) 13,701 100,819 4.2 2\. Statement of changes in intangible assets 113 A2A Separate financial statements 2021 Intangible assets thousands of euro BALANCE AT 12 31 2020 EFFECT NON-RECURRING TRANSACTIONS CHANGES CHANGES BALANCE AT 12 31 2021 ACQUISITIONS CHANGES IN CATEGORY RECLASSIFICATIONS/ OTHER CHANGES DISPOSALS/SALES DEPRECIATION TOTAL CHANGES GROSS VALUE ACCUMULATED DEPRECIATION GROSS VALUE ACCUMULATED DEPRECIATION Industrial patent and intellectual property rights 16,495 94 6,326 10,885 (45) - (9,875) 7,291 23,880 Concessions, licences, trademarks and similar rights 27,810 988 27,803 1,616 (123) - (18,858) 10,438 39,236 Goodwill 35,641 29,503 - - - - - - 65,144 Assets in progress 18,648 158 12,287 (12,486) (88) (2,541) - (2,828) 15,978 Other intangible assets 2,225 2,356 - - (2,027) (408) (2,435) 2,146 Total intangible assets 100,819 33,099 46,416 15 (2,283) - (2,541) - (29,141) 12,466 146,384 Intangible assets thousands of euro BALANCE AT 12 31 2019 CHANGES CHANGES BALANCE AT 12 31 2020 ACQUISITIONS CHANGES IN CATEGORY OTHER CHANGES DISPOSALS/SALES DEPRECIATION TOTAL CHANGES GROSS VALUE ACCUMULATED DEPRECIATION GROSS VALUE ACCUMULATED DEPRECIATION Industrial patent and intellectual property rights 16,226 5,581 3,331 (427) 38 (8,254) 269 16,495 Concessions, licences, trademarks and similar rights 21,290 18,202 1,066 (218) 1 (12,531) 6,520 27,810 Goodwill 35,641 - 35,641 Assets in progress 9,080 14,276 (4,412) (2) (294) 9,568 18,648 Other intangible assets 4,881 96 15 (2,739) (2) (26) (2,656) 2,225 Total intangible assets 87,118 38,155 - (3,386) 37 (294) - (20,811) 13,701 100,819 4 Attachments 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3/a. Statement of changes in investments in subsidiaries 3/b. Statement of changes in investments in affiliates 3/c. Statement of changes in investments in other companies 4/a. List of investments in subsidiaries 4/b. List of investments in affiliates Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 114 4 Attachments Shareholdings thousands of euro BALANCE AT FINANCIAL STATEMENTS 12 31 2020 CHANGES CHANGES BALANCE AT FINANCIAL STATEMENTS 12 31 2021 SHARE OF EQUITY INCREASES DECREASES EFEFCT OF NON-RECURRING TRANSACTION REVERSALS WRITE-DOWNS OTHERS CHANGES RECLASSIFICATIONS % HELD EQUITY AT 12 31 2021 PRO-RATA AMOUNT FINANCIAL ASSETS Subsidiaries: Unareti S.p.A. 1,381,831 1,381,831 100.00% 1,470,087 1,470,087 A2A Ambiente S.p.A. 634,894 4,586 639,480 100.00% 546,283 546,283 A2A Calore & Servizi S.r.l. 330,627 330,627 100.00% 379,187 379,187 A2A Ciclo Idrico S.p.A. 167,000 167,000 100.00% 224,662 224,662 A2A gencogas S.p.A. 606,817 606,817 100.00% 664,180 664,180 A2A Energiefuture S.p.A. 189,730 189,730 100.00% 286,024 286,024 A2A Energia S.p.A. 97,039 25,506 122,545 100.00% 218,543 218,543 Retragas S.r.l. 30,105 30,105 87.27% 40,733 35,548 A2A Smart City S.p.A. 9,222 5,234 14,456 100.00% 11,422 11,422 Proaris S.r.l. in liquidation 3,557 3,557 60.00% 5,129 3,077 Camuna Energia S.r.l. 740 740 74.50% 1,012 754 SEASM S.r.l. 469 469 67.00% 1,100 737 Linea Group Holding S.p.A. 106,385 (104,263) (2,122) \- Linea Gestioni S.r.l. 22,864 (1,800) 21,064 100.00% 20,610 20,610 LD Reti S.r.l. 153,895 153,895 95.60% 168,189 160,789 Linea Green S.p.A. 124,191 124,191 100.00% 125,321 125,321 Linea Ambiente S.r.l. 43,624 (25,959) (1,037) 16,628 100.00% 68,041 68,041 Fragea S.r.l. società agricola 245 245 100.00% 742 742 AGRIPOWER S.r.l. 15,155 15,155 100.00% 3,970 3,970 A2A Montenegro d.o.o. 102 102 100.00% 129 129 Azienda Servizi Valtrompia S.p.A. 10,758 10,758 74.55% 25,041 18,668 A2A Security S.c.p.A. 23 1 24 45.96% 401 184 A2A Energy Solution S.r.l. 4,575 4,575 100.00% 8,258 8,258 A2A Rinnovabili S.p.A. 50 50 100.00% 6,003 6,003 ACSM-AGAM S.p.A. 190,422 190,422 41.34% 441,281 182,426 Ambiente Energia Brianza S.p.A. 158,638 158,638 33.52% 417,148 139,828 Yada Energia S.r.l. 20,010 20,010 100.00% 4,357 4,357 A2A E-MOBILITY S.r.l. 10 10 100.00% 640 640 ROMEO GAS S.p.A. 50 50 100.00% 49 49 ES Energy S.r.l. 5 5 50.00% 674 337 A2A Alfa S.r.l. in liquidation \- 70.00% 1 1 Suncity Energy S.r.l. 4,275 (4,275) \- A2A Telecommunications S.r.l. 9,100 (9,100) \- A2Abroad S.p.A. 4,586 (4,586) \- Plurigas S.p.A. in liquidation 560 (560) \- Total subsidiaries 3,952,425 67,929 - 188,344 (1,800) (3,719) - 4,203,179 5,139,217 4,580,857 4.3 3/a. Statement of changes in investments in subsidiaries 115 A2A Separate financial statements 2021 Shareholdings thousands of euro