A2A, 2020 FINANCIAL STATEMENTS: SOLIDITY OF THE ECONOMIC RESULTS AND IMPROVEMENT IN SUSTAINABILITY PERFORMANCE

A2A, 2020 FINANCIAL STATEMENTS:

SOLIDITY OF THE ECONOMIC RESULTS AND IMPROVEMENT IN SUSTAINABILITY PERFORMANCE

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• ● EBITDA at 1,204 million euro (1,234 at 31 December 2019) thanks to a significant recovery seen in the fourth quarter (+10%)

• ● Ordinary EBITDA amounted to 1,191 million euro, aligned with 2019, despite the highly critical context in 2020

• ● Net profit amounted to 364 million euro (389 million last year)

• ● Capex at 738 million euro, +18% compared to 2019, 80% are consistent with the UN 2030 Agenda goals (SDGs) and approximately 40% relating to the circular economy, confirming the Group's commitment to promote sustainable growth

• ● Net Financial Position stands at 3,472 million euro (3,154 million euro at 31 December 2019). Excluding perimeter changes, the NFP came to 3,327 million euro

• ● Improvement in Sustainability indicators:

  • ✔ 99.7% of municipal waste collected recovered as material or energy

  • ✔ 3.9 TWh in green energy sold to end customers

  • ✔ CO2 emissions reduced by 1 million tonnes

  • ✔ accident rate down by 17%

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Dividend proposed to the Shareholders' Meeting of 0,08 euro per share up 3.2% compared to the previous year

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Milan, 18 March 2021 - At today's meeting, the Board of Directors of A2A S.p.A., chaired by Marco Patuano, examined and approved the drafts of the Separate financial statements and of the Consolidated annual financial report at 31 December 2020.

"In a year characterised by the pandemic emergency, the Group has recorded positive results in line with the previous year, as confirmation of its solidity. A2A has continued, throughout the year, to guarantee essential services to citizens, demonstrating capacity to react, great professionalism and a sense of responsibility in its people" A2A's Chief Executive Officer, Renato Mazzoncini, declared "2020 has also been a year of record capex, of 738 million euro, up on the previous year and 80% consistent with the 2030 UN Agenda goals. The proposal of a dividend growing on 2019 provides further evidence of A2A's attention to shareholders and confirms full confidence in a business model based on sustainable development and the creation of value, as envisaged by the 2021-2030 Business Plan".

The results declining during the first half of the year as economic activities were put on hold by the public health authorities, evidenced a partial recovery over the following months.

The impacts of the economic emergency for the A2A Group were distributed unevenly during the year and differently in the areas of activity: lower impact for regulated activities and with a greater weighting for those more exposed to the price and consumption dynamics.

As regards energy consumption in particular, the net demand for electricity in Italy in 2020 was 302,751 GWh, showing a decline of 5.3% on the volumes recorded for the previous year; in the year just ended, moreover, the demand for natural gas dropped by 4.1% on 2019, coming in at 70,727 Mcm, the lowest booked in the last four years.

In respect of energy commodity prices, in 2020, the decreasing trend already in progress late 2019, was emphasized by the health emergency. The PUN (single nationwide price) recorded a decline of 25.7%, coming in at € 38.9/MWh: values marked an all-time low in May (€ 21.79/MWh) before then rising and in December reach € 54/MWh. Declining average values were also recorded for prices in high load time slots (-23.6% for the Peak Load PUN reaching 44.6 €/MWh).

The average price of gas to the PSV (Virtual Exchange Point) for 2020 amounted to € 10.4/MWh, down 35.5% compared to last year. More specifically, a downward trend is seen concentrated in the first half of 2020, with all-time lows in June (€ 5.9/MWh) and a rise, with a peak of € 16.3/MWh, in December.

The above economic environment, the need to ensure operating continuity and the objective to the country's sustainable development, entailed:

• ● a decrease in turnover (-6.3%);

• ● stable ordinary margins recorded, thanks to appropriate hedging of energy production in the months prior to the pandemic and action taken to mitigate the negative effects of the health emergency, constantly providing high quality standards of service supplied and employee safety;

• ● a significant increase in capex (+18% on 2019). In 2020, the Group invested 738 million, allocating most of the resources to environmental sustainability. Approximately 80% of capex, in fact, are remarked as "sustainable", in line with the UN 2030 Agenda goals (SDGs). Consistently with the A2A strategy, capex are based on two pillars: circular economy and the energy transition. More specifically, around 40% concern the recovery of goods and energy, the reduction of water wastage and the extension of the capacity to purify water, with a view to assure a successful circular economy.

