management report - engie epsthe final gross proceeds of the transaction amounted to...
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MANAGEMENT REPORT
31 December 2018
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I. ACTIVITY
1 Company’s situation over the past fiscal year
The selected financial information presented below refer to the Consolidated Financial
Statements of the ENGIE EPS Group for the years ended on 31 December 2016, on
31 December 2017 and on 31 December 2018:
(1) On 1st January 2016, the Group acquired 100% of the corporate capital of Elvi Energy S.r.l and 30% of its subsidiaries
MCM Energy Lab S.r.l. The remaining 70% of MCM was acquired on 18 January 2016. These acquisitions were
accounted as Business Combination under IFRS 3.
(2) EBITDA (excluding Stock Option and Incentive Plans expenses) is not defined by IFRS. It is defined in notes 3.5 and
4.6 of the ENGIE EPS Group’s 2018 Consolidated Financial Statements.
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Revenues amount to €15.5 million as of 31 December 2018, up 57% compared to the previous
year. This growth is mainly due to positive developments in our core addressable markets:
microgrids in islands and emerging countries, and grid support in developed economies – in
both cases partnering with ENGIE. In particular, successful deployment of microgrids such as
the Comoros, Somaliland, New Caledonia and Singapore. More importantly, growth is also due
to grid-connected solutions in Europe with 24MW of storage systems that went online in Spain,
Italy and Belgium.
Pipeline as of 14 March 2019 increased by 101% compared to 28 March 2018, reaching €302
million. Order intake in 2018 has reached 41.3MW, representing approximately €10.9 million.
This achievement confirms the effectiveness of ENGIE EPS’ business model in the Southern
Europe, Africa and Asia Pacific regions, which has enabled ENGIE EPS to accelerate its growth
reaching a total of 46 customers in 23 countries across the globe.
Backlog as of 14 March 2019 corresponds to €52.4 million, an increase of 109% compared to
28 March 2018. ENGIE’s projects played a pivotal role, including a solar-plus-storage project
awarded in partnership with ENGIE Solar representing 61% of the Backlog. This includes the
total EPC value of such solar-plus-storage project whereas the related revenue recognition for
the PV portion (approx. 55% of the Backlog) will depend on the final allocation of the EPC
responsibilities between ENGIE EPS and ENGIE Solar.
In other terms, notwithstanding the retendering of the Armonia project in Palau announced on
15 February 20191, Backlog more than doubled compared to last year, and is currently
1 The Armonia project represented a 100MW microgrid, which had been awarded to ENGIE EPS (see 12 October 2018 press
release) and was included in the backlog after that date. Following the Palau government’s decision, for internal reasons, to
reopen the tender (see 15 February 2019 press release), it is no longer included in the backlog.
CASH FLOW STATEMENT
(amounts in Euro) 31/12/2018 31/12/2017 31/12/2016
Net Income or Loss (8,734,638) (9,009,510) (8,557,601)
Revaluation of European Investment Bank warrants liabilities (IFRS 2)(3,777,134) 3,086,219 0
Non-cash adjustments 1,052,243 2,159,144 3,097,356
Working capital adjustments 4,048,686 (5,820,580) 1,050,911
Net cash flows from operating activities (7,410,842) (9,584,726) (4,409,334)
Net cash flows from investments activities (3,918,573) (2,728,851) (5,215,968)
Net cash flows from financing activities 17,952,403 11,073,328 6,529,281
Net cash and cash equivalent at the beginning of the period 4,237,539 5,477,790 8,573,811
NET CASH FLOW FOR THE PERIOD 6,622,988 (1,240,249) (3,096,021)
NET CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 10,860,527 4,237,540 5,477,790
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comprised of €42.7 million projects on an EPC basis, and €9.7 million projects secured on a
Power Purchase Agreement (“PPA”) basis, for which financing is currently under structuring.
Gross margin stands above 30%, despite an increase in project size and complexity.
Personnel costs increased by 24% reaching €4.4 million compared to the €3.5 million of 2017.
This is due to the continuous intensity in R&D and a major commitment in undertaking business
execution.
R&D investments amounted to €3.2 million, including expenses and capitalized amounts.
These investments represent 20% of consolidated revenues and 40% of all fixed costs,
confirming once more the strong commitment of ENGIE EPS in R&D and innovation.
Other Operating Expenses decreased by 24% amounting to €1.6 million compared to €2.1
million in 2017. This is due to cost rationalization and a more efficient internal organizational
structure.
EBITDA2 loss amounts to €4.6 million in 2018 compared to the €1.7 million loss of 2017. This is
mainly the consequence of the negative impact of scaling EPC and outsourced construction
activities in view of the utility-scale focus. However, in 2019, ENGIE’s support and the
partnership with ENGIE Solar could dramatically change the current outlook, given their
experience gained through the 1.2GW of new solar PV awards on a worldwide basis. Overall,
this should contribute to a more structured and sophisticated approach to EPC activities,
enabling a sustainable path to profitability.
Net Result as of 31 December 2018 improved by 3% compared to 2017, from €-9.0 million to
€-8.7 million. Non-recurrent items accounting for €2.6 million, which significantly affected the
operating result and are mainly represented by non-recurring legal and accounting expenses
linked to extraordinary transactions, namely the corporate change of control, the mandatory
tender offer and the rights issue carried out in 2018.
Net Financial Position at the end of 2018 increased to €6.8 million from €-12.3 million (before
EIB IFRS 2 warrants impact) on 31 December 2017, mainly due to the €30 million capital
increase and the growth in revenues, despite working capital and continuous investments in
R&D. In this respect, ENGIE EPS has constantly been supported by Intesa Sanpaolo, which in
February 2019 approved, subject to customary condition precedents for ENGIE group
companies, an additional €7.5 million facility devoted to R&D activities.
2018 was a transformative year for ENGIE EPS, with the main following key following events:
• ENGIE Acquisition: On 24 January 2018, ENGIE (via GDF International) signed a
share purchase agreement with ENGIE EPS’s (previously EPS) main shareholders to
acquire a majority stake in ENGIE EPS, slightly above 50% of the share capital and
voting rights. This acquisition was completed on 8 March 2018. As a result of this
acquisition, ENGIE (through its subsidiary GDF International) launched a simplified
tender that ran from 1 to 14 June 2018, thereby holding 59.89% of the Company's share
capital and voting rights.
• New Incentive Plan: On 6 March 2018, as part of the acquisition by ENGIE, a new
long-term Incentive Plan, linked to the development of the Company, was put in place
to secure and strengthen the commitment of the management team until 2021 (the “New
Incentive Plan”). The New Incentive Plan replaced the existing stock-options and
2 Earnings before interest, tax, depreciation and amortization, excluding non-recurring income, expenses and the accounting
impact of stock options and stock appreciation rights.
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warrants that had been granted to Directors, managers and employees since the IPO,
by a “cash” instrument, i.e. Stock Appreciation Rights (“SARs”).
• Establishment of EPS Mobility: Effective from 11 April 2018, the Company set up a
permanent establishment in Italy, following the spinoff of the e-Mobility and Power
Electronics Lab going concern from EPS Elvi to ENGIE EPS. From a strategic-
entrepreneurial perspective, the sale of the E-Mobility and Power Electronics Lab
activities will allow EPS Elvi – while the mobility and power electronics R&D activities
will be segregated at the parent level in the E-Mobility – to purely focus on the energy
sector, reducing the fixed costs of the R&D infrastructures, increasing profitability and
thus the ability to finance its own business growth, also in light of the sizeable recent
order intake increase.
• EIB Financing prepayment: On 9 May 2018, ENGIE EPS signed a prepayment
agreement with the European Investment Bank (“EIB”) to terminate the equity-linked
financing of up to €30 million, signed on 11 April 2017, following the ENGIE Acquisition.
Under this prepayment agreement, ENGIE‘s mandatory tender offer was extended to
the warrants held by the EIB. The two undrawn tranches were cancelled and, on 6
September 2018, ENGIE EPS repaid the €10 million first tranche.
• Capital increase: On 6 August 2018, ENGIE EPS announced the successful
completion of its capital increase with shareholders’ preferential subscription rights with
the subscription period running from 20 July 2018 to 30 July 2018 (the “Rights Issue”).
The final gross proceeds of the transaction amounted to €30,321,292.50, corresponding
to the issuance of 3,191,715 new shares. ENGIE EPS’s share capital, following the
Rights Issue, amounts to €2,553,372, represented by 12,766,860 shares with a par
value of €0.20 each. As a result of its participation to the Rights Issue, ENGIE (through
its subsidiary GDF International) owns 60.48% of the capital and voting rights of EPS.
The net proceeds have been used to reimburse financings due, in the amount of €12.4
million (including the first tranche of €10 million due under the EIB Loan
Reimbursement), to finance additional working capital needs (in the amount of €11
million), and in particular the 2020 Strategic Plan (notably investment in R&D and
technology) and complementary activities in relation to the implementation of Project
Development (including implementation of necessary commercial infrastructure).
The main factors affecting the performance of the ENGIE EPS Group during 2018 were:
• Investments and commitment of financial resources for research and development,
namely the purchase of goods and technical services, and the hiring of qualified
personnel both from inside and outside the company, aimed at the Prophet project, the
control predictive algorithm for a multi-Distributed Energy Resources (“DER”) microgrid,
the HyESS® platform, power electronics and e-Mobility, the Hydrogen Module integrated
in HyESS® and the ENGIE EPS Group’s Enterprise Resource Planning (“ERP”), which
required financial resources equal to approx. € 3,193 million. In particular, at the end of
2018, 1,229 K€ were invested in the Prophet project, 676 K€ for the development and
completion of HyESS®, 551 K€ for the development of power electronics and e-Mobility
solutions and in detail new C-BESS-900, C PV-900 and 100kW - 1500 VDC inverter
suitable for applications of grid-scale storage and big-scale solar plant; 135 K€ for the
ERP development to support efficient, reliable and lean actions and to enable the agile
project management methodology; and 154 K€ related to new patents and licenses.
• Strengthening and enhancement of the human resources structure, resulting in
increased personnel costs and the research and selection of highly qualified specialists,
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both in purely technical areas for both the operational management, administrative and
corporate governance. The process started in the second half of 2015, and was still
ongoing in 2018, absorbing a financial capacity of approximately €3.7 million in 2016,
€3.5 million in 2017 and €4.4million in 2018 (corresponding to Personnel costs).
• The ENGIE EPS Group’s strategy is to secure framework and win long-term frameworks
agreements where the sales cycle may be extended over several months. Some
divergences may arise between the closing of these agreements and the recording of
the corresponding revenues. This could entail, in case of significant agreements, a
possible volatility of the ENGIE EPS Group revenues and cash flows.
• Other current Assets as of 31 December 2018 amounts to 1,982 K€ and are mainly
composed by VAT receivables for 1,463 K€, and prepaid expenses for 295 K€. VAT
receivables reported in FY 2018, amounting to 1,463 K€, have been formally reported to
Italian tax authority within an official sworn declaration from an independent advisor and
have been requested as a refund for a total amount of 541 K€. The remaining amount
will be used as a tax credit to offset cash-taxes due on a monthly basis during 2019.
• As at 31 December 2018, cash in hand was reported at 10,861 K€, compared to 4,238
K€ as at 31 December 2017.
2 Foreseeable developments and future outlook
2018 played a central role in ENGIE EPS 's strategy. Order Intake of 41.3MW MW or
approximately € 10.9 million in 2018, coupled with the Industrial Partnership with ENGIE and the
new corporate identity, has strengthened ENGIE EPS’ international reputation and credibility as
a supplier of energy storage systems and micro-grids.
In addition, most of the orders concern EPC (Engineering, Procurement and Construction)
contracts and multi-year maintenance contracts, in accordance with the 2020 Strategic Plan, to
which are now added Project Development contracts associated with PPAs. These contracts
have been key to securing ENGIE EPS’ growth plan, managing larger projects and increasing
the value of orders. This positioning is the result of the investments made since the IPO in April
2015, making it possible to move from the status of a new player to that of an industrial operator,
with a solid production capacity, exclusive technology, skills in system engineering, as well as a
new integrated management system certified by RINA which made it possible to participate, well
before the ENGIE Acquisition, in invitations to tender alongside global players.
