COVID-19 Emergency

After the declarations by the World Health Organisation, in Italy via specific Decrees of the Presidency of the Council of Ministers (DPCM), a state of emergency was declared, currently in place until July 31st, and explicit measures were taken, firstly in the Lombardy Region and Northern Italy and subsequently extended throughout the national territory. From the end of March, a series of additional provisions were put in place for the suspension of industrial production activities, with the exception of those services considered essential, including in the latter the supply of electricity and related maintenance and interventions. This blockade was extended until May 3rd; from the following day, in accordance with DPCM dated 26 April 2020, the so-called "Phase 2" commenced.

The other European countries where the ERG Group operates, including France and Germany, albeit with different timing, have followed the same path taken by Italy and have gradually suspended activities, apart from those services deemed to be essential and of public utility, which again includes the supply of electricity.

At the first signs of emergency the company promptly took action, putting in place all necessary measures to guarantee, on the one hand, the health of its employees and, on the other, the operational continuity of its assets in conditions of safety. This took place by way of recourse to smart working, which was introduced in advance with respect to the provisions of law, and was extended to all the Group's branches in Italy and abroad, involving over 70% of the company's people, corresponding to the entire "office-based" workforce, excluding only staff assigned to operational management and maintenance of plants with a view to safeguarding business continuity.

Again during Phase 2, whilst allowing potential access to respective offices ERG has confirmed and encouraged the continuation of remote working. ERG has managed with extreme caution the personnel employed at its production sites, by adopting suitable safety measures from a perspective of both "organisation" (able to guarantee social distancing and the remodulation of operational and logistic activities) and "Prevention and Protection" (training and information, individual protection devices, personal hygiene measures and cleaning/sanitisation of work environments), in observance of the indications given by the Competent Authorities and in agreement with the Trade Union Organisations.

At all operational sites the organisational, logistic and facility actions for the protection of workers and to safeguard all essential activities for ensuring service continuity and the running of plants in conditions of safety were prepared and promptly updated. On the basis of safety protocols issued by the authorities, details were set out in two documents issued respectively on April 15th and April 30th, intitled "Company Protocol for the regulation of measures to combat and contain the spreading of the COVID-19 virus in work environments" (15 April) and "Company Protocol for the regulation of measures to combat and contain the spreading of the COVID-19 virus in work environments – PHASE 2" (30 April), which integrate the ERG Group Risk Assessment Document.

At Supply Chain level every appropriate action has been put in place to ensure the operational continuity of all production assets in Italy and abroad, via a structured Business Continuity Management approach and the definition of procurement plans covering supplies until at least the end of 2020, with identification of backup suppliers for all Main Components and primary services.

The presence of our own staff on the field to perform O&M activities and our own warehouses close to production facilities has proved to be a successful strategy for guaranteeing business continuity and minimising our dependency on external suppliers.

A Task Force was immediately set up at Top Management level, in accordance with our Crisis Communication Management Policy: each day Top Management meets to take stock of the situation, with a view to being constantly updated and ready to review priorities on a daily basis, so as to promptly respond to any needs that may arise. To date there has been no interruption of company activity, either in Italy or abroad, and in fact there have been no cases of contagion in the workplace, demonstrating the effectiveness of the measures taken.

During this period there have been no reductions in staff and none have been planned. Moreover, the company has not made use of social safety nets or compulsory short-time working. On the other hand, 14 new hires entered the Group from March until now and COVID-19 health insurance cover has also been taken out in favour of all employees.

Engagement and partnership activities with the communities where ERG operates have gone ahead and appropriate funds have been allocated by the Group, by the Parent Company and by the employees themselves to meet the most urgent needs of healthcare facilities.

Once again during these critical circumstances the solidarity of the company and its people has been readily demonstrated. ERG allocated 2 million Euro to support the areas where its production sites are located that have been affected by the COVID-19 crisis, with a view to providing material support for the most urgent needs of the healthcare facilities. In addition to this initiative, on a proposal from the internal Social Partners, the Group's employees donated a total of 2,300 work hours, the corresponding amount being destined in favour of the Civil Protection Department. It should also be mentioned that San Quirico S.p.A., the Company's majority shareholder, allocated one million Euro in favour of Genoa's front-line hospitals engaged in the healthcare emergency.

In brief, ERG's response to the COVID-19 crisis closely reflects its own business model, which has always been oriented towards the creation and sharing of sustainable value for shareholders, employees and the community in general.

With regard to the guidelines provided by the European Securities and Markets Authority (ESMA) on 11 March 2020 and subsequent communications, we therefore confirm that the Group's management has set up a continuous monitoring of the actual and potential impacts of the COVID-19 crisis on the Group's business activities, financial situation and economic performance. 
We are women and man living in different and distant places. We also do very different jobs: we are engineers, designers, turbine technicians, talent managers, administrators.