BALANCE AT FINANCIAL STATEMENTS 12 31 2020 CHANGES CHANGES BALANCE AT FINANCIAL STATEMENTS 12 31 2021 SHARE OF EQUITY INCREASES DECREASES EFEFCT OF NON-RECURRING TRANSACTION REVERSALS WRITE-DOWNS OTHERS CHANGES RECLASSIFICATIONS % HELD EQUITY AT 12 31 2021 PRO-RATA AMOUNT FINANCIAL ASSETS Subsidiaries: Unareti S.p.A. 1,381,831 1,381,831 100.00% 1,470,087 1,470,087 A2A Ambiente S.p.A. 634,894 4,586 639,480 100.00% 546,283 546,283 A2A Calore & Servizi S.r.l. 330,627 330,627 100.00% 379,187 379,187 A2A Ciclo Idrico S.p.A. 167,000 167,000 100.00% 224,662 224,662 A2A gencogas S.p.A. 606,817 606,817 100.00% 664,180 664,180 A2A Energiefuture S.p.A. 189,730 189,730 100.00% 286,024 286,024 A2A Energia S.p.A. 97,039 25,506 122,545 100.00% 218,543 218,543 Retragas S.r.l. 30,105 30,105 87.27% 40,733 35,548 A2A Smart City S.p.A. 9,222 5,234 14,456 100.00% 11,422 11,422 Proaris S.r.l. in liquidation 3,557 3,557 60.00% 5,129 3,077 Camuna Energia S.r.l. 740 740 74.50% 1,012 754 SEASM S.r.l. 469 469 67.00% 1,100 737 Linea Group Holding S.p.A. 106,385 (104,263) (2,122) \- Linea Gestioni S.r.l. 22,864 (1,800) 21,064 100.00% 20,610 20,610 LD Reti S.r.l. 153,895 153,895 95.60% 168,189 160,789 Linea Green S.p.A. 124,191 124,191 100.00% 125,321 125,321 Linea Ambiente S.r.l. 43,624 (25,959) (1,037) 16,628 100.00% 68,041 68,041 Fragea S.r.l. società agricola 245 245 100.00% 742 742 AGRIPOWER S.r.l. 15,155 15,155 100.00% 3,970 3,970 A2A Montenegro d.o.o. 102 102 100.00% 129 129 Azienda Servizi Valtrompia S.p.A. 10,758 10,758 74.55% 25,041 18,668 A2A Security S.c.p.A. 23 1 24 45.96% 401 184 A2A Energy Solution S.r.l. 4,575 4,575 100.00% 8,258 8,258 A2A Rinnovabili S.p.A. 50 50 100.00% 6,003 6,003 ACSM-AGAM S.p.A. 190,422 190,422 41.34% 441,281 182,426 Ambiente Energia Brianza S.p.A. 158,638 158,638 33.52% 417,148 139,828 Yada Energia S.r.l. 20,010 20,010 100.00% 4,357 4,357 A2A E-MOBILITY S.r.l. 10 10 100.00% 640 640 ROMEO GAS S.p.A. 50 50 100.00% 49 49 ES Energy S.r.l. 5 5 50.00% 674 337 A2A Alfa S.r.l. in liquidation \- 70.00% 1 1 Suncity Energy S.r.l. 4,275 (4,275) \- A2A Telecommunications S.r.l. 9,100 (9,100) \- A2Abroad S.p.A. 4,586 (4,586) \- Plurigas S.p.A. in liquidation 560 (560) \- Total subsidiaries 3,952,425 67,929 - 188,344 (1,800) (3,719) - 4,203,179 5,139,217 4,580,857 4 Attachments 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3/a. Statement of changes in investments in subsidiaries 3/b. Statement of changes in investments in affiliates 3/c. Statement of changes in investments in other companies 4/a. List of investments in subsidiaries 4/b. List of investments in affiliates Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 116 4 Attachments Shareholdings thousands of euro BALANCE AT FINANCIAL STATEMENTS 12 31 2020 CHANGES CHANGES BALANCE AT FINANCIAL STATEMENTS 12 31 2021 SHARE OF EQUITY INCREASES DECREASES REVALUATIONS WRITE-DOWNS OTHER CHANGES % HELD EQUITY AT 12 31 20 (*) PRO-RATA AMOUNT FINANCIAL ASSETS Affiliates Sviluppo Turistico Lago d'Iseo S.p.A. 735 (735) - SET S.p.A. 467 467 49.00% 2,071 1,015 Serio Energia S.r.l. 400 400 40.00% 1,958 783 Visano Società Trattamento Reflui S.c.a.r.l. 10 10 40.00% 26 10 Total affiliates 1,612 - - (735) 877 4,055 1,808 Equity investments held for sale Sviluppo Turistico Lago d’Iseo S.p.A. - (295) 735 440 24.29% 2,826 686 (*) Figures of the financial statements at December 31, 2020 latest available financial statements. 4.4 3/b. Statement of changes in investments in affiliates 117 A2A Separate financial statements 2021 Shareholdings thousands of euro BALANCE AT FINANCIAL STATEMENTS 12 31 2020 CHANGES CHANGES BALANCE AT FINANCIAL STATEMENTS 12 31 2021 SHARE OF EQUITY INCREASES DECREASES REVALUATIONS WRITE-DOWNS OTHER CHANGES % HELD EQUITY AT 12 31 20 (*) PRO-RATA AMOUNT FINANCIAL ASSETS Affiliates Sviluppo Turistico Lago d'Iseo S.p.A. 735 (735) - SET S.p.A. 467 467 49.00% 2,071 1,015 Serio Energia S.r.l. 400 400 40.00% 1,958 783 Visano Società Trattamento Reflui S.c.a.r.l. 10 10 40.00% 26 10 Total affiliates 1,612 - - (735) 877 4,055 1,808 Equity investments held for sale Sviluppo Turistico Lago d’Iseo S.p.A. - (295) 735 440 24.29% 2,826 686 (*) Figures of the financial statements at December 31, 2020 latest available financial statements. 