The energy market is changing rapidly, as is the role of electricity utilities and grid operators.
The structure of the electricity system is undergoing significant paradigm shifts with the
increasing penetration of intermittent renewable energy sources, the fragmentation and
distribution of electricity generation points, the diffusion of efficient and innovative grid storage
and management technologies and a shift in value added creation from energy production to
service provision.
In this context, ENGIE EPS activity is increasingly focused on Project Development, directly or
indirectly through its partners, particularly in emerging countries.
In the usual EPC (Engineering, Supply and Construction) approach, ENGIE EPS delivers the
Micro-Grid to its customer, who is the owner and manager of the renewable energy production
plant and associated storage system ("owner operator") and who is responsible for finding a
buyer for the electricity produced. Project Development is a different approach: ENGIE EPS acts
directly or with its partners to develop, own and manage the power generation and storage
system, and conclude the associated PPA.
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The ENGIE EPS Group acts as owner, operator or IPP (Independent Power Producer) and its
customers are electricity utilities, grid operators, industrialists or institutions (municipalities,
governments, communities, etc.) that purchase the electricity generated by the system (off-
takers).
The ENGIE EPS Group must therefore obtain land, land rights and permits necessary for the
development of the renewable energy production and associated storage plant, negotiate the
long-term PPA with electricity buyers, negotiate agreements to interconnect the system with the
electricity grid and then manage interconnection with the grid and transmission of electricity.
The conduct of these Project Development activities depends on the country concerned: in some
countries, the project is initiated by the authorities or the network operator who launch a call for
tenders for a PPA; in other countries, ENGIE EPS approaches interested operators directly as
part of its Project Development activity to offer them a Micro-Grid with the associated PPA
contract (including as part of a concession for electricity production at a fixed price per MWh).
This Project Development business model may involve ENGIE EPS entering projects developed
by its partners at different stages, participating in the development of these projects through the
integration of ENGIE EPS technology, or even investing in the project to finance development.
However, the objective is not to retain a long-term interest in these projects on the ENGIE EPS
Group's balance sheet, but to sell them to network operators, IPPs, commercial and industrial
players (C&I), other owners and managers of electrical systems (owner operators), or investors
in long-term projects generating constant returns.
The Project Development activity, initiated in 2017, continued in 2018 and is a major change for
ENGIE EPS and help it achieve its 2020 objectives. This will also require greater sophistication
and financial strength, which can be ensured with the support of ENGIE.
In this context, as of 14 March 2019, the Backlog corresponds to €52.4 million, an increase of
109% compared to 28 March 2018. ENGIE’s projects played a pivotal role, including a solar-
plus-storage project awarded in partnership with ENGIE Solar representing 61% of the Backlog.
This includes the total EPC value of such solar-plus-storage project whereas the related revenue
recognition for the PV portion (approx. 55% of the Backlog) will depend on the final allocation of
the EPC responsibilities between ENGIE EPS and ENGIE Solar.
It should be noted that the Backlog should eventually consist mainly of contracts related to the
Project Development activity.
According to Bloomberg New Energy Finance, the partnership with ENGIE will provide ENGIE
EPS with "access to ENGIE's customer base and project portfolio. ENGIE will also serve as an
industrial partner enabling ENGIE EPS to access capital at a lower cost.”3
The two business models pursued by ENGIE EPS (EPC and Project Development) lead to a
different revenue profile and financial structure.
In the first case, revenue is generated on a percentage-of-completion basis and then during
maintenance operations as part of a service contract.
In the second case, the cost and financing of the entire development of the project should be
borne pending the recurring revenues generated by the PPA, once the project has been
completed and connected, and, where applicable, the proceeds from the sale of the interest in
the project.
3 « Engie makes second buy in storage with Swoop on ENGIE EPS » Bloomberg New Energy Finance, 26 January 2018.
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ENGIE EPS’ integration process within the ENGIE Group started in 2018 and resulted in a
positive outcome. ENGIE’s contribution to business development represents 67% from a
Backlog perspective and 79% at the Pipeline level. More importantly, hundreds of megawatts of
microgrids and specifically solar plus storage projects will be tendered in the coming months
around the globe, and ENGIE EPS with the support of ENGIE Solar is well positioned with a
unique vertically integrated turn-key proposition. Microgrids and utility scale storage have been
prioritized for development by ENGIE and will play a significant role in ENGIE’s renewable
strategy plan.
In addition, during ENGIE’s Capital Markets Day held on 28 February 2019 in London, further
emphasis has been given to ENGIE EPS’s positioning as a microgrid world market leader as
well as future opportunities for microgrids and energy storage.
In this context, ENGIE and ENGIE EPS management teams will continue to work together to
maximize synergies and determine the appropriate level of integration between their respective
businesses.
Once the effects of such integration can be better assessed, ENGIE EPS will provide an update
of its strategic plan for the 2020 and beyond over the course of 2019.
3 Significant events, which have occurred between the date the fiscal year ended
and the date on which the Management Report was drawn up
Except for those listed below, no other significant events occurred between the year end date
and the date when the Board of Directors authorized the 2018 Consolidated Financial
Statements publication.
• Palau Government RFP: on 15 February 2019, the Government of the Republic of Palau
decided, for internal reasons, to re-open a “Request for Proposal” (“RFP”) for the building
of dispatchable solar PV project in support of the achievement of its energy goals. The
launched of the RFP entails negotiating and signing a new PPA with the winner. ENGIE
EPS believes that its unique, utility-scale project was the most competitive when it won
the first RFP and is still the best offer. ENGIE EPS has therefore every confidence that
it will again propose the most suitable solution to Palau’s expectation.
4 Research and development activities
4.1 Research and development activities in-house
Since its foundation, the ENGIE EPS Group has committed significant funds to its research and
development activities. These investments led to the creation of unique Hybrid Energy Storage
Systems (HyESS) able to provide at the same time Flexibility and Capacity to any grid or
microgrid.
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In 2017-2018 research and development activities have been focused on a modular and
scalable technology platform composed by Power Conversion Systems (PCS), Battery
Management Systems (BMS), Microgrid Controllers (MGC), Energy Management Systems
(EMS) coupled with intelligent software (Balance of System platform).
On the other side, research and development effort has also been put on the hydrogen and
oxygen storage self-rechargeable technology based on the vertical integration of proprietary
electrolysis and fuel cell technologies patented by the ENGIE EPS Group (ElectroSelf™
platform).
This open architecture led to a vertically integrated Hybrid Energy Storage technology for the
Capacity and Flexibility requirements of any electrical grids or microgrid, according to a
technology-neutral approach: HyESS may integrate from time to time different batteries or the
proprietary hydrogen module, according to the specific application requirements, assuring
seamless, safe and stable power supply.
4.2 Research and development activities in the context of research projects
Many of the research activities have been carried out in the context of international research
projects in collaboration with industrial partners and centres of excellence in research.
The ENGIE EPS Group is willing to continue to participate as partner in many research and
development projects supported by European, national and regional authorities enabling it to
exploit the expertise and know-how of the ENGIE EPS Group and to acquire new knowledge in
order to continue the path of the innovation process of its products.
The main projects are:
• HEALTH CODE project: real operation PEM fuel cells health-state monitoring and
diagnosis based on –DC/DC converter embedded Electrochemical Impedance
Spectroscopy (EIS). The European project aims at implementing an advanced
monitoring and diagnostic tool for μ- CHP and backup PEM fuel cell systems. The ENGIE
EPS Group is part of a consortium characterized by partners with a wide experience in
the industry and research fields, such as Dantherm Power in Hobro (Denmark), EIFER
Europäisches Institut fur Energieforschung EDF-KIT Ewiv in Karlsrhue (Germany),
Università degli Studi di Salerno (Italy), University of Aalborg (Denmark), Torino E-District
Consorzio (Italy), FCLAB of Université de Franche-Comté in Belfort (France), Vitamib in
Grenoble (France). The ENGIE EPS Group acts as final user of the diagnostic tool to be
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developed, to be implemented in the future product versions for energy storage
applications, and contributes to the integration of the diagnostic tool in the fuel cell
system. The project started in September 2015 and ended on the 31st December 2018.
ENGIE EPS’s costs were €280.487, 100% funded
• REMOTE project: Remote area Energy supply with Multiple Options for integrated
hydrogen-based Technologies. The European project submitted in April 2017 as part of
the Horizon 2020 programme (H2020-JTI-FCH-2017-1) was awarded in December 2017
and started on 1st January 2018. The project aims to demonstrate Hybrid Energy Storage
Systems integrated with the Hydrogen Module supplied by renewables in four isolated
micro-grid or off-grid remote areas. The ENGIE EPS Group will develop three of the four
microgrids. The ENGIE EPS Group together with Polytechnic of Turin has built up an
international consortium characterized by partners that are leading players in sustainable
energy, such as Enel Green Power in Rome (Italy), Ballard Europe in Hobro (Denmark),
Hydrogenics Europe in Westerlo (Belgium), Powidian in Chambray-lès-Tours (France),
Horizon in Serres (Greece), IRIS in Torino (Italy), TronderEnergy in Trondheim (Norway),
SINTEF in Trondheim (Norway), Centre for Research and Technology Hellas in Thermi
Thessaloniki (Greece). The project will run for 48 months. ENGIE EPS budget is
€2,566,500, 70% funded. The ENGIE EPS Group will co-finance the Project for the
remaining 30%, of the expenses, i.e. an amount up to € 769,950.
• Training Program for Somalian technicians. The project was awarded in 2017 by the
DeveloPPP.de program, set up by the German Federal Ministry for Economic
Cooperation and Development, aiming at training a group of about 30 Somalian
technicians to make them maximally autonomous for the installation, management and
maintenance of MicroGrids to be developed in Somalia in next years by the ENGIE EPS
Group. The first phase of the building capacity and qualification of about 30 Somalian
technicians has been successfully carried out in the 2nd quarter of 2017 in Garowe,
Somalia. The foreseen activities in 2018 were not be performed because of political
instability of the area and it was decided to close the project. ENGIE EPS costs were
€119,239, 44% funded. ENGIE EPS co-financed the project for the remaining 56% of
the expenses, i.e. an amount of €66,774.
4.3 Future investments in research and development
ENGIE EPS intends to pursue its innovation path with significant investment in research and
development activities also thanks to a strong integration with the ENGIE Research’s
organization, through a common technology roadmap. Development activities are expected to
keep the competitive advantage of ENGIE EPS in terms of Balance of System of the HyESSTM
platform.
4.3.1 Research and development activities for Energy Storage products development
ENGIE EPS is aiming to lead the energy transition, and a constant Research and
Development on products is required to provide operating blocks to pioneering systems.
In order to produce cutting-edge products, new businesses and new markets have to be
continually monitored and explored, while deep knowledge of international regulation is
mandatory, as well as a constant investigation of different battery suppliers and
technologies; furthermore, a continuous optimization of existing solutions is required to
reduce costs and to shorten production time.
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To fulfil those requirements, some specific projects were planned:
• emerging businesses will be explored deeply, with an express project aimed at
exploiting the potential of Distributed Energy Resources, through the
development of a Management Systems “DERMS”.
• some products will be developed with the required certification for US market.
• a close link to regulations and new storage technologies will be granted by ad
hoc projects covering the participation to IEC committees and providing the
integration of new batteries in ENGIE EPS systems.
• a precise work of standardization and optimization of containerized solutions will
be completed, in order to reduce costs of Balance of Systems and engineering.
• a family of Behind the Meter Energy Storage Systems will be developed, aimed
to match the behind the meter market.
4.3.2 Research and development activities for E-Mobility systems with advanced BMS
development
In order to enter the emerging e-mobility market a specific project was set. Its aim is to
design, test and validate a series of products and functionalities for exploiting the value
of Electric and Hybrid Vehicles batteries in providing energy services to the grid (such
as V2G applications).
To this end, a reliable ageing model and a real time battery model will be developed and
integrated into a modular advanced Batteries Management Systems (“BMS”) for the
control of first- and second-life battery systems. The BMS firmware will include functions
for the optimization of battery operations and the provision of V2G services.