But the thing that makes us equal and united, and even more so in this difficult time for everyone, is the pride and awareness of working together to make a real contribution to a cleaner and more sustainable world, of being part of something bigger.

From Sicily to Scotland, from France to Romania, we are ERG.

A detailed programme put in place to fight the COVID-19 emergency

A detailed programme put in place to fight the COVID-19 emergency
A seven phase programme against the Coronavirus, to be implemented at all ERG premises. We have kicked off by adjusting workplace cleaning procedures to suit the new situation since the first stages of the emergency; we have then had to reorganise the distribution of information to all employees regarding essential rules of conduct that need to be complied with in order to limit risk; collaboration with the company physician with regard to all risk situations; remote working procedures have been introduced on a gradual basis, while guaranteeing the continuity of work activities, along with activity reduction plans at all operational sites and operating instructions have been issued by Management on how to operate while safeguarding two crucial aspects, that is to say the reduction of personal contact and maintaining the distance of 1 metre between all personnel.

Business Outlook

ERG is continuing with its strategy of international development in Wind and in the programme for the Repowering of its own wind farms in Italy, within the new complex and difficult context created as a result of the COVID-19 health emergency.

The main social and economic implications of the crisis concern the downward trend in energy prices and the smooth running of the activities of public administrations and those of the industrial and financial operators with which the Group regularly interacts.

In view of the above, expected outlook for the main operating and performance indicators for 2020, taking into account that the results for the first half of the year are in line with the expected outlook in the previous interim report as at 31 March 2020, is as follows:
  • Wind
    The result abroad will be higher than in 2019 due to the better wind conditions recorded in the early months of the year, albeit with reduced prices, particularly in Eastern Europe, and the contribution of the higher installed capacity, including the newly-acquired wind parks in France (38 MW).

    In Italy, EBITDA is, on the contrary, expected to be lower than in 2019, due to the lower wind speeds recorded in the first part of the year compared with the particularly high values in 2019, as well as the unfavourable price scenario, partly offset by the higher incentive prices and the price hedging actions.

    Note also the exit of a further 26 MW from the incentive system at the start of the year. The total EBITDA of the Wind sector is expected to be lower than the previous year.
     
  • Solar
    Solar: EBITDA will benefit in 2020 from some synergies deriving from the optimisation of the Energy Management portfolio, and from the in-sourcing of some activities previously carried out by third parties capitalising its own industrial competencies in the operating consolidation of the managed assets.

    The EBITDA for the entire year 2020 is forecast to grow with respect to 2019.
     
  • Hydroelectric
    Hydroelectric: EBITDA is estimated taking into account the low water availability recorded so far, with 2020 volumes expected to be lower than the ten-year statistical average and in line with the particularly low volumes in 2019; these volumes will benefit from the incentive on around 40% of the amount but at a higher price than in 2019.

    In addition, actions to optimise Energy Management on energy markets will continue with the aim of containing the negative impact of the price scenario despite the hedging actions already carried out.

    Therefore, EBITDA for the hydroelectric sector is expected to reduce slightly compared to the values of 2019.
     
  • Thermoelectric
    Thermoelectric: the forecast for the 2020 result will be affected, compared to 2019, by a lower price and margin scenario, even after the hedging actions on the Clean Spark Spreads, as well as by the contraction of the volumes of energy efficiency certificates as a result of the exit of one of the two modules of the plant from the high-efficiency cogeneration period.

    In particular, in the second half of the year, results are expected to be in line with those of the first half of the year which benefited from insurance reimbursements and payments relating to site contracts.

     
In particular, in the second half of the year, results are expected to be in line with those of the first half of the year which benefited from insurance reimbursements and payments relating to site contracts.

Overall, EBITDA is expected to contract relative to 2019. For financial year 2020, the consolidated EBITDA guidance reported in the previous quarter is confirmed, estimating an overall result in the range of EUR 500 to 480 million.

Capital expenditure costs for 2020 relate mainly to progress in the construction of greenfield projects relating to the parks that will come into production in 2021/22 in Great Britain for approximately 200 MW, in Poland for 36 MW and in France for 50 MW; also included are the initial capex for plant modernisation activities and the simultaneous renewal of the High-Efficiency Cogeneration (HEC) qualification for module 1 of the CCGT, the above-mentioned acquisition of 38 MW in France and the usual capital expenditure for wind farm maintenance.
The amount is lower overall than that of 2019, characterised by significant M&A transactions and will be within the range of EUR 150 and 180 million, confirming the guidance communicated last quarter.

Cash generation, taking into account the EBITDA and capital expenditure mentioned, will reduce year-end indebtedness, which will be in a range of between EUR 1.35 and 1.43 billion, confirming the guidance communicated last quarter. This result will be reduced compared with the EUR 1.48 billion at the end of 2019, also due to lower financial expenses thanks to the full effects of liability management operations after the issue of the Green Bond in 2019.
Page updated at 3 Aug 2020