4 Attachments 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3/a. Statement of changes in investments in subsidiaries 3/b. Statement of changes in investments in affiliates 3/c. Statement of changes in investments in other companies 4/a. List of investments in subsidiaries 4/b. List of investments in affiliates Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 119 A2A Separate financial statements 2021 Company Name thousands of euro SHAREHOLDING % SHAREHOLDER CARRYING AMOUNT AT 12 31 2021 Available-for-sale financial assets Blugas Infrastrutture S.r.l. 27.51% A2A S.p.A. 4,269 Immobiliare-Fiera di Brescia S.p.A. 0.90% A2A S.p.A. 280 Others: AQM S.r.l. 7.52% A2A S.p.A. AvioValtellina S.p.A. 0.18% A2A S.p.A. Banca di Credito Cooperativo dell'Oglio e del Serio s.c. n.s. A2A S.p.A. Brescia Mobilità S.p.A. 0.25% A2A S.p.A. L.E.A.P. S.c.a.r.l. 8.57% A2A S.p.A. E.M.I.T. S.r.l. in liquidation 10.00% A2A S.p.A. Stradivaria S.p.A. n.s. A2A S.p.A. DI.T.N.E. S.c.a.r.l. 1.82% A2A S.p.A. Sinergie Italiane S.r.l. in liquidation 14.92% A2A S.p.A. Total other financial assets 439 Total available-for-sale financial assets 4,988 Note: A2A S.p.A. took part in the setting up of Società Cooperativa Polo dell’innovazione della Valtellina, subscribing 5 shares having a nominal value of 50 euro. 4.5 3/c. Statement of changes in investments in other companies 4 Attachments 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3/a. Statement of changes in investments in subsidiaries 3/b. Statement of changes in investments in affiliates 3/c. Statement of changes in investments in other companies 4/a. List of investments in subsidiaries 4/b. List of investments in affiliates Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 120 4 Attachments Company Name thousands of euro REGISTERED OFFICE CURRENCY SHARE CAPITAL AT 12 31 2021 EQUITY AT 12 31 2021 RESULT AT 12 31 2021 % HELD PRO RATA AMOUNT (A) BALANCE AT FINANCIAL STATEMENSTS (B) DELTA (A-B) Subsidiaries: Unareti S.p.A. Brescia Euro 965,250 1,470,087 81,236 100.00% 1,470,087 1,381,831 88,256 A2A Ambiente S.p.A. Brescia Euro 220,000 546,283 124,281 100.00% 546,283 639,480 (93,197) A2A Calore & Servizi S.r.l. Brescia Euro 150,000 379,187 40,841 100.00% 379,187 330,627 48,560 A2A Ciclo Idrico S.p.A. Brescia Euro 70,000 224,662 26,458 100.00% 224,662 167,000 57,662 A2A gencogas S.p.A. Milan Euro 450,000 664,180 25,475 100.00% 664,180 606,817 57,363 A2A Energia S.p.A. Milan Euro 3,000 218,543 96,771 100.00% 218,543 122,545 95,998 Retragas S.r.l. Brescia Euro 34,495 40,733 1,564 87.27% 35,548 30,105 5,443 A2A Smart City S.p.A. Brescia Euro 3,448 11,422 (2,625) 100.00% 11,422 14,456 (3,034) Proaris S.r.l. in liquidation Milan Euro 1,875 5,129 (77) 60.00% 3,077 3,557 (480) Camuna Energia S.r.l. Cedegolo (BS) Euro 900 1,012 (11) 74.50% 754 740 14 SEASM S.r.l. Brescia Euro 700 1,100 87 67.00% 737 469 268 A2A Montenegro d.o.o. Podgorica (Montenegro) Euro 100 129 (26) 100.00% 129 102 27 A2A Energiefuture S.p.A. Milan Euro 50,000 286,024 11,053 100.00% 286,024 189,730 96,294 Azienda Servizi Valtrompia S.p.A. Gardone Val Trompia (BS) Euro 8,939 25,041 2,490 74.55% 18,668 10,758 7,910 A2A Security S.c.p.A. Milan Euro 52 401 32 45.96% 184 24 160 A2A Energy Solutions S.r.l. Milan Euro 4,000 8,258 2,346 100.00% 8,258 4,575 3,683 A2A Rinnovabili S.p.A. Milan Euro 50 6,003 4,582 100.00% 6,003 50 5,953 ACSM-AGAM S.p.A. Monza Euro 197,344 441,281 15,594 41.34% 182,426 190,422 (7,996) A2A Alfa S.r.l. in liquidation Milan Euro 100 1 (4) 70.00% 1 - 1 Yada Energia S.r.l. Milan Euro 2,400 4,357 (8,901) 100.00% 4,357 20,010 (15,653) A2A E-MOBILITY S.r.l. Milan Euro 10 640 (555) 100.00% 640 10 630 Ambiente Energia Brianza S.p.A. Seregno (MB) Euro 119,496 417,148 17,082 33.52% 139,828 158,638 (18,810) ROMEO GAS S.p.A. Milan Euro 50 49 - 100.00% 49 50 (1) ES Energy S.r.l. Jesi (AN) Euro 10 674 171 50.00% 337 5 332 Linea Gestioni S.r.l. Crema (CR) Euro 6,000 20,610 564 100.00% 20,610 21,064 (454) LD Reti S.r.l. Lodi Euro 32,976 168,189 9,571 95.60% 160,789 153,895 6,894 Linea Green S.p.A. Cremona Euro 48,000 125,321 8,852 100.00% 125,321 124,191 1,130 Linea Ambiente S.r.l. Rovato (BS) Euro 19,000 68,041 (8,697) 100.00% 68,041 16,627 51,414 Fragea S.r.l. società agricola Sesto ed Uniti (CR) Euro 20,000 742 357 100.00% 742 245 497 AGRIPOWER S.R.L. Bologna Euro 500 3,970 (2,169) 100.00% 3,970 15,155 (11,185) 4.6 4/a. List of investments in subsidiaries 121 A2A Separate financial statements 2021 Company Name thousands of euro REGISTERED OFFICE CURRENCY SHARE CAPITAL AT 12 31 2021 EQUITY AT 12 31 2021 RESULT AT 12 31 2021 % HELD PRO RATA AMOUNT (A) BALANCE AT FINANCIAL STATEMENSTS (B) DELTA (A-B) Subsidiaries: Unareti S.p.A. Brescia Euro 965,250 1,470,087 81,236 100.00% 1,470,087 1,381,831 88,256 A2A Ambiente S.p.A. Brescia Euro 220,000 546,283 124,281 100.00% 546,283 639,480 (93,197) A2A Calore & Servizi S.r.l. Brescia Euro 150,000 379,187 40,841 100.00% 379,187 330,627 48,560 A2A Ciclo Idrico S.p.A. Brescia Euro 70,000 224,662 26,458 100.00% 224,662 167,000 57,662 A2A gencogas S.p.A. Milan Euro 450,000 664,180 25,475 100.00% 664,180 606,817 57,363 A2A Energia S.p.A. Milan Euro 3,000 218,543 96,771 100.00% 218,543 122,545 95,998 Retragas S.r.l. Brescia Euro 34,495 40,733 1,564 87.27% 35,548 30,105 5,443 A2A Smart City S.p.A. Brescia Euro 3,448 11,422 (2,625) 100.00% 11,422 14,456 (3,034) Proaris S.r.l. in liquidation Milan Euro 1,875 5,129 (77) 60.00% 3,077 3,557 (480) Camuna Energia S.r.l. Cedegolo (BS) Euro 900 1,012 (11) 74.50% 754 740 14 SEASM S.r.l. Brescia Euro 700 1,100 87 67.00% 737 469 268 A2A Montenegro d.o.o. Podgorica (Montenegro) Euro 100 129 (26) 100.00% 129 102 27 A2A Energiefuture S.p.A. Milan Euro 50,000 286,024 11,053 100.00% 286,024 189,730 96,294 Azienda Servizi Valtrompia S.p.A. Gardone Val Trompia (BS) Euro 8,939 25,041 2,490 74.55% 18,668 10,758 7,910 A2A Security S.c.p.A. Milan Euro 52 401 32 45.96% 184 24 160 A2A Energy Solutions S.r.l. Milan Euro 4,000 8,258 2,346 100.00% 8,258 4,575 3,683 A2A Rinnovabili S.p.A. Milan Euro 50 6,003 4,582 100.00% 6,003 50 5,953 ACSM-AGAM S.p.A. Monza Euro 197,344 441,281 15,594 41.34% 182,426 190,422 (7,996) A2A Alfa S.r.l. in liquidation Milan Euro 100 1 (4) 70.00% 1 - 1 Yada Energia S.r.l. Milan Euro 2,400 4,357 (8,901) 100.00% 4,357 20,010 (15,653) A2A E-MOBILITY S.r.l. Milan Euro 10 640 (555) 100.00% 640 10 630 Ambiente Energia Brianza S.p.A. Seregno (MB) Euro 119,496 417,148 17,082 33.52% 139,828 158,638 (18,810) ROMEO GAS S.p.A. Milan Euro 50 49 - 100.00% 49 50 (1) ES Energy S.r.l. Jesi (AN) Euro 10 674 171 50.00% 337 5 332 Linea Gestioni S.r.l. Crema (CR) Euro 6,000 20,610 564 100.00% 20,610 21,064 (454) LD Reti S.r.l. Lodi Euro 32,976 168,189 9,571 95.60% 160,789 153,895 6,894 Linea Green S.p.A. Cremona Euro 48,000 125,321 8,852 100.00% 125,321 124,191 1,130 Linea Ambiente S.r.l. Rovato (BS) Euro 19,000 68,041 (8,697) 100.00% 68,041 16,627 51,414 Fragea S.r.l. società agricola Sesto ed Uniti (CR) Euro 20,000 742 357 100.00% 742 245 497 AGRIPOWER S.R.L. Bologna Euro 500 3,970 (2,169) 100.00% 3,970 15,155 (11,185) 4 Attachments 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3/a. Statement of changes in investments in subsidiaries 3/b. Statement of changes in investments in affiliates 3/c. Statement of changes in investments in other companies 4/a. List of investments in subsidiaries 4/b. List of investments in affiliates Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 122 4 Attachments Company Name thousands of euro REGISTERED OFFICE CURRENCY SHARE CAPITAL AT 12 31 2020 (*) EQUITY AT 12 31 2020 (*) RESULT AT 12 31 2020 (*) % HELD PRO RATA AMOUNT (A) BALANCE AT FINANCIAL STATEMENSTS (B) DELTA (A-B) SET S.p.A. Toscolano Maderno (Bs) Euro 104 2,071 375 49.00% 1,015 467 548 Serio Energia S.r.l. Concordia sulla Secchia (Mo) Euro 1,000 1,958 337 40.00% 783 400 383 Visano Società Trattamento Reflui S.c.a.r.l. Brescia Euro 25 26 \- 40.00% 10 10 \- Equity investments held for sale Sviluppo Turistico Lago d'Iseo S.p.A. Iseo (Bs) Euro 1,616 2,826 (246) 24.29% 686 440 246 (*) Figures of the financial statements at December 31, 2019 latest available financial statements. 4.7 4/b. List of investments in affiliates 123 A2A Separate financial statements 2021 Company Name thousands of euro REGISTERED OFFICE CURRENCY SHARE CAPITAL AT 12 31 2020 (*) EQUITY AT 12 31 2020 (*) RESULT AT 12 31 2020 (*) % HELD PRO RATA AMOUNT (A) BALANCE AT FINANCIAL STATEMENSTS (B) DELTA (A-B) SET S.p.A. Toscolano Maderno (Bs) Euro 104 2,071 375 49.00% 1,015 467 548 Serio Energia S.r.l. Concordia sulla Secchia (Mo) Euro 1,000 1,958 337 40.00% 783 400 383 Visano Società Trattamento Reflui S.c.a.r.l. Brescia Euro 25 26 \- 40.00% 10 10 \- Equity investments held for sale Sviluppo Turistico Lago d'Iseo S.p.A. Iseo (Bs) Euro 1,616 2,826 (246) 24.29% 686 440 246 (*) Figures of the financial statements at December 31, 2019 latest available financial statements. 