4.3.3 Research and development activities for Energy Management System “EMS” and
Power Management System “PMS” controllers
Due to the multifaceted complexity of this project, dealing with optimization and control
functionalities, it was split in 9 subparts.
Through the PROPHET and REIDS-SPORE sub-projects, ENGIE EPS expects to
conceive and roll-out the new EMS platform, making possible to optimally combine the
energy mix of electrical, thermal and hydrogen-based assets. Predictive functionalities
will boost the system performances, tackling renewable and load variations in advance.
The need to tackle larger off-grid microgrids led to investigate the new PMS control
functionalities in 2 sub-projects. Indeed, an evident transition from single busbar
systems, traditionally referred as Combined Hybrid Power Plants, to networks featured
by dispersed generation appears evident. This implies the need for more detailed power
system simulations, with the aim of assessing potential load flow, stability and
protections issues and the consequent mitigation solutions. Moreover, such electrical
topological change increases the likelihood of communication failures between the
electrical nodes, and it led to develop a distributed control architecture, overcoming
typical Master&Slave limitations.
Three further sub-projects look at the improvement of the plant controller architecture for
grid connected Battery Energy Storages. In this framework are investigated also the
combined installation of storages with solar farms and critical loads, respectively for
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complying with ramp rate requirement of the grid operators and offering power quality
mitigation functionalities.
Considering the resulting increased complexity of the EMS and PMS layers, two last
sub-projects tackle the standardization and debugging of the resulting architecture, as
well as the assessment of more powerful HW control platforms.
4.3.4 Research and development activities for computer science and artificial
intelligence algorithms developments
The computer science and AI algorithms development lab has the vision of taking the
ENGIE EPS research and development roadmap to the next level.
One of the most important goals is to further the techniques used for the development
of the ENGIE EPS EMS via the pioneering PROPHET project. Due to the complexity of
the problem at hand, ENGIE EPS needs to be at the forefront of developing advanced
algorithms in artificial intelligence and machine learning to tackle it effectively.
Furthering the cause of the PROPHET project, ENGIE EPS also wants to explore a
software platform based on blockchain technology for the management of transactions
at the EMS - DERMS level of microgrids and VPPs with a large number of users.
Another vital direction is to provide a software platform which will help supervise and
monitor the plant and the assets in the portfolio. A dashboard like this is pivotal for a
plant operator as it not only serves as a first interface which gives an overview of the
state of being of the plant and its assets via KPIs but also provides information on alarms
and faults that might be hampering the proper functioning, hence, increasing the overall
efficiency of the plant both in terms of revenues and performance.
Finally, ENGIE EPS also wants to complete the cybersecurity framework for both ENGIE
EPS and the connection to the plants aligning it with the work done by ENGIE’s Thematic
Lab (based on Laborelec) and aim to reach the TIER 4 level.
4.3.5 Research and development activities for new Microgrid Optimization Sizing Tool
development
The integration within ENGIE offered to ENGIE EPS to leverage on predefined tools,
which on the other hand need minor refinements in order to fully fit to its needs.
In the context of the previously described framework, this project is expected to:
adapt PROSUMER tool, in collaboration with ENGIE’s EYES Thematic Lab, for
both grid connected and islanded systems;
assess whether the EMS developed in the context of PROPHET could be
deployed as a sizing tool for off-grid microgrids;
continue overhauling and developing internal sizing tools for supporting both
Business Development and Project Engineering Teams. In this framework a new
version of the Round Trip Efficiency calculation tool as well as an update of the
battery characteristic data should be released.
4.3.6 Research and development activities for Power and Control Electronic Devices
Development
The development of innovative technologies for Power and Control Electronics is aimed
at enabling the design of new products in the fast-growing sectors of power converters
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systems (“PCS”), e-mobility, predictive diagnostics, energy storage systems, both
stationary and distributed on electrical vehicles with advanced Battery Management
Systems capable to perform new functions as vehicle-to-grid, smart charging, and
Second Life Batteries.
The enabling technologies include:
• development of a new and updated HW control platform, based on ARM
processors and FPGA devices;
• development of new control board for PCS, microcontroller based, with high
precision, high speed (32bit and floating point) and low power consumption;
• development of mini-PC based controllers, capable of wireless communication
protocols and utilizing operating systems for high-level programming languages;
• development of control algorithms to implement transformerless operations of
parallel connected PCS and for harmonic compensation; and
• development of quality FirmWare rules for compliance with international
standards and certification purposes.
These new technologies will allow to obtain:
• high power density MW scale PCS using 1500Vdc operation;
• certifications of PCS according to all international standard (IEC, UL);
• predictive diagnostics, based on Cyber Physical Devices, for EEPS Microgrids;
• new functions as Remote FW update; and
• advanced BMS with real time ageing model of battery.
Benefits to EEPS Products and Systems:
• cost reduction (service costs and production costs);
• footprint reductions of PCS’s containers;
• high Reliability, Availability and Maintainability; and
• new functions for PCS and ENGIE EPS Power Systems.
4.3.7 Research and development activities for hydrogen open innovation platform
scale-up
ENGIE EPS changed its approach from product developer to system provider and
integrator of third party technologies, to best fit the energy market. To cover all the range
of applications, it becomes crucial to establish partnerships with chosen suppliers to
increase the platform in terms of size and of possible applications.
It has been considered of relevant importance to develop a solution that can cover not
only the needs of the P2P market but also those of the hydrogen industrial production
and the refuelling station.
The existing Hydrogen platform, based on the 25kW P2P brick, will be developed up to
TRL9 taking advantage of the activities of 3 ENGIE EPS existing projects (REIDS,
PROPHET and Remote).
14
This project is divided in 3 sub-projects:
• hydrogen industrial & mobility market development: analyse and develop a new
market internally to the ENGIE BUs ecosystem for hydrogen industrial and
mobility (refuelling stations) application, working as a System Provider and
Integrator of third party technologies;
• hydrogen scale-up in open innovation platform + Refuelling: study, definition and
development of a new modular open innovation technological sub-platform
dedicated to hydrogen industrial application, P2G and G2P application and
hydrogen refuelling stations. ENGIE EPS new platform will be developed in the
range of 250kW-10MW through the integration of third party technologies; and
• 25kW isolated DC/DC converter: realization of a special isolated bi-directional
DC/DC converter dedicated to 25 kW P2P Hydrogen module of HyESS platform
to be used in the REIDS, PROPHET and REMOTE projects.
5 List of existing branches
On 2 November 2017, the company acquired from its subsidiary EPS Elvi the business line "E-
Mobility & Power Electronics Lab".
In this so-called e-Mobility sector, the ENGIE EPS Group is working with some of the most
important operators in the rail and automotive sector.
Its own technology is used to make electric mobility an asset in the transport network, and to
improve vehicle safety (sophisticated control techniques developed in the Energy’s sector).
Main applications in the field of e-Mobility are:
• systems enabling the provision of ancillary services to the transmission network
(frequency and voltage adjustment);
• optimization of storage systems for electric vehicles and related battery systems;
• electronic signalling management systems for complex railway networks (metropolitan
and high-speed trains);
• telemetry and electronic control systems for the preventive management of diagnostics
for high-speed trains and electric vehicles; and
• equipment control techniques for electric vehicles, in collaboration with manufacturers
of electrical appliances in the automotive sector.
The definitive purchase price amounted to €876,122.
Revenues of this branch in 2018 amounted to €467,016. A loss of €484,242 was reported in
FY 2018.
The main income items of this branch, included in the overall result of ENGIE EPS are as follows:
15
6 Activities of the Company and its subsidiaries over the past fiscal year
6.1 Selected Financial Information
The Consolidated Financial Statements of the ENGIE EPS Group shown in this report reflect
the accounting situation of the ENGIE EPS Group.
The Company was incorporated and integrated into the Registre du commerce et des sociétés
de Paris on 26 December 2014.
At the date of this report, four entire financial years were closed, on 31 December 2015, on
31 December 2016, on 31 December 2017 and on 31 December 2018.
Therefore, the selected financial information presented below refer to the Consolidated Financial
Statements of the ENGIE EPS Group for the years ended on 31 December 2016, on
31 December 2017 and on 31 December 2018.
(1) On 1st January 2016, the Group acquired 100% of the corporate capital of Elvi Energy S.r.l and 30% of its subsidiaries MCM Energy Lab S.r.l.
The remaining 70% of MCM Energy Lab S.r.l. was acquired on 18 January 2016. These acquisitions were accounted as Business Combination
under IFRS 3.
(2) EBITDA (excluding Stock Option and Incentive Plans expenses) is not defined by IFRS. It is defined in notes 3.5 and 4.6 of the ENGIE EPS
Group’s 2018 Consolidated Financial Statements.
16
17
Revenues and Other Income
Revenues and Other income in 2018 amount to 15,661 K€ under IFRS 15 and 12,324 K€ on a
like-for-like basis according to IAS 11-18, the standard used for comparison during the year
2018. In 2017 Revenues and Other income amount to 10,006K€ and 7,315 K€ in 2016. The
following tables show distribution of construction contract over Grid-connected Solutions,
Microgrids and Off-Grids Solutions and Mobility Solutions and the geographical distribution of
revenues during the relevant period.
REVENUES – Constructions Contracts (amounts in Euro)
31/12/2018 31/12/2018(*) 31/12/2017 31/12/2016
Grid-connected Solutions 7,707,011 4,965,326 1,268,733 3,469,871
Microgrids 5,029,763 4,900,627 4,293,906 1,136,239
Mobility Solutions 863,459 397,318 2,300,577 876,928
REVENUES – Constructions Contracts 13,600,234 10,263,271 7,863,216 5,483,038
(*) Like-for-Like, based on a comparable scope of accounting standards under IAS 11 and IAS 18
REVENUES AND OTHER INCOME BY INSTALLATIONS GEOGRAPHICAL AREAS (amounts in Euro)
31/12/2018 31/12/2018(*) 31/12/2017 31/12/2016
ASIA PACIFIC 2,537,228 2,198,559 750,109 1,827,233
EUROPE 10,338,017 7,339,724 8,170,843 3,420,799
USA 43,929 43,929 200,000 248,713
AFRICA 2,707,250 2,707,250 778,227 1,330,166
LATIN AMERICA 34,258 34,258 107,186 487,904
TOTAL REVENUES AND OTHER INCOME 15,660,681 12,323,718 10.006.365 7,314,815
(*) Like-for-Like, based on a comparable scope of accounting standards under IAS 11 and IAS 18
Income from Operating Activities and adjusted Income from Operating Activities
Income from Operating Activities in 2018 is a loss of 11,898 K€, compared to a loss of 5,994 K€
in 2017 and 8,472 K€ in 2016.
REVENUES AND OTHER INCOME
(amounts in Euro) 31/12/2018 31/12/2018
(*) 31/12/2017 31/12/2016
Construction contracts 13,600,234 10,263,271 7,863,216 5,483,038
Rendering of services 489,777 489,777 403,689 373,895
Sales of goods 1,450,950 1,450,950 1,632,089 1,231,060
REVENUES 15,540,960 12,203,997 9,898,994 7,087,993
Other Income 119,721 119,721 107,371 226,823
TOTAL REVENUES AND OTHER INCOME 15,660,681 12,323,718 10,006,365 7,314,816(*) Like-for-like, based on a comparable scope of accounting standards under IAS 11 and IAS 18
18
(1) EBITDA excluding Stock Option and Incentive Plan Expenses is not defined by IFRS. It is defined in notes 3.5 and 4.6 of the Group’s
2018 Consolidated Financial Statements
Adjusted Income from Operating Activities is presented in the following table:
Adjusted Income from Operating Activities is a non-IFRS metrics. Adjusted Income from
Operating Activities excludes the impact of updated valuation of Stock Option and Incentive
Plans and non-recurring items. In 2018, Adjusted Income from Operating Activities is basically
negative for 6,339 K€ under IFRS 15 - and 6,595 K€ on a like-for-like basis according to IAS 11-
18, the standard used for comparison during the year 2018 - because the ENGIE EPS Group
keeps incurring in costs linked to its development phase. In 2018 the ENGIE EPS Group booked
non-recurring expenses for 2,627 K€ mainly related to the acquisition and integration in the
ENGIE Group and specific phases of company growth and set up of business development
departments. These operating expenses cannot be qualified as exceptional or extraordinary, but
still they are linked to unusual and infrequent elements, for significant amounts, presented by
the ENGIE EPS Group on a separate line, in order to facilitate the understanding of the current
operating activity.