The following are the main indicators:

Millions of euro

2020

2019

Δ

Δ%

Revenues

Gross operating margin - EBITDA

Net Operating Income - EBIT

Group net profit

6,862 1,204 550 364

7,324 1,234 687 389

-462 -6.3%

-30 -2.4%

-137 -19.9%

-25

-6.4%

In 2020, the Group Revenues amounted to 6,862 million euro, down by 6.3% compared to the previous year.

The reduction mainly regarded the wholesale energy market following both the lesser prices of electricity and gas and the reduction in volumes sold on the industrial gas portfolio, as well as the retail gas and district heating markets for the decline in unit prices and lesser quantities sold to key gas accounts and revenues relating to the sale/management of energy efficiency certificates (EECs). On the other hand, the contribution made by higher retail sales to key electricity accounts was positive, as well as the contribution made by the business acquired in 2020.

EBITDA equalled 1,204 million euro, a decline of 30 million euro compared to 2019 (-2.4%).

Net of non-recurring items (+13 million euro in 2020, +42 million euro the previous year), ordinary EBITDA is in line with the previous year (-1 million euro).

The result is the combined effect of lower margins, which in any case improved considerably during the last quarter of the year, in the industries that most suffered the negative effects of the energy scenario, and the excellent performance of those segments in which the mitigation action taken successfully and entirely neutralised the negative effects of the explosion of the epidemic.

EBIT, amounting to 550 million euro, was down by 137 million euro compared to 2019 (687 million euro). The change was due to:

• ● a decrease in EBITDA, as described above (-30 million euros);

• ● an increase in amortisation/depreciation (-53 million euro), mainly relating to capex made during the year, the write-back of value of the A2A Gencogas plants, following impairment testing as at 31 December 2019 and the plan to replace electricity meters;

• ● lower impairment write downs for 4 million euro: 5 million euro in 2020; 9 million euro in impairment in 2019;

• ● greater net risk provisions made (-58 million euro on 2019) deriving from higher risk provisions in 2020 and greater releases of surplus provisions made the previous year.

Group net profit for 2020 came to 364 million euro, down 25 million euro (-6.4%) on 2019.

The reduction in EBIT was partially offset by:

• ● lower net financial expenses for 33 million euro, mainly due to the refinancing of bonds, matured in 2019,at more favourable rates and lower expenses linked to the rationalisation of the Group's debt;

• ● a reduction in the tax impact for 90 million euro, of which 51 million related to previous years tax charge recovery.

The Consolidated Net Financial Position at 31 December 2020 amounted to 3,472 million euro (3,154 million euro as at end 2019). Excluding the year changes in Group perimeter, the NFP came to 3,327 million euro, evidencing a cash absorption for 173 million euro versus 31 December 2019, after capex for 738 million euros and dividends for 241 million euro.

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A2A Group - Results by Business Unit

The following table shows the composition of the EBITDA by Business Unit:

Millions of euro	12.31.2020	12.31.2019	Change	Change %
Generation and Trading	270	301	-31	-10.3%
Market	220	229	-9	-3.9%
Waste	282	268	14	5.2%
Networks	456	472	-16	-3.4%
Corporate	-24	-36	12	-33.3%
Total	1,204	1,234	(30)	-2.4%

Generation and Trading Business Unit

Revenues amounted to 3,828 million euro, down 571 million euro compared to the previous year. The change was brought about by the decline in prices of both electricity and gas and the lesser volumes sold of the industrial gas portfolio, partly offset by the growth of electricity volumes sold.

EBITDA amounted to 270 million euro, a decrease of 31 million euro compared to the previous year. Before non-recurring items (equal to +8 million euro in 2020 and +14 million euro in 2019), Ordinary EBITDA dropped by 25 million euro.

The change is mainly due to:

• ● the negative effects, emphasized by the emergency situation suffered by the energy generation sector - due to the severely penalising scenario and the demand decline, as previously described;

• ● the reduction of hydroelectric production;

• ● an effective hedging strategy;

• ● the excellent performance booked on the ancillary services market ("MSD") of 176 million euro (+26 million euro on 2019).

The downturn to margins recorded in the first nine months of the year by the Generation and Trading Business Unit, determined by the dynamics of consumption and prices, was very much reduced in the fourth quarter of the year, both due to the lessening of the negative effects of the energy scenario and the excellent results achieved on the ancillary services market.

In 2020, capex amounted to 76 million euro. These capex were 53 million euro for extraordinary maintenance interventions, of which 38 million on thermoelectric plants and 14 million euro on hydroelectric units. Development works were also carried out for a total of 19 million euro, mainly related to Brindisi plant (installation works on the synchronous compensators), photovoltaic plants (start of new plant developments) and ICT projects.