4 Attachments 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3/a. Statement of changes in investments in subsidiaries 3/b. Statement of changes in investments in affiliates 3/c. Statement of changes in investments in other companies 4/a. List of investments in subsidiaries 4/b. List of investments in affiliates Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 124 4 Attachments SUBSIDIARIES A2A gencogas S.p.A. A2A Energiefuture S.p.A. A2A Ambiente S.p.A. A2A Calore & Servizi S.r.l. A2A Energia S.p.A. A2A Smart City S.p.A. Retragas S.r.l. A2A Ciclo Idrico S.p.A. SEASM S.r.l. Linea Gestioni S.r.l. Share capital Euro 450,000,000 Euro 50,000,000 Euro 220,000,000 Euro 150,000,000 Euro 3,000,000 Euro 3,448,276 Euro 34,494,650 Euro 70,000,000 Euro 700,000 Euro 6,000,000 % held A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. Unareti S.p.A. 87.27% 4.33% A2A S.p.A. 100.00% A2A S.p.A. 67.00% A2A S.p.A. 100.00% Description thousands of euro 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Revised 12 31 2021 12 31 2020 Revised 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Revenues 382,267 240,588 383,298 171,938 509,364 477,348 273,751 244,611 3,319,878 2,154,593 44,990 53,341 6,904 5,984 109,564 99,131 357 357 55,805 57,101 Gross operating income 57,945 71,624 44,559 36,145 215,365 194,095 84,478 71,144 180,363 180,038 2,790 9,780 4,759 3,735 58,894 48,541 296 287 4,755 3,412 Net operating income (16,199) 12,005 17,365 18,240 150,123 154,792 45,360 32,436 136,048 140,378 (6,146) 2,242 2,259 1,294 37,470 30,120 122 119 1,004 (106) Result before taxes (21,731) 6,682 17,293 18,373 159,440 178,062 41,554 28,636 136,974 140,183 (4,013) 1,448 2,259 1,295 36,176 28,948 119 113 872 653 Result of the year 25,475 1,735 11,053 12,652 124,281 137,482 40,841 20,538 96,771 99,391 (2,625) 810 1,564 858 26,458 20,373 87 81 564 894 Assets 1,365,697 1,159,795 492,008 402,624 1,128,815 897,326 771,023 705,185 1,393,776 853,296 105,470 127,106 48,056 42,595 465,093 429,939 1,225 1,293 47,956 61,068 Liabilities 701,517 519,095 286,024 195,442 582,531 340,687 391,837 347,566 1,175,233 632,867 94,049 111,595 7,323 2,617 240,431 212,041 126 280 27,347 39,203 Equity 664,180 640,700 205,984 207,182 546,283 556,639 379,187 357,618 218,543 220,429 11,422 15,511 40,733 39,979 224,662 217,898 1,100 1,013 20,610 21,865 Net financial position (223,436) (213,380) 222,136 125,826 (217,533) 122,671 (258,715) (236,722) (186,152) (42,633) (66,015) (77,708) 11,643 9,297 (189,326) (161,170) (44) (251) 532 10,297 SUBSIDIARIES LD RETI S.r.l. Linea Green S.p.A. Linea Ambiente S.r.l. Azienda Servizi Valtrompia S.p.A. A2A Security S.c.p.a. A2A Rinnovabili S.p.A. A2A Energy Solution S.r.l. Yada Energia S.r.l. ACSM-AGAM S.p.A. Ambiente Energia Brianza S.p.A. Share capital Euro 32,975,717 Euro 48,000,000 Euro 19,000,000 Euro 8,938,941 Euro 52,000 Euro 50,000 Euro 4,000,000 Euro 2,400,000 Euro 197,343,794 Euro 119,495,575 % held A2A S.p.A. 95.60% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. Unareti S.p.A. 74.55% 0.25% A2A S.p.A. Unareti S.p.A. A2A Ciclo Idrico S.p.A. Amsa S.p.A. A2A gencogas S.p.A. A2A Ambiente S.p.A. A2A Calore & Servizi S.r.l. A2A Energiefuture S.p.A. Other companies 45.96% 18.37% 10.49% 9.14% 3.95% 3.95% 2.60% 1.93% 3.61% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 41.34% A2A S.p.A. 33.52% Description thousands of euro 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Revenues 53,942 60,828 85,141 70,954 33,506 29,712 14,991 13,219 1,517 1,375 18,622 8,451 20,701 26,814 11,915 2,237 33,796 24,131 16,975 15,815 Gross operating income 26,802 26,221 30,346 24,513 2,407 1,171 6,340 3,907 287 387 13,975 6,124 (289) 615 (8,336) (7,800) (4,905) 1,073 (1,525) (520) Net operating income 14,260 14,153 14,513 11,406 (8,231) (56,587) 3,554 1,495 47 145 4,957 2,493 (2,489) (1,571) (11,799) (8,793) (9,418) (6,608) (4,850) (4,732) Result before taxes 13,018 12,981 11,587 9,063 (8,798) (56,859) 3,408 1,413 40 138 5,514 3,936 1,930 (307) (11,832) (8,793) 13,186 16,107 16,256 2,935 Result of the year 9,571 8,682 8,852 6,392 (8,697) (44,443) 2,490 1,043 32 99 4,582 6,854 2,346 (97) (8,901) (6,500) 15,594 15,335 17,082 3,699 Assets 267,910 277,703 293,745 286,163 206,674 159,919 63,230 47,417 1,432 1,189 247,935 102,425 38,329 44,075 19,474 20,714 717,492 652,524 478,755 465,865 Liabilities 99,720 110,018 168,424 163,476 138,633 161,295 38,189 24,807 1,031 822 241,932 94,309 30,071 36,999 15,117 7,463 276,211 210,562 61,608 57,790 Equity 168,189 167,685 125,321 122,686 68,041 (1,376) 25,041 22,609 401 367 6,003 8,116 8,258 7,075 4,357 13,251 441,281 441,962 417,148 408,074 Net financial