As a reminder, 2016 adjusted Income from Operating Activities include the costs linked to the
new production plants (Rivoli and Cosio Valtellino), as well as those of the laboratory in Milan
Bovisa.
CONSOLIDATED INCOME FROM OPERATING ACTIVITIES
(amounts in Euro)31/12/2018 31/12/2017 31/12/2016
Revenues 15,540,960 9,898,994 7,087,993
Other Income 119,721 107,371 226,823
TOTAL REVENUES AND OTHER INCOME 15,660,681 10,006,365 7,314,816
Cost of goods sold (10,983,399) (6,030,347) (4,080,960)
GROSS MARGIN FROM SALES 4,677,282 3,976,018 3,233,856
% on Revenues 30% 40% 46%
Personnel costs (4,352,366) (3,503,332) (3,696,249)
Other operating expenses (1,647,802) (2,102,364) (2,899,101)
Other costs for R&D and industrial operations (3,279,710) (115,026) (614,895)
EBITDA excluding Stock Option and Incentive Plans expenses (1) (4,602,596) (1,744,704) (3,976,389)
Amortization and depreciation (1,655,407) (1,276,156) (1,219,064)
Impairment and write down (289,038) (65,174) (264,343)
Non recurring income and expenses and integration costs (2,627,433) (2,576,662) (1,391,870)
Stock options and Incentive plans (2,723,817) (331,539) (1,620,213)
CONSOLIDATED INCOME FROM OPERATING ACTIVITIES (11,898,290) (5,994,235) (8,471,879)
(1) EBITDA is not defined by IFRS. It is defined in notes 3.5 and 4.6 of the Group’s 2018 Consolidated Financial Statements
ADJUSTED INCOME FROM OPERATING ACTIVITIES
(amounts in Euro)
Income from operating activities (11,898,290) (12,154,675) (5,994,235) (8,471,878)
Other costs for product development and R&D 208,482 208,482 115,026 614,895
Stock Option and Incentive Plans 2,723,817 2,723,817 331,539 1,620,213
Non recurring income and expenses 2,627,433 2,627,433 2,576,662 1,391,870
ADJUSTED INCOME FROM OPERATING ACTIVITIES (6,338,558) (6,594,943) (2,971,008) (4,844,900)
31/12/2018 31/12/2017 31/12/201631/12/2018 (*)
(*) Like-for-like, based on a comparable scope of accounting standards under IAS 11 and IAS 18
19
Consolidated Statement of Changes in Equity (2016, 2017 and 2018)
Order Intake, Backlog and Pipeline
Order intake represents 41.3MW, or approximately €10.9 million for the year ended
31 December 2018.
Backlog as of 14 March 2019 is €52.4 million, of which €42.7 million of final and irrevocable
orders on an EPC basis, and €9.7 million of project development contracts associated with a
power purchase agreement, for which financing is currently being structured.
Backlog
As of 14 March 2019, Pipeline is significantly increasing and stands at over € 300 million.
The growth of the Pipeline over the period 2016 – 2018 represents a compound annual growth
rate of 74%.
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
(a mounts in Euro)
Sh
are
Ca
pit
al
Pre
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es
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e
Sto
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Op
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es
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s
Re
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gs
(Lo
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)
Pro
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(Lo
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) fo
r
the
pe
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d
To
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qu
ity b
efo
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uro
pe
an
In
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t B
an
k v
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IFR
S 2
)
Re
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f E
uro
pe
an
In
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stm
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t B
an
k w
arr
an
ts lia
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(IF
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2)
an
d o
the
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pa
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of
EIB
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an
pre
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TO
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QU
ITY
Ne t Equity a s of 3 1 De c e mbe r 2 0 16 1.5 7 6 .3 6 1 18 .0 8 2 .7 18 6 .2 6 6 .6 6 5 (2 5 7 .0 8 2 ) (11.6 4 0 .8 14 ) (8 .5 5 7 .6 0 1) 5.470.247 0 5 .4 7 0 .2 4 7
Previous year result allocation 0 0 0 0 (8.557.601) 8.557.601 0 0 0
Treasury shares 0 0 0 62.294 0 0 62.294 0 62.294
Stock option and warrants 0 0 338.244 0 0 0 338.244 0 338.244
Shareholder's capital contribution (IPO) 0 0 0 0 0 0 0 0 0
Shareholder's capital increase 111.565 1.368.677 0 0 0 0 1.480.243 0 1.480.243
Loss for the period 0 0 0 0 0 (5.923.291) (5.923.291) (3.086.219) (9.009.510)
Other Comprehensive Income 0 0 0 44.445 (19.124) 0 25.321 0 25.321
Ne t Equity a s of 3 1 De c e mbe r 2 0 17 1.6 8 7 .9 2 5 19 .4 5 1.3 9 5 6 .6 0 4 .9 0 9 (17 3 .6 4 5 ) (2 0 .19 8 .3 8 9 ) (5 .9 2 3 .2 9 1) 1.448.905 (3 .0 8 6 .2 19 ) (1.6 3 7 .3 14 )
IFRS 15 first time adoption as at 1 January 2018 (1.074.563) (1.074.563) (1.074.563)
Previous year result allocation 0 0 0 (9.009.510) 5.923.291 (3.086.219) 3.086.219 0
Stock option and warrants 0 0 (1.453.787) 0 0 (1.453.787) (1.453.787)
Shareholder's capital increase 865.446 29.392.355 0 0 0 30.257.801 30.257.801
Other movements (1.560) (13.671) (15.231) (15.231)
Loss for the period 0 0 0 0 (12.511.771) (12.511.771) 3.777.134 (8.734.638)
Total comprehensive income 0 0 (43.733) (156) 0 (43.889) 0 (43.889)
Ne t Equity a s of 3 1 De c e mbe r 2 0 18 2 .5 5 3 .3 7 2 4 8 .8 4 3 .7 5 0 5 .15 1.12 2 (2 18 .9 3 8 ) (3 0 .2 9 6 .2 8 9 ) (12 .5 11.7 7 1) 13.521.245 3 .7 7 7 .13 4 17 .2 9 8 .3 7 8
Order Intake
(amounts in Euro mln)
31/12/2018 31/12/2017 31/12/2016
10.9 16.6 12.1
Pipeline
(amounts in Euro mln)
31/12/2018 31/12/2017 31/12/2016
302 150 100
20
The following chart defines Pipeline, Backlog and Order Intake:
The following table shows the Backlog breakdown by geographical areas of installation:
BACKLOG BY GEOGRAPHICAL AREAS OF INSTALLATION
The following table shows the Backlog breakdown by application:
BACKLOG BY APPLICATION
as at 14 March 2019
Microgrids and Off-Grid Power Generation Solutions 31%
Grid-connected solutions 68%
e-Mobility 1%
The following table shows the Backlog breakdown by customer:
BACKLOG BY CUSTOMER
21
6.2 Summary of the ENGIE EPS Group’s activity and installed base
Created in 2005 in Torino as a spin-off of the Politecnico and formerly known as Electro Power
Systems or EPS, the ENGIE EPS Group designs, develops and markets energy storage
solutions, mainly in hybrid configuration and therefore complex systems.
The ENGIE EPS Group ’s mission is to foster the energy transition by mastering the intermittency
of renewable energy sources. By providing cutting edge systems to control the intermittency of
renewables – enhanced by storage technologies – and an unique hydrogen and oxygen storage
platform, which enables longer autonomy without resorting to diesel or gas fuelled generators,
the ENGIE EPS Group ’s technologies enable communities to be powered by renewable
energies 24/7 more cleanly and less expensively.
The ENGIE EPS Group is a technology pioneer in this field.
The ENGIE EPS Group is focused on hybrid, storage and power conversion solutions for both
flexibility and capacity requirements of any national grid or microgrid, developing and
commercializing:
• in developed countries, energy storage systems to stabilize electrical grids penetrated
by renewable sources (“Grid Support” or “Grid Connected Solutions”); and
• in emerging economies, microgrids to power off-grid areas at a lower cost than fossil
fuels (“Off-Grid Power Generation” or “Microgrids and Off-Grid Solutions”).
This dualism of hybrid solutions which can provide at the same time flexibility and capacity to
any grid or microgrid, is aimed at solving the problem of intermittence of renewables and to
contribute to the implementation of the energy transition, namely the development of a balanced
electricity generation model on the basis of new renewable energy sources (wind and
photovoltaic power) and of electricity distribution via so-called smart grids.
The ENGIE EPS Group leases two production sites, as well as offices and a research and
development laboratory in Italy.
The ENGIE EPS Group’s hybrid energy storage and microgrid systems and support are intended
for users and infrastructures for which uninterrupted electricity supply or energy storage capacity
is critical. The solutions offered by the ENGIE EPS Group are aimed both at end users and
actors in the electricity market, notably commercial and industrial infrastructures, utilities and
grid operators responsible for electricity transport and distribution.
The ENGIE EPS Group’s value added consists of being able to provide a clean, effective and
competitive Grid Support Solutions and Off-Grid Power Generation Solutions, being able at the
same time to provide:
grid stabilisation by providing “Flexibility” (providing power supply in a short time, during
peak demand or generation conditions
and the storage of energy in large quantities with a limited footprint providing “Capacity”
(providing a stable power supply for a relatively long.
Historically, responding to the Capacity requirements of electrical grids or microgrids has been
the first focus of the ENGIE EPS Group, as such Capacity needs are served mainly by gas
turbines and diesel generators. For that reason, the ENGIE EPS Group developed an integrated
new storage system, the ElectroSelfTM, permitting the storage and production of electricity
utilising hydrogen and oxygen self-produced on site (“Hydrogen Module” or “ElectroSelf”), so
as to reduce the logistical costs associated with the external supply of hydrogen or diesel. The
22
ENGIE EPS Group industrialized the production of the ElectroSelfTM technology and provided
in field, self rechargeable backup and emergency supply systems, mainly to telecom and mission
critical applications. This has been an important step of the technology incubation phase.
With the appointment of Carlalberto Guglielminotti as Chief Executive Officer in the last quarter
of 2013, the ENGIE EPS Group focused its development strategy primarily in the field of
vertically integrated energy storage solutions, e.g. via the vertical integration of the proprietary
electrolysis and fuel cell technologies patented by the ENGIE EPS Group with a management
and optimization technology platform (the “Balance of System Platform”), composed of
converters, inverters, power and control electronics coupled with intelligent software, entirely
developed and produced within the ENGIE EPS Group.
Because of its open architecture, and thanks to the know-how and technology of the ENGIE
EPS Group, the Balance of System Platform enables intelligent coupling with traditional batteries
and power generation technologies (including renewables), in addition to (or even without) the
Hydrogen Module. This allows the commercial deployment by the ENGIE EPS Group of
HyESS®, a flexible solution, suitable for integration with hydrogen, batteries, generators, and
any kind of renewable source.
Initially developed as an add-on to a traditional hydrogen fuel cell (ElectroTM, the first product of
the ENGIE EPS Group) and then the self-rechargeable technology of the ENGIE EPS Group
(the ElectroselfTM) the Balance of System Platform, through HyESS has become a stand-alone
solution. It can be developed, alone or together with the Hydrogen Module, in the ENGIE EPS
Group’s Grid Support Solutions and Off-Grid Power Generation Solutions. As a result, in the
HyESS configuration, the Hydrogen Module is integrated in the Balance of System Platform, and
the hydrogen storage becomes an optional module of the ENGIE EPS Group’s systems,
representing however one of the major distinctive factor if the ENGIE EPS Group product is
offered in the market.
This positioning as a “pure-player” specialized in hybrid solutions with a structured know-how at
the Balance of System Platform level, has sparkled interest in the market, even more than the
hydrogen storage module.