position (66,481) (64,418) (115,761) (113,992) 8,372 (16,293) (27,863) (17,019) (288) (520) (199,485) (37,032) (23,409) (27,640) (5,735) 3,602 (74,155) (75,183) (27,839) (36,149) 4.8 Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) 125 A2A Separate financial statements 2021 SUBSIDIARIES A2A gencogas S.p.A. A2A Energiefuture S.p.A. A2A Ambiente S.p.A. A2A Calore & Servizi S.r.l. A2A Energia S.p.A. A2A Smart City S.p.A. Retragas S.r.l. A2A Ciclo Idrico S.p.A. SEASM S.r.l. Linea Gestioni S.r.l. Share capital Euro 450,000,000 Euro 50,000,000 Euro 220,000,000 Euro 150,000,000 Euro 3,000,000 Euro 3,448,276 Euro 34,494,650 Euro 70,000,000 Euro 700,000 Euro 6,000,000 % held A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. Unareti S.p.A. 87.27% 4.33% A2A S.p.A. 100.00% A2A S.p.A. 67.00% A2A S.p.A. 100.00% Description thousands of euro 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Revised 12 31 2021 12 31 2020 Revised 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Revenues 382,267 240,588 383,298 171,938 509,364 477,348 273,751 244,611 3,319,878 2,154,593 44,990 53,341 6,904 5,984 109,564 99,131 357 357 55,805 57,101 Gross operating income 57,945 71,624 44,559 36,145 215,365 194,095 84,478 71,144 180,363 180,038 2,790 9,780 4,759 3,735 58,894 48,541 296 287 4,755 3,412 Net operating income (16,199) 12,005 17,365 18,240 150,123 154,792 45,360 32,436 136,048 140,378 (6,146) 2,242 2,259 1,294 37,470 30,120 122 119 1,004 (106) Result before taxes (21,731) 6,682 17,293 18,373 159,440 178,062 41,554 28,636 136,974 140,183 (4,013) 1,448 2,259 1,295 36,176 28,948 119 113 872 653 Result of the year 25,475 1,735 11,053 12,652 124,281 137,482 40,841 20,538 96,771 99,391 (2,625) 810 1,564 858 26,458 20,373 87 81 564 894 Assets 1,365,697 1,159,795 492,008 402,624 1,128,815 897,326 771,023 705,185 1,393,776 853,296 105,470 127,106 48,056 42,595 465,093 429,939 1,225 1,293 47,956 61,068 Liabilities 701,517 519,095 286,024 195,442 582,531 340,687 391,837 347,566 1,175,233 632,867 94,049 111,595 7,323 2,617 240,431 212,041 126 280 27,347 39,203 Equity 664,180 640,700 205,984 207,182 546,283 556,639 379,187 357,618 218,543 220,429 11,422 15,511 40,733 39,979 224,662 217,898 1,100 1,013 20,610 21,865 Net financial position (223,436) (213,380) 222,136 125,826 (217,533) 122,671 (258,715) (236,722) (186,152) (42,633) (66,015) (77,708) 11,643 9,297 (189,326) (161,170) (44) (251) 532 10,297 SUBSIDIARIES LD RETI S.r.l. Linea Green S.p.A. Linea Ambiente S.r.l. Azienda Servizi Valtrompia S.p.A. A2A Security S.c.p.a. A2A Rinnovabili S.p.A. A2A Energy Solution S.r.l. Yada Energia S.r.l. ACSM-AGAM S.p.A. Ambiente Energia Brianza S.p.A. Share capital Euro 32,975,717 Euro 48,000,000 Euro 19,000,000 Euro 8,938,941 Euro 52,000 Euro 50,000 Euro 4,000,000 Euro 2,400,000 Euro 197,343,794 Euro 119,495,575 % held A2A S.p.A. 95.60% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. Unareti S.p.A. 74.55% 0.25% A2A S.p.A. Unareti S.p.A. A2A Ciclo Idrico S.p.A. Amsa S.p.A. A2A gencogas S.p.A. A2A Ambiente S.p.A. A2A Calore & Servizi S.r.l. A2A Energiefuture S.p.A. Other companies 45.96% 18.37% 10.49% 9.14% 3.95% 3.95% 2.60% 1.93% 3.61% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 41.34% A2A S.p.A. 33.52% Description thousands of euro 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Revenues 53,942 60,828 85,141 70,954 33,506 29,712 14,991 13,219 1,517 1,375 18,622 8,451 20,701 26,814 11,915 2,237 33,796 24,131 16,975 15,815 Gross operating income 26,802 26,221 30,346 24,513 2,407 1,171 6,340 3,907 287 387 13,975 6,124 (289) 615 (8,336) (7,800) (4,905) 1,073 (1,525) (520) Net operating income 14,260 14,153 14,513 11,406 (8,231) (56,587) 3,554 1,495 47 145 4,957 2,493 (2,489) (1,571) (11,799) (8,793) (9,418) (6,608) (4,850) (4,732) Result before taxes 13,018 12,981 11,587 9,063 (8,798) (56,859) 3,408 1,413 40 138 5,514 3,936 1,930 (307) (11,832) (8,793) 13,186 16,107 16,256 2,935 Result of the year 9,571 8,682 8,852 6,392 (8,697) (44,443) 2,490 1,043 32 99 4,582 6,854 2,346 (97) (8,901) (6,500) 15,594 15,335 17,082 3,699 Assets 267,910 277,703 293,745 286,163 206,674 159,919 63,230 47,417 1,432 1,189 247,935 102,425 38,329 44,075 19,474 20,714 717,492 652,524 478,755 465,865 Liabilities 99,720 110,018 168,424 163,476 138,633 161,295 38,189 24,807 1,031 822 241,932 94,309 30,071 36,999 15,117 7,463 276,211 210,562 61,608 57,790 Equity 168,189 167,685 125,321 122,686 68,041 (1,376) 25,041 22,609 401 367 6,003 8,116 8,258 7,075 4,357 13,251 441,281 441,962 417,148 408,074 Net financial position (66,481) (64,418) (115,761) (113,992) 8,372 (16,293) (27,863) (17,019) (288) (520) (199,485) (37,032) (23,409) (27,640) (5,735) 3,602 (74,155) (75,183) (27,839) (36,149) 4 Attachments 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3/a. Statement of changes in investments in subsidiaries 3/b. Statement of changes in investments in affiliates 3/c. Statement of changes in investments in other companies 4/a. List of investments in subsidiaries 4/b. List of investments in affiliates Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 126 4 Attachments SUBSIDIARIES Unareti S.p.A. AGRIPOWER S.r.l. Fragea S.r.l. società agricola A2A E-MOBILITY S.r.l. ES Energy S.r.l. Proaris S.r.l. in liquidation Share capital Euro 965,250,000 Euro 500,000 Euro 20,000 Euro 100,000 Euro 10,000 Euro 1,875,000 % held A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 51.00% A2A S.p.A. 50.00% A2A S.p.A. 60.00% Description thousands of euro 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Revenues 523,990 514,199 9,130 10,367 4,180 2,851 1,195 0 8,764 4,585 720 2,632 Gross operating income 254,739 241,453 377 748 1,173 737 (514) 0 258 244 (51) 355 Net operating income 116,963 139,554 191 518 532 333 (701) 0 258 243 (100) 180 Result before taxes 113,785 137,166 (2,917) 1,009 490 344 (729) 0 258 243 (100) 181 Result of the year 81,236 100,069 (2,169) 750 357 252 (555) 0 171 184 (77) 85 Assets 2,399,671 2,330,205 23,092 47,054 9,411 10,231 6,101 14 1,758 1,036 5,842 6,600 Liabilities 929,585 846,354 19,122 45,915 8,669 9,846 5,461 4 1,084 392 713 600 Equity 1,470,087 1,483,851 3,970 1,139 742 385 640 10 674 643 5,129 6,000 Net financial position (491,650) (369,260) (8,470) (4,227) (2,806) (3,022) (4,229) 6 995 662 3,460 3,092 AFFILIATES Sviluppo Turistico del Lago d’Iseo S.p.A. Società Elettrica di Toscolano Maderno S.r.l. Serio Energia S.r.l. Visano Società Trattamento Reflui S.c.a.r.l. Share capital Euro 1,616,298 Euro 104,000 Euro 1,000,000 Euro 25,000 % held A2A S.p.A. 24.29% A2A S.p.A. 49.00% A2A S.p.A. 40.00% A2A S.p.A. 40.00% Description thousands of euro 12 31 2020 12 31 2019 12 31 2020 12 31 2019 12 31 2020 12 31 2019 12 31 2020 12 31 2019 Revenues 952 1,461 929 990 2,051 2,193 21 31 Gross operating income (24) 381 672 698 699 585 - - Net operating income (169) 93 514 536 461 347 - - Result before taxes (221) 27 505 525 461 347 - - Result of the year (246) 19 375 377 337 247 - - Assets 6,100 6,312 2,860 3,259 2,308 2,197 48 48 Liabilities 3,275 3,234 788 963 350 335 22 22 Equity 2,826 3,078 2,071 2,296 1,958 1,861 26 26 Net financial position (2,060) (2,151) (102) (50) 822 703 - - 4.9 Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) 127 A2A Separate financial statements 2021 SUBSIDIARIES Unareti S.p.A. AGRIPOWER S.r.l. Fragea S.r.l. società agricola A2A E-MOBILITY S.r.l. ES Energy S.r.l. Proaris S.r.l. in liquidation Share capital Euro 965,250,000 Euro 500,000 Euro 20,000 Euro 100,000 Euro 10,000 Euro 1,875,000 % held A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 51.00% A2A S.p.A. 50.00% A2A S.p.A. 60.00% Description thousands of euro 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 12 31 2021 12 31 2020 Revenues 523,990 514,199 9,130 10,367 4,180 2,851 1,195 0 8,764 4,585 720 2,632 Gross operating income 254,739 241,453 377 748 1,173 737 (514) 0 258 244 (51) 355 Net operating income 116,963 139,554 191 518 532 333 (701) 0 258 243 (100) 180 Result before taxes 113,785 137,166 (2,917) 1,009 490 344 (729) 0 258 243 (100) 181 Result of the year 81,236 100,069 (2,169) 750 357 252 (555) 0 171 184 (77) 85 Assets 2,399,671 2,330,205 23,092 47,054 9,411 10,231 6,101 14 1,758 1,036 5,842 6,600 Liabilities 929,585 846,354 19,122 45,915 8,669 9,846 5,461 4 1,084 392 713 600 Equity 1,470,087 1,483,851 3,970 1,139 742 385 640 10 674 643 5,129 6,000 Net financial position (491,650) (369,260) (8,470) (4,227) (2,806) (3,022) (4,229) 6 995 662 3,460 3,092 AFFILIATES Sviluppo Turistico del Lago d’Iseo S.p.A. Società Elettrica di Toscolano Maderno S.r.l. Serio Energia S.r.l. Visano Società Trattamento Reflui S.c.a.r.l. Share capital Euro 1,616,298 Euro 104,000 Euro 1,000,000 Euro 25,000 % held A2A S.p.A. 24.29% A2A S.p.A. 49.00% A2A S.p.A. 40.00% A2A S.p.A. 40.00% Description thousands of euro 12 31 2020 12 31 2019 12 31 2020 12 31 2019 12 31 2020 12 31 2019 12 31 2020 12 31 2019 Revenues 952 1,461 