23
As of the date of this report, the ENGIE EPS Group has installed 59 large scale projects
representing the following capacities:
Notably, the ENGIE EPS Group has commissioned in 2018 among others:
• an energy storage system sized 20MW/10 MWh for Endesa, Enel’s Spanish subsidiary,
co-located with the 1.2GW Litoral coal power station in Spain;
• an energy storage system sized 500kW/822 kWh for Edison, EDF’s Italian subsidiary, in
Altomonte, Italy;
• an energy storage systems sized 1MW/348 kWh with Toshiba SCiB Li-ion titanate
batteries coupled with the ENGIE EPS Group Balance of System for ENGIE in
Drogenbos, Belgium; and
• an energy storage system sized 125 kW/137 kWh for Terna, in Giannutri, Italy.
In the Off-Grid Power Generation Solutions field, the ENGIE EPS Group’s technology serves:
• a 12MW microgrid for a mining site in Australia powering approx. 1,600 people;
• 10.4MW microgrids in aggregate for two resorts in Maldives powering approx. 2,300
people;
• 8.3MW microgrids for two cities in Somalia powering approx. 162,000 people; and
• a microgrid integrated with 1MWh of hydrogen storage for a village in Chile powering
approximately 300 people.
In addition the ENGIE EPS Group has under commissioning:
• a 22.1MW microgrid (Phase 1) in the Comoros Islands powering approx. 341,500
people;
• a 15.1MW microgrid in New Caledonia (Lifou) powering approx. 10,200 people;
• a 2MW microgrid in Somalia powering approx. 60,000 people; and
• a 1.8MW microgrid in Singapore (Semakau) in collaboration with ENGIE.
An aggregate over 521,300 people are powered by renewables and the ENGIE EPS Group
solutions every day.
The capacity of the ENGIE EPS Group to achieve such results notably rests on its holding of
intellectual property rights and know-how accumulated over more than ten years of experience
on site with the Politecnico di Milano and Politecnico di Torino and 20 million running hours in-
field, as well as on the quality of its management team. The ENGIE EPS Group has thus filed a
24
total of 130 patents and patent applications potentially applicable worldwide and holds 597 trade
and industrial secrets.
In the 2015 financial year during which the ENGIE EPS Group concentrated almost exclusively
on the industrialisation and pre-selling of Capacity solutions, revenues amounted to € 0.4 million.
In 2016, the first year of commercialization of the full product suite, revenues amounted to € 7.1
million. In 2017, revenues amounted to € 9.9 million with a total Order Intake of €16.6 million. In
2018, revenues amounted to € 15.5 million with a total Order Intake of € 10.9 million.
Furthermore, the ENGIE EPS Group operates in the e-Mobility sector. For e-Mobility the ENGIE
EPS Group works with some of the most important operators in the field of railway and
automotive applications, applying its proprietary technology for the purpose: on the one hand to
enhance the electric mobility as a grid asset, and on the other to improve vehicle safety through
the same sophisticated control techniques developed in the energy sector.
The main applications in which the ENGIE EPS Group is active in e-Mobility are:
development of Vehicle-to-Grid systems to enable the supply of ancillary services to the
grid (frequency and voltage adjustments) by the storage systems present in electric and
hybrid vehicles (EV) when connected through fast charging infrastructures;
optimization of Electric and Hybrid Vehicles storage systems and related Battery
Management Systems in order to realize static energy storage systems using Second
Life Batteries from Electric and Hybrid Vehicles application;
development of electronic systems for the management of complex networks for railway
signalling on metropolitan railway and for high-speed railway with high reliability
controller (SIL4);
telemetry systems and control electronics for the management of predictive diagnostics
for high-speed trains and Electric and Hybrid Vehicles; and
development of control techniques for the management of devices in full Electric and
Hybrid Vehicles in collaboration with suppliers of electrical devices qualified as suppliers
in the automotive sector (collectively, “Mobility Solutions”).
25
6.3 Organisational Structure
The diagram here below presents ENGIE EPS as at the date of this report.
Percentages are expressed in terms of capital and voting rights
7 Activities and results of the Company and its subsidiaries by business line and
information relating to business trends, results and financial situation of the
Company and the ENGIE EPS Group (particularly debt situation)
7.1 Operating and Financial Review of the ENGIE EPS Group
7.1.1 Financial information
The Consolidated Financial Statements of the ENGIE EPS Group, approved by the
Board of Directors at 14 March 2019, reflect the accounting situation of the Company
and the ENGIE EPS Group.
The Company was incorporated and integrated into the Registre du commerce et des
sociétés de Paris on 26 December 2014.
At the date of this report, four entire financial years were closed, on 31 December 2015,
31 December 2016, 31 December 2017 and 31 December 2018.
The selected financial information presented below is the Consolidated Financial
Statements of the ENGIE EPS Group for the years ended on 31 December 2016, 31
December 2017 and 31 December 2018.
The Consolidated Financial Statements of the ENGIE EPS Group are prepared in
accordance with IFRS as issued by the IASB and adopted by the European Union. These
Financial Statements were reviewed by the statutory Auditors of the ENGIE EPS Group.
The Company’s financial statements for the years ended on 31 December 2016, 31 December 2017 and 31 December 2018 have been prepared pursuant to French accounting standards. The ENGIE EPS Group consolidation perimeter underwent several amendments during
the financial years ended 31 December 2016, 2017 and 2018.
26
On 1 January 2016, ENGIE EPS acquired 100% of EPS Elvi Energy S.r.l. and 30% of
its subsidiary MCM Energy Lab S.r.l. The remaining 70% of MCM Energy Lab S.r.l. was
then acquired on 18 January 2016. The acquisition is treated in accordance with
international accounting standard IFRS 3, as a business combination.
Comores Énergies Nouvelles Sarl was incorporated on 20 July 2018. ENGIE EPS
subscribed to 60% of the share capital. The remaining 40% was subscribed to by Vigor
International Ltd. On 20 November 2018, ENGIE EPS exercised its put option granted
by the shareholders agreement signed with Vigor International Ltd and sold 11% of the
total issued capital. As at 31 December 2018 ENGIE EPS owns the 49% of Comores
Énergies Nouvelles.
Other changes in the perimeter correspond to the creation and dissolution of
representative or marketing subsidiaries in certain countries, with none of these
subsidiaries having significant activity of their own.
The consolidation perimeter as of 31 December 2018 includes: ENGIE EPS, EPS
Manufacturing S.r.l., EPS Elvi Energy S.r.l., MCM Energy Lab S.r.l., EPS Inc. and
Comores Énergies Nouvelles S.a.r.l. consolidated pursuant to the equity method.
7.1.2 Presentation of the principal items of the consolidated income statement and
comparison of financial period ended 31 December 2016, 2017 and 2018
The following table presents the principal items of the consolidated income statement
for the financial periods ended 31 December 2018, 2017 and 2016:
CONSOLIDATED INCOME STATEMENT (amounts in Euro)
31/12/2018 31/12/2018(*) 31/12/2017 31/12/2016
Revenues 15,540,960 12,203,997 9,898,994 7,087,993
Other Income 119,721 119,721 107,371 226,823
TOTAL REVENUES AND OTHER INCOME 15,660,681 12,323,718 10,006,365 7,314,816
Cost of goods sold (10,983,399) (8,667,255) (6,030,347) (4,080,690)
GROSS MARGIN FROM SALES 4,677,282 3,656,463 3,976,018 3,233,856
% on Revenues 30% 30% 40% 46%
Personnel costs (4,352,366) (4,352,366) (3,503,332) (3,696,249)
Other operatinf expenses (1) (1,647,802) (1,647,802) (2,102,364) (2,899,101)
Other Costs for R&D and industrial operations (3,279,710) (2,515,276) (115,026) (614,895)
EBITDA excluding Stock options and Incentive plans expenses (2)
(4,602,596) (4,858,981) (1,744,704) (3,976,389)
Amortization and depreciation (1,655,407) (1,655,407) (1,276,156) (1,219,064)
Impairement and write down (289,038) (289,038) (65,174) (264,343)
Non reccuring income and expenses dan integration costs
(2,627,433) (2,627,433) (2,576,662) (1,391,870)
Stock options and Incentive plans (2,723,817) (2,723,817) (331,539) (1,620,213)
EBIT (11,898,290) (12,154,675) (5,994,235) (8,471,879)
Net financial income and expenses (692,014) (692,014) (747,538) (45,230)
Revaluation of European Investment Bank warrant liabilities (IFRS 2) and other impacts of EIB loan prepayment
3,777,134 3,777,134 (3,086,219) 0
Income Taxes 78,532 78,532 818,482 (40,493)
NET INCOME (LOSS) (8,734,638) (8,991,024) (9,009,510) (8,557,602)
Attribuable to:
27
Equity holders of the parent company (8,734,638) (8,991,024) (9,009,510) (8,557,601)
Non-controlling interests 0 0 0 0
Basic earnings per share (0,83) (0,85) (1,10) (1,09)
Weighted average number of ordinary shares outstanding
10,525,521 10,525,521 8,155,295 7,881,807
Diluted earnings per share (3) (0,83) (0,85) (1,10) (1,09)
(*) Like-for-Like, based on a comparable scope of accounting standards under IAS 11 and IAS 18. (1) In order to be clear and comprehensive in the Notes of the Consolidated Financial Statements, Installation costs incurred in 2017 have been reclassed in a pro-forma basis from “Other operating expenses” to “Other costs for R&D and industrial operations”. (2) EBITDA excluding stock option and Incentive Plans expenses is not defined by IFRS. It is defined in notes 3.6 and 4.6. (3) Considering the negative net result, Diluted earnings per share has been aligned to Basic earnings per share.
(i) Revenues and Other Income
IFRS 15 is mandatorily applicable starting from 1 January 2018. The ENGIE EPS
Group opted for the simplified retrospective method (or “prospective method”).
The transition impacts have been recognized in the Equity opening balance as
at 1 January 2018. According to paragraph C8 of IFRS 15, the following tables
show the amount by which revenues are affected in the current reporting period
by the application of this standard as compared to IAS 11, IAS 18 and related
interpretations applied before the IFRS 15 adoption.
Revenues for 2018 amount to 15,541 K€ and are composed of construction
contracts for 13,600 K€, sales of goods for 1,451 K€ and services rendered to
the customers for 490 K€.
Revenues for 2018 are as follows: 57% for Grid Support Solutions, 6% for e-
Mobility and 37% for Microgrids and Off-Grid Power Generation Solutions.
The main construction contracts relate to Grid Support Solutions, Microgrids in
Africa and Asia Pacific and Mobility Solutions in Europe.
The increase of the revenues in respect of 2017 is due to the growth in the
number and size of projects as a consequence of the investments and strategic
REVENUES – Construction
Contracts
(amounts in Euro)
31/12/2018 31/12/2018(*) 31/12/2017 31/12/2016
Grid-connected Solutions 7,707,011 4,965,326 1,268,733 3,469,871
Microgrids and Off-Grid Power
Generation Solutions 5,029,763 4,900,627 4,293,906 1,136,239
e-Mobility 863,459 397,318 2,300,577 876,928
Revenues – Construction
Contracts 13,600,234 10,263,271 7,863,216 5,483,038
(*) Like-for-like, based on a comparable scope of accounting standards under IAS 11 and IAS 18
REVENUES AND OTHER INCOME
(amounts in Euro) 31/12/2018 31/12/2018
(*) 31/12/2017 31/12/2016
Construction contracts 13,600,234 10,263,271 7,863,216 5,483,038
Rendering of services 489,777 489,777 403,689 373,895
Sales of goods 1,450,950 1,450,950 1,632,089 1,231,060
REVENUES 15,540,960 12,203,997 9,898,994 7,087,993
Other Income 119,721 119,721 107,371 226,823
TOTAL REVENUES AND OTHER INCOME 15,660,681 12,323,718 10,006,365 7,314,816(*) Like-for-like, based on a comparable scope of accounting standards under IAS 11 and IAS 18
28
activities carried out between 2015 and 2017. The main construction contracts
generating revenues in 2018 are the following:
Projets > 50 k€ FY 2018
Grid-Support Solutions : Europe 6.802.091
Microgrids & Off-Grid Power Generation Solutions: East Africa 2.661.785
Microgrids & Off-Grid Power Generation Solutions: Asia Pacific 2.188.759
Microgrids & Off-Grid Power Generation Solutions: Europe 642.012
e-Mobility : Europe 415.968
e-Mobility : Middle-East 322.259
Grid-Support Solutions : Telco Italy 287.250
TOTAL 13.320.125
Other projects 280.109
TOTAL CONSTRUCTION CONTRACTS 13.600.234
Rendering of services mainly correspond to maintenance and supply of services
to telecom operators for which the ENGIE EPS Group has installed its solutions
in the previous years.