929 990 2,051 2,193 21 31 Gross operating income (24) 381 672 698 699 585 - - Net operating income (169) 93 514 536 461 347 - - Result before taxes (221) 27 505 525 461 347 - - Result of the year (246) 19 375 377 337 247 - - Assets 6,100 6,312 2,860 3,259 2,308 2,197 48 48 Liabilities 3,275 3,234 788 963 350 335 22 22 Equity 2,826 3,078 2,071 2,296 1,958 1,861 26 26 Net financial position (2,060) (2,151) (102) (50) 822 703 - - 4 Attachments 1\. Statement of changes in tangible assets 2\. Statement of changes in intangible assets 3/a. Statement of changes in investments in subsidiaries 3/b. Statement of changes in investments in affiliates 3/c. Statement of changes in investments in other companies 4/a. List of investments in subsidiaries 4/b. List of investments in affiliates Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 128 4 Attachments 4.10 Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 1. The undersigned, Renato Mazzoncini, as CEO of A2A S.p.A., and Andrea Crenna, as Financial Reporting Manager of A2A S.p.A. also considering the provisions of article 154-bis, paragraphs 3 and 4, of Legislative Decree no. 58 of February 24, 1998, hereby attest: the adequacy in relation to the characteristics of the company and the effective application of administrative and accounting procedures for the preparation of financial statements in the year 2021. 2. It is also certified that: 2.1 the financial statements: a) have been prepared in accordance with International Financial Reporting Standards as endorsed by the European Community pursuant to Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002; b) correspond to the information contained in the accounting ledgers and records; c) provide a true and fair representation of the equity, economic and financial situation of the issuer; 2.2 the report on operations includes reliable analysis on the performance, result of operations and the business of the issuer, as well as description of principal risks and uncertainties to which is exposed. Milan, March 17, 2022 Renato Mazzoncini Andrea Crenna (CEO) (Financial Reporting Manager) 5 Independent Auditors’ Report 130 5 Independent Auditors’ Report 5 Independent Auditors’ Report 131 A2A Separate financial statements 2021 5 Independent Auditors’ Report 132 5 Independent Auditors’ Report 133 A2A Separate financial statements 2021 5 Independent Auditors’ Report 134 5 Independent Auditors’ Report 6 Report of the Board of Auditors 136 6 Report of the Board of Auditors 6 Report of the Board of Auditors 137 A2A Separate financial statements 2021 6 Report of the Board of Auditors 138 6 Report of the Board of Auditors 139 A2A Separate financial statements 2021 6 Report of the Board of Auditors 140 6 Report of the Board of Auditors 141 A2A Separate financial statements 2021 6 Report of the Board of Auditors Description thousands of euro Leading Auditor Other auditors A2A S.p.A. Audit of annual financial statements 185 Audit of consolidated financial statements 43 Periodic tests of accounting 23 Review of half-yearly report 70 Audit of the separate annual accounts for ARERA 16 Total 337 Subsidiaries Audit of annual financial statements 1,124 Periodic tests of accounting 220 Review of half-yearly report 237 Audit of the separate annual accounts for ARERA 81 Other consolidated groups (Agripower, ACSM-AGAM, AEB) 397 88 Total 2,059 88 Associates and joint ventures Audit of the information sent to shareholders for the consolidation 25 Total 25 TOTAL A2A GROUP 2,421 88 142 6 Report of the Board of Auditors 143 A2A Separate financial statements 2021 6 Report of the Board of Auditors 144 6 Report of the Board of Auditors 145 A2A Separate financial statements 2021 6 Report of the Board of Auditors 146 6 Report of the Board of Auditors 147 A2A Separate financial statements 2021 6 Report of the Board of Auditors 148 6 Report of the Board of Auditors 149 A2A Separate financial statements 2021 6 Report of the Board of Auditors 150 6 Report of the Board of Auditors 151 A2A Separate financial statements 2021 6 Report of the Board of Auditors 152 6 Report of the Board of Auditors 153 A2A Separate financial statements 2021 6 Report of the Board of Auditors 154 6 Report of the Board of Auditors 155 A2A Separate financial statements 2021 6 Report of the Board of Auditors 156 6 Report of the Board of Auditors 157 A2A Separate financial statements 2021 6 Report of the Board of Auditors 158 6 Report of the Board of Auditors