Sales of Goods are represented by sales of products, where the ENGIE EPS
Group is not involved in the system integration or the construction phase.
In 2017 Revenues amounted to 9,899 K€ and were composed of construction
contracts under IAS 11 for 7,863 K€, sales of goods for 1,632 K€ and services
rendered to the customers for 404 K€.
Revenues for 2017 were as follows: 16% for Grid Support Solutions, 29% for e-
Mobility and 55% for Microgrids and Off-Grid Power Generation Solutions.
Revenues for 2016 amounted to 7,088 K€ and were composed of sales of goods
for 1,231 K€, services for 374 K€ and construction contracts for 5,483 K€. The
revenues breakdown for 2016 is as follows: 20% for the telecommunication
sector for Grid Support Solutions; 30% for the energy sector for Grid Connected
Solutions and Mobility Solutions; and 50% for Microgrids and Off-Grid Solutions.
In the 2016 consolidated financial statements, the ENGIE EPS Group
determined that it is acting as a principal for the technology partnership
agreements with AD and MGH customers, due to the changes that have arisen
since 1 January 2016 and that affect the assessment of the indicators provided
by the IAS principle.
Other income amounts to 120 K€ in 2018 and includes mainly write-off of
payables due to settlement agreements reached with old suppliers and other
minor operational incomes.
Other Income amounted to 107 K€ in 2017 and 227 K€ in 2016, when it was
mainly related to European subsidies for development and research projects.
With respect to the financial support and subsidies of public institutions related
to specific projects carried out in the context of the ordinary operating activity of
the ENGIE EPS Group, these are registered under revenues, since they are
effectively received, and they are registered under cash flow deriving from
29
operating activities. Recording under revenues is linked to the confirmation of a
reasonable assurance that the ENGIE EPS Group will comply with the conditions
associated with the subsidy and that this will effectively be received. Their
recording under revenues is made for the financial year during which the costs
corresponding to the subsidised projects is recorded. The effective payment of
the subsidy and hence the corresponding impact on cash flow may be staggered
over time due to the deadlines for the public-sector institution which has granted
the subsidy to verify that the conditions associated with the subsidy have been
fulfilled effectively and the payment deadlines appropriate to public sector
entities have been met.
During 2018, 2017 and 2016 allocation of Revenues and other income by single
legal entity of the ENGIE EPS Group is:
(*) Like-for-like, based on a comparable scope of accounting standards under IAS 11 and IAS 18
In the context of the ENGIE EPS Group reorganisation launched in 2018:
• the majority of operations, including Pipeline of projects, sales and
research and development activities have been moved to EPS Elvi;
• e-Mobility activities have been moved to ENGIE EPS through its Italian
branch;
• all intellectual property investments have been carried out by EPS
Manufacturing while all other activities have been subject to the transfer
of going concern to EPS Elvi; and
• the MCM going concern, mainly related to research and development for
external customers, has been transferred to EPS Elvi.
In the connection with the simplification plan put in place by the ENGIE EPS
Group, the entire transfer of the revenues of MCM and EPS Manufacturing to
EPS Elvi was completed on 8 February 2017 and was effective from
1 January 2017.
In parallel to the operational activities of EPS Elvi, ENGIE EPS is carrying out its
own business development activity for the most important customers, particularly
where its status of company listed on the regulated market of Euronext in Paris
may have importance. In this respect, ENGIE EPS signed the flagship
Technology Partnership Agreement with ENEL Green Power for the construction
of the first hydrogen enabled microgrid in Chile, the experimental phase of which
has been concluded in 2017 and for which maintenance has begun in 2018.
Furthermore, ENGIE EPS is carrying out the activities related to Mobility
Solutions, and particularly a contract with one of the largest players worldwide in
the automotive industry.
REVENUES AND OTHER INCOME
(amounts in Euro) 31/12/2018 31/12/2018
(*) 31/12/2017 31/12/2016
ENGIE EPS 1,016,931 550,791 375,986 487,904
EPS Manufacturing 737,055 730,164 832,704 2,018,751
EPS Elvi 13,906,695 11,042,764 8,755,607 4,661,000
MCM 0 0 42,069 147,161
Eps Inc 0 0 0
TOTAL REVENUES AND OTHER INCOME 15,660,681 12,323,718 10,006,365 7,314,817
30
During 2018, 2017 and 2016, revenues and other income by geographic areas,
of installation are as follows:
REVENUES AND OTHER INCOME BY INSTALLATIONS GEOGRAPHICAL AREAS (amounts in Euro)
31/12/2018 31/12/2018(*) 31/12/2017 31/12/2016
ASIA PACIFIC 2,537,228 2,198,559 750,109 1,827,233
EUROPE 10,338,017 7,339,724 8,170,843 3,420,799
USA 43,929 43,929 200,000 248,713
AFRICA 2,707,250 2,707,250 778,227 1,330,166
LATIN AMERICA 34,258 34,258 107,186 487,904
TOTAL REVENUES AND OTHER INCOME
15,660,681 12,323,718 10.006.365 7,314,815
(*) Like-for-Like, based on a comparable scope of accounting standards under IAS 11 and IAS 18
(ii) Order Intake, Backlog and Pipeline
Order Intake 2018 accelerated to 41.3MW, representing approximately €10.9
million including not only utility-scale storage systems but also microgrids, smart
islands and control systems for mobility and distribution applications.
Backlog as of 14 March 2019 represents €52.4 million, of which €42.7 million are
firm and irrevocable orders on an EPC basis, and €9.7 million are Project
Development contracts associated with a Power Purchase Agreement, for which
the financing is currently being structured4.
Pipeline as of 14 March 2019 represents € 302 million and increased by 101%
compared to 28 March 2018, meaning that projects converted into Backlog have
been replaced by new opportunities under development.
The main regions where these systems have been installed or are under
commissioning are Asia, North Africa, Southern Europe, and the Middle East.
This result confirms the effectiveness of the EPS business model, which has
been strengthened by the team and the technology that has enabled EPS to
increase its portfolio to 43 customers in 18 countries.
(iii) Cost of goods and services sold
In 2018, cost of goods and services sold, which consists of purchases of raw
materials and semi-finished and finished products, such as switchboards and
electric materials, amounts to 10.167 K€ (4,387 K€ in 2017 and 2,950 K€ in
2016), and significantly increased because of the growth of the ENGIE EPS
Group in terms of number and size of the projects. In a separate line, the costs
related to finished products is shown, with reference to technology partnership
agreements summing up to 1,159 K€ (1,537 K€ in 2017 and 1,195 K€ in 2016)
related to the purchases of goods resold to clients.
4 The Armonia project represented a 100MW microgrid, which had been awarded to ENGIE EPS (see 12 October 2018 press
release) and was included in the backlog after that date. Following the Palau government’s decision, for internal reasons, to
reopen the tender (see 15 February 2019 press release), it is no longer included in the backlog.
31
The following table presents the details of the purchases of raw materials,
consumables and finished products:
(iv) Personnel costs
Personnel costs correspond to the set of fixed and variable items of remuneration
paid to employees (including executives), as well as travel and expenses costs,
social security contributions and charges linked to pension and related
commitments. This item also includes few redundancies and early retirement
incentives. Since 2015, the ENGIE EPS Group has undertaken a significant
hiring process which is still in progress in 2018, aimed to achieve a top-level and
functionally adequate organizational structure, and to make sustainable targeted
growth programs, given the pipeline and company strategic objectives.
The following table details staff costs and their evolution over the relevant
financial years:
It has to be noted that the decrease from 2016 to 2017 is due to the capitalization
of specialized personnel working hours spent on development projects partially
offset by the growth in the number of employees. The impact is recorded in the
salaries and wages line item (2, 010 K€) and in social contributions (120 K€).
The increase in employee benefits and Other costs (mainly related to personnel’s
travel costs) is mainly related to the growth of activities and projects developed
by ENGIE EPS in 2018.
The total workforce of the ENGIE EPS Group is described in the following table:
EPS Elvi and MCM acquisition realized in 2016 have played a material impact in
terms of personnel costs, mainly given by the contribution of the 23 full time
equivalent (“FTE”) acquired with the two companies (EPS Elvi and MCM): this
evolution was necessary to give a proper and appropriate structure to the
Company and its development. The majority of Group’s employees are located
in Italy, with 43% of them dedicated to research and development.
COST OF GOODS SOLD
(amounts in Euro) 31/12/2018 31/12/2018
(*) 31/12/2017 31/12/2016
Costs of goods/ Rendering of services (10,166,762) (7,850,617) (4,386,567) (2,950,172)
Cost of technology partnership agreements (1,159,241) (1,159,241) (1,537,457) (1,195,431)
Change in inventories 342,603 342,603 (106,322) 64,643
TOTAL COST OF GOODS SOLD (10,983,400) (8,667,255) (6,030,347) (4,080,961)
(*) Like-for-like, based on a comparable scope of accounting standards under IAS 11 and IAS 18
PERSONNEL COSTS
(amounts in Euro) 31/12/2018 31/12/2017 31/12/2016
Salaries and wages (2,509,535) (2,386,933) (2,486,678)
Social contributions (468,327) (348,556) (566,432)
Employee benefits service costs (443,411) (272,343) (230,750)
Other Costs (931,093) (495,500) (412,389)
TOTAL PERSONNEL COSTS (4,352,366) (3,503,332) (3,696,249)
Number of FTE at period end 31/12/2018 31/12/2017 31/12/2016
ENGIE EPS (France) 12 1
EPS Manufacturing Srl (Italy) 2 2 42
consultant/ partner 17
Elvi Energy Srl (Italy) 83 90 26
McM Lab Srl (Italy) 0
Eps Inc. (USA) 0
TOTAL FTE AT PERIOD END 97 92 86
32
(v) Other operating expenses
The details and evolution of the Other Operating Expenses are provided in Note
4.4 to the 2018 Consolidated Financial Statements, Note 4.4 to the 2017
Consolidated Financial Statements and Note 9.5 of the 2016 Consolidated
Financial Statements.
2016, 2017 and 2018 have been significant years concerning both research and
development effort (product development and a brand new manufacturing plant)
and staff and supportive function growth (new hired highly qualified staff
recruiting and hiring), the item Other operating expenses has been focused only
on recurring costs and expenses that will most probably occur in coming years.
A specific line in the P&L has been added to properly allocate all costs and
expenses related to non-recurring events occurred during the relevant periods.
The compensation of the Board Chairman and of the CEO is not included in
Other Operating Expenses, but it has been reclassified in the item Personnel
costs, because of the business development, operative role played by both
persons.
In 2018 the items amount 1,648 K€ while it was 1,385 K€ in 2017 and 2,453 K€
in 2016. In order to be clear and comprehensive, Installation costs incurred in
2017 and in 2016, accounted under Other operating expenses have been
reclassified to Other costs for R&D and industrial operations, amounting to 718
K€ for 2017 and amounting to 446 K€ for 2016.The following table details the
operating expenses over the relevant financial years:
The increase in Other Operating Expenses is mainly due to the growth of the
EPS ENGIE structure, necessary to support the growth of the business. Despite
revenues increasing by 23% on a like for like basis, operating expenses have
only increased by 19% thanks to cost rationalization and a more efficient internal
organizational structure.
The significantly higher amount in 2016, was due to a higher level of activity of
the ENGIE EPS Group considering that from 1 January 2016, ENGIE EPS is
comprised of two new companies in its perimeter, two operational plants (Rivoli
and Delebio), one more office and laboratory building in Milano Bovisa, in
addition to the one already in place in Aosta, and all the costs related to
functioning, maintenance, tax and legal services.
OTHER OPERATING EXPENSES 31/12/2018 31/12/2017 31/12/2016
(amounts in Euro)
Rents (414,529) (324,542) (323,398)
Legal and other consultancy costs (222,020) (102,252) (785,178)
Communication & Travel (221,000) (174,963) (267,389)
Maintenance (182,780) (137,472) (153,985)
Board compensation (113,772) (118,000) (112,696)
Tax and administrative services (129,861) (95,920) (356,255)
Audit services (97,548) (99,000) (245,057)
Miscellaneous (80,138) (126,976) (77,846)
Software licenses (53,444) (36,811) (17,677)
Insurance (101,136) (126,785) (72,971)
Bank commissions (26,984) (18,853) (26,095)
Indirect taxes (4,591) (23,218) (14,549)
TOTAL OTHER OPERATING EXPENSES (1,647,803) (1,384,790) (2,453,097)
33
(vi) Other costs for research and development and industrial operations
The ENGIE EPS Group uses a reclassification of operating costs that cannot be
considered as structure costs as they are related to installation activities and
research and development of new products that will be sold in future years. In
order to be clear and comprehensive, Installation costs incurred in 2017 and in
2016, accounted under Other operating expenses have been reclassed to Other
costs for research and development and industrial operations, amounting to
3,071 K€ for 2018, 718 K€ for 2017 and amounting to 446 K€ for 2016.
The cost of research and development and industrial operations are as follow:
These costs have been identified on a separate line of the P&L in order to
facilitate the understanding of the ENGIE EPS Group’s effort to invest in cutting-
edge technology and undertake innovative projects in order to meet the
requirements of its key clients.
Industrial operations costs for 2018 amount to 3,071 K€ while they were 718 K€
in 2017 and 446 K€ in 2016. The increase is due to the higher level of activity of
the ENGIE EPS Group especially linked EPC operations and in particular to the
to external assembling and services outsourced to qualified partners.
The impact of Not capitalized, research and development costs was 208 K€ in
2018, while 115 K€ in 2017 and 68 K€ in 2016. This item is related to cost of
goods and services that, given their nature, have not been classified to be
capitalized in accordance with IFRS. They refer to costs whose economic and
financial effectiveness had been limited, prudentially booked at cost during the
relevant periods, as from an economic and finance perspective they will not have
any impact in subsequent years.
(vii) EBITDA (excluding Stock Option and New Incentive Plans expenses)
Earnings Before Interest, Tax, Depreciation and amortization (“EBITDA”) is non-
IFRS defined metrics.
The ENGIE EPS Group uses adjusted EBITDA (excluding Stock Option and New
Incentive Plans expenses) as an indicator of its operating performance. The
ENGIE EPS Group considers that certain operating income and expenses
should be excluded in determining the adjusted EBITDA (excluding Stock Option
and New Incentive Plans expenses). These income and expenses, although in
limited numbers, cannot be qualified as exceptional or extraordinary, but
correspond to unusual, abnormal and infrequent significant amounts that the
ENGIE EPS Group presents separately to facilitate the comprehension of current
operational performances.
OTHER COSTS FOR R&D AND INDUSTRIAL OPERATIONS
(amounts in Euro) 31/12/2018 31/12/2017 31/12/2016
Not capitalized R&D costs (208,482) (115,026) (68,242)
Industrial operations costs (3,071,228) (717,574) (446,004)
Other non Current cost 0 0 (546,653)
TOTAL OTHER COSTS FOR R&D AND INDUSTRIAL OPERATIONS (3,279,710) (832,600) (1,060,899)
34
Adjusted EBITDA (excluding Stock Option and New Incentive Plans expenses)
for the three financial yeas is detailed as follows:
ADJUSTED EBITDA (excluding Stock options and Warrants) (amount in Euro)
31/12/2018 31/12/2017 31/12/2016
EBITDA - excluding Stock Option and Warrants
(4,602,596) (1,744,704) (3,976,389)
Other costs for R&D and industrial operations
(208,482) (115,026) (614,895)
ADJUSTED EBITDA (excluding Stock-options and Warrants)
(4,811,078) (1,629,678) (3,361,494)
(viii) New Incentive Plans
The line refers to the accrual of New Incentive Plans for employees and
management. In accordance with the New Incentive Plan adopted on 6 March
2018, stock options and warrants plans have been replaced with Stock
Appreciation Rights (“SARs”), and, where applicable, Additional Stock
Appreciation Rights (“Additional SARs”). On 28 September 2018 the Board of
Director approved a new plan for a total number of 510,000 SARs of which
255,000 were allocated as at 31 December 2018 neither to board members nor
mandataires sociaux.
Following this new plan:
• the previously vested stock options and warrants have been exercised
during the simplified tender by ENGIE (through its subsidiary GDF
International) except for 200,000 vested stock options granted to the CEO
which were replaced by SARs. The previously vested stock options and
warrants not exercised have been waived by their beneficiaries;
• the previously unvested stock options and warrants were replaced by
Transformed SARs on a one-to-one basis – different SARs matching the
strike prices of the different previously existing stock options or warrants
are not subject to any performance conditions and are only linked to the
condition of presence within the ENGIE EPS Group;
• in addition, Additional SARs with special characteristics, including
performance conditions, linked to the achievement of revenue and EBITDA
levels consistent with the 2020 Strategic Plan and the Company's retention
rates for 2018 to 2020, were distributed to the CEO and other managers.
The SARs and the Additional SARs provide a new vesting period and benefit
from a floor price of €9.50 adjusted to 8.87€ as a result of the capital increase
operation realized in August 2018.
In view of the granted SARs’ features and a settlement of the benefits that will
be made in cash instead of equity instruments, this plan is qualified as “cash-
settled” according to IFRS 2.
See note 4.10 to the 2018 Consolidated Financial Statements for a description
of the accounting and the dilutive impact of the New Incentive Plans.
(ix) Amortisation and depreciation
Amortisations correspond principally to the amortisation of technical installations,
equipment and electronic material and to items of intellectual property of the
35
ENGIE EPS Group. In 2016 the item amounted to 1,219 K€, while it increased
up to 1,276 K€ in 2017 and 1,655 in 2018.
AMORTIZATION AND DEPRECIATION (amount in Euro)
31/12/2018 31/12/2017 31/12/2016
Amortization (1,415,677) (1,077,076) (1,021,200)
Depreciation (239,730) (119,080) (197,863)
TOTAL AMORTIZATION AND DEPRECIATION (1,655,407) (1,276,156) (1,219,064)
The increase in “Amortization” costs reported at 31 December 2018 is mainly
due to following main reasons:
• investment in the Prophet project. The main goal of this project is to
develop and improve the control predictive algorithm for a multi-
Distributed Energy Resources (“DER”) microgrid. The new optimized
control will ensure the microgrid secure operation and reduce the energy
cost, making best use of renewable generation and storage capability.
Moreover, the project will investigate the impact on the grid given by the
introduction of electric and hybrid vehicles, their optimal management in
terms of charging, grid services they can offer and how they can create
business cases in the microgrid context. The technical studies and the
software developments already had a practical validation, since all the
enhanced algorithms have been tested on a multi-good microgrid installed
at the Energy Department of Politecnico di Milano. The main activities
under study have already been outlined in the ENGIE EPS technology
roadmap:
optimization algorithms and control predictive functions;
distributed Smart Storage for behind-the-meter grid services;
distributed Smart Generation for multi-services and multi-
revenues optimization;
Virtual Power Plant (“VPP”): transform a microgrid into a Power
Plant;
Vehicle-to-the-Grid (“V2G”) to transform a car into a revenue
generating asset; and
Electric and hybrid vehicles fast charging, to study the impact of
future Electric and Hybrid Vehicles charging.
• investment for the improvement of HyESS® (Hybrid Energy Storage
Systems) platform that will enable ENGIE EPS to face the Distributed
Energy Resources (DER) evolution and support (i) the new role of the
algorithms in light of data predictors, (ii) the machine learning and Artificial
Intelligence, (iii) VPP and (iv) Electric and Hybrid Vehicles integration in
smart grid. Development realised in 2018 mainly consists in the further
development of the Hydrogen Module integrated in HyESS®;
• development on power electronics, e-Mobility and standardised product
solutions. In detail this development regards new C-BESS-900, C PV-900
and 100kW - 1500 VDC inverter and the design of new standard
36
containers suitable for applications of grid-scale storage and big-scale
solar plant;
• ERP development to support efficient, reliable and lean actions and to
enable the agile project management methodology implemented by
ENGIE EPS; and
• new patents and licenses.
The increase in Amortization and depreciation costs reported at 31 December
2017 is due to following main reasons:
• R&D investments for the improvement of HyESS®, in particular the design
review of HyESS® platform, the development of Power Quality project to
adapt firmware already used in PCS to HyESS® technology and have
access to the market of application for big industrials, the development of
a control system for a multi-DER microgrid supplying heat and electricity
in order to ensure its secure and efficient operation in the presence of high
penetration of renewable generations;
• R&D developing expenses capitalized on power electronics and e-Mobility
solutions and in detail new CBESS-900, C PV-900 and 100kW - 1500 VDC
inverter suitable for applications of grid-scale storage and big-scale solar
plant;
• further development on Hydrogen Module integrated in HyESS®;
• capitalized expenses on ERP development to support efficient, reliable
and lean actions and to enable the agile project management
methodology implemented by the ENGIE EPS Group;
• new patents and licenses.
Amortization and depreciation increased by 57 K€ in 2017 (5% increase with
respect to the same period of 2016), mainly due to the developing expenses
capitalized at the end of 2017. Following EPS Elvi and MCM Acquisition, the
“Purchase Price Allocation” procedure was finalized, trade mark net present
value was determined as 976,2 K€. The capitalized value impacted amortization
cost for 325,4 K€ in 2016 and 2017, assuming a 3 years’ amortization period.
In 2016, Amortisation and depreciation increased by 1.133 K€, from 86 K€ for
the financial year 2015 to 1.219 K€ for the financial period 2016. Depreciation
increased in the same period by € 159 K€, while Amortization increased by
974 K€.
The increase in Amortization and depreciation costs reported at
31 December 2016 is mainly due to the following main reasons:
• R&D developing expenses capitalized, due to the positive conclusion of
the certification phase for the HyESS® and the HyESS® coupled with the
Hydrogen Module, and consequent beginning of the commercialization,
started to be amortized at P&L (358 K€ in 2016); and
• following EPS Elvi and MCM Acquisition, trade mark amortization was
determined at 976,2 K€. The capitalized value impacted Amortization cost
for 325,4 K€ in 2016, assuming a 3 years’ amortization period.
37
(x) Impairment and write down
The depreciation (or appreciation) of assets corresponds principally to the
loss/gain of value which may result from the value tests carried out on assets
constituted by the equipment, inventories, intangible assets or debts held by
ENGIE EPS.
In 2018 the items amount to 289 K€ while it was 65 K€ in 2017 and 264 K€ in
2016.
No impairment loss was identified by the ENGIE EPS Group as of
31 December 2018 on the goodwill (amounting to 1.569 K€) emerging from the
acquisitions of Elvi Energy and MCM in 2016.
At the date of this report, the management considers that FY 2018 results
coupled with the €10.9 million of order intake year-to-date and the growth rate
registered in the last 3 years are consistent with the achievement of the financial
targets set out in the Strategic Plan 2020. In addition to this, the ENGIE
Acquisition of 51% of EPS share capital, which was concluded during the first
quarter of 2018 coupled with the mandatory tender offer and the capital increase
of €30.3 million completed by 8 August 2018 (which is what gave ENGIE
ownership of 60.48% of the Company’s share capital) confirms the fairness of
the ENGIE EPS Group’s enterprise value and its commitment to pursuing its
dynamic growth strategy.
In 2017 the write-down mainly corresponded to future completion costs on
Telecom construction contract (56 K€).In 2016, this item was equal to 264 K€
and the write down mainly related to depreciation for bad debt recorded during
the financial year 2016 for 102 K€, and to the provision for future contract losses
on construction contract for 156 K€, linked to the hybrid hydrogen power plant
and storage development project.
(xi) Non-recurring and income expenses
This item includes expenses considered as non-recurring as those mainly
related to specific phases of company growth and setting up of the accounting,
administration and business development departments. These operating income
and expenses cannot be qualified as exceptional or extraordinary, but still they
are linked to unusual and infrequent elements, for significant amounts, presented
by the ENGIE EPS Group on a separate line, in order to facilitate the
understanding of the current operating activity.
During the FY 2018, ENGIE EPS, despite the effort dedicated to the M&A
operations that distinguished that period (i.e. ENGIE Acquisition and subsequent
capital increase), continued to stay focused on the growth of revenues both with
the scale-up on project contracts (e.g. the first construction on a 20MW utility-
scale storage system in Spain completed during the second half of 2017), and
38
the start up of new projects such as in the Comoros, Somalia, New Caledonia
and Singapore; achievements that have been reached thanks to the strong
collaboration with ENGIE. More importantly, growth is also due to grid-connected
solutions in Europe mainly driven by the 24 MW of storage systems that went
online in Spain, Italy and Belgium.
In 2018, Non-recurring income and expenses are mainly characterized by non-
recurring M&A costs linked to the ENGIE acquisition and capital increase
operation amounting to 1,385 K€. External partners support for the set-up of the
business development international platform decreased from 1,022 K€ in 2017
to 429 K€ in 2018. A strong reduction of non-recurring travel, communication and
roadshow expenses, legal, accounting and certification expenses can also be
highlighted in 2018 with respect to previous periods. As a consequence of the
ENGIE Acquisition, non-recurring costs with a total value of 213 K€ related to the
integration in the ENGIE Group have been recorded.
As mentioned above, these costs are not representative of the ENGIE EPS
Group’s ordinary activity although they may have occurred in the past years and
they are likely to occur again in future years.
2017 was characterized by a growth in the size of ENGIE EPS’ contracts (e.g.
the first construction on a 20MW utility-scale storage system in Spain and the
commissioning of a 12 MW microgrid powering an entire mining site in Australia),
during which Order Intake rose to € 16.6 million thanks to development of new
business opportunities. Internal functions were restructured and the ENGIE EPS
Group set up of a new certified Integrated Management System in parallel with
an intense due diligence process in the context of the ENGIE Acquisition.
Compared to 2016, this item increased by 1,185 K€, from 1,392 K€ as of 31
December 2016 to 2,577 K€ as of 31 December 2017. This can mainly be
explained by an increase in non-recurring external support and advisors for legal,
accounting and certification incurred both in order to face the due diligence
processes and the growth of its business activities. During 2017 ENGIE EPS
Group performed non-recurring activities related to the qualification process with
utilities and regulatory processes, external partners support for the set-up of the
business development international platform, and non-recurring recourse to
independent financial institutions to increase the level of financial
communication.
In 2016, non-recurring income and expenses were mainly related to business
set up costs and unusual legal, forensic, compliance, road shows and audit
costs, still deriving from the IPO or from the listing activities.
In particular, in 2016, the item amounted to € 1,392 K€ consisting of 272 K€
related to non-recurring Distribution and Business development expenses,
762 K€ related to non-recurring tax, accounting and legal advisory expenses,
183 K€ related to non-recurring Travel, Communication and Roads expenses
and 175 K € are linked to non-recurring litigation charges.
(xii) Income from Operating Activities
Income from Operating Activities is a loss of 11,898 K€ in 2018 while was a loss
of 5,994 K€ in 2017, and 8,472 K€ in 2016.
39
(xiii) Net Financial Income
The item includes interests and charges on bank account, exchange rate
differences on EU trades and the financial expenses related to the EIB warrants.
For a full description of EIB Financing and EIB Warrants accounting treatment,
please refer to Note 4.27 of the 2018 Consolidated Financial Statements.
(xiv) Taxes
Income tax 2016, amounting to 40 K€, relates to current taxes accounted for
MCM, as well as to deferred tax calculated on PPA deriving from Elvi acquisition.
In 2017, the item is positive for 818 K€ and includes income and deferred taxes
and the tax assets registered in the light of the Decree 27.05.15 issued by the
Italian Ministry of Economics and Finance (Industria 4.0 National Plan) for an
amount of 720 K€.
The income and deferred taxes amounts to 78 K€. The decrease from the
previous year is due the tax asset registered in 2017 in light of the Decree
27.05.15 issued by the Italian Ministry of Economics and Finance (Industria
4.0 National Plan) for 720 K€ (see note 4.20).
Any Deferred Tax Asset (“DTA”) has been accounted for FY 2018. The following
table shows the amount of tax losses carried forward and the related non-
accounted deferred tax asset as at 31 December 2018:
(xv) Net profit
The net loss amounted to 8,735 K€ at the end of 2018 while was 9,010 K€ at the
end of 2017 and 8.558 K€ at the end of 2016.
NET FINANCIAL INCOME AND EXPENSES
(amounts in Euro) 31/12/2018 31/12/2017 31/12/2016
Financial income 357,655 4,465,859 609
Financial expenses EIB warrants 0 (4,465,623) (45,600)
Financial expenses EIB loan (686,005) 0 0
Financial interest (345,127) (746,888) 0
Impairment on investment in other companies 0 0 0
Net exchange differences (18,537) (886) (239)
TOTAL NET FINANCIAL INCOME AND EXPENSES (692,014) (747,538) (45,230)
TAXES
(amounts in Euro) 31/12/2018 31/12/2017 31/12/2016
Current taxes
IRES (135) (1,402) (2,855)
IRAP (19,892) 484 (1,878)
Other income taxes 7,768 719,765 0
Deferred taxes 0
IRES 90,791 118,852 (35,761)
IRAP 0 (19,217) 0
TOTAL INCOME TAXES 78,532 818,482 (40,493)
IRES CUMULATED TAX LOSSES
(amounts in Euro) 31/12/2018
Statutory before tax losses 0
Non deductible costs 0
Other deductible costs 0
TAXABLE AMOUNT 0
IRES Tax Rate 24.00%
CURRENT TAXES 0
Cumulated tax losses as at the beginning of the year (34,096,117)
Cumulated tax losses as at the end of the year (39,604,371)
IRES 24%/33,33%
Deferred tax asset not accounted 5,083,371
40
7.2 Cash Flow and Share Capital of ENGIE EPS Group
The principal events affecting the cash flows and the structure of the ENGIE EPS Group’s
balance sheet during the financial year 2018 are:
• repayment of instalments of Intesa Sanpaolo, Unicredit and Sella medium-long term loan
and Intesa short term working capital financing for an amount of 1,905 K€;
• capital increase of 30,258 K€, 28,931 K€ for the Right Issue (net of the related expenses)
and 1,327 K€ for the exercise of Stock Options and Warrants;
• on 6 September 2018, in compliance with the prepayment agreement signed with the
EIB, ENGIE EPS proceeded with the early repayment the EIB Financing for a total
amount of €10 million;
• strengthening of the managerial structure of the ENGIE EPS Group through several
significant recruitments;
• other investment in tangible and intangible assets for 3,919 K€ (of which investments in
projects of development for €3.2 million of which €2.9 million capitalized); and
• change in working capital at 31 December 2018 is 4,049 K€.
In 2017 the main events affecting the cash flow and the balance sheet structure of the ENGIE
EPS Group were:
• disbursement, on 29 June 2017, of the first tranche of €10 million of the equity-linked
financing of up to €30 million with the EIB, guaranteed EFSI;
• signing of a 20MW Contract with Endesa, the Spanish utility part of the Enel Group, for
the supply of an Energy Storage System (ESS), with a power capacity of 20 MW and a
lifetime of 8 years. The project financial structure required a significant investment in
working capital (about € 3 million);
• investments in projects of development for €2.6 million;
• strengthening of the managerial structure of the ENGIE EPS Group through several
significant recruitments;
• other investment in tangible and intangible assets for 250 K€; and
• change in working capital at 31 December 2017 is -5,821 K€.
As a reminder, in 2016 the main events affecting the cash flow and the balance sheet structure
of the ENGIE EPS Group were:
• opening of the new manufacturing plant in Rivoli;
• grant, in the second semester 2016, of bank loans amounting to 10 M€ at the end of the
year;
• development of the new product HyESS©; and
• finalization of EPS Elvi and MCM acquisition, with an additional cash-out of 315 K€.
7.2.1 Financial sources of the ENGIE EPS Group
As of 31 December 2018, the ENGIE EPS Group equity amounts to 13,521 K€ before
the impact of the revaluation of EIB warrants liabilities (IFRS 2) that brings the item to
41
the amount of 17,298 K€. The difference of 18,935 K€ with 2017 (1,637 K€) is mainly
attributable to:
• the reclassification on reserves for Stock Options and Warrants (1,454 K€);
• the capital increase of 30,258 K€ realized during the year;
• the losses recorded during the financial year 2018 (12,512 K€ not
comprehensive of the accrual of 3,777 K€ related to the Revaluation of EIB
warrants liabilities (IFRS 2) impact on net profit); and
• changes in other comprehensive income and other movements amounting to 59
K€.
Since its creation and until 31 December 2018, the ENGIE EPS Group has principally
been financed by:
• financings from shareholders in the form of private cash capital increases;
• access to public capital markets in April 2015 (IPO), December 2015 and August
2018;
• conversion of convertible bonds into shares (before IPO);
• current account advances (before IPO); and
• bank loans as further detailed (starting form H2 2016).
To further support its growth, the ENGIE EPS Group has obtained the following bank
loans:
• in July 2016 Unicredit approved a short-term credit line of 500 K€ to provide
additional working capital and a medium-long term credit line of €2 million mainly
dedicated to ENGIE EPS’s development plan and requested cash collaterals, for
an amount of €0.5 million. The relevant facility agreements were entered on 19
September 2016 and the medium-long term credit line has been drawn down on
the same date.
The medium-long term credit line of €2 million has been completely repaid in
January 2019.
In addition to this, EPS entered 26 October 2016 into (i) a 5-year agreement for
€3.5 million of new committed credit lines with Intesa Sanpaolo S.p.A. (“Intesa
Sanpaolo”) (House Bank of the ENGIE EPS Group) mainly designated for
HyESS© research and development and (ii) short-term credit lines for €3 million,
still with Intesa Sanpaolo, to face the additional working capital requirements and
to boost the ongoing projects (especially in Africa and Asia);
• a further medium-long term credit line of €1 million was approved by Banca Sella
on 9 November 2016;
• in H2 2017 the short-term credit lines issued by Intesa Sanpaolo have been
reduced to €1.3 million and new guarantee facilities for €1.7 million have been
released by the same financial institution in order to ensure the issuance of
performance bonds related to EPS projects. Intesa Sanpaolo requested cash
collaterals, for a total aggregate amount of €0.9 million; and
42
• on 6 March 2018 Intesa Sanpaolo, approved an additional € 3 million working
capital facility to support the ENGIE EPS’ growth. This working capital facility,
related to the 20MW contract with Enel, was granted with a cash collaterals for
an amount of €1.5 million then reduced to €0.9 million. This amount has been
completely repaid before the end of 2018 once the project has been completed.
Credit lines obtained after 31 December 2018
• In March 2019 Unicredit approved a short-term credit line of €1.6 million to
provide additional working capital for the project Lifou.
EIB Financing
• In June 2017 ENGIE EPS obtained an equity-linked financing up to €30 million
with the EIB backed by the EFSI, with the aim of supporting ENGIE EPS’ growth.
The was composed of 3 five-year tranches, the first of which amounting to €10
million – which was drawn down on 29 June 2017 – did not accrue any interest,
while the second and the third would have, respectively, an interest rate of 7%
and 5%.
• Following the acquisition by ENGIE, the EIB considered that its support role for
innovation and growth sectors under EFSI had been fulfilled. It therefore
informed ENGIE EPS of its intention to trigger change of control clause and
consequently to request the early repayment of the first tranche of €10 million
disbursed in June 2017 and the cancellation of the two tranches of €10 million
each not yet drawn. The first tranche did not bear interest but was accompanied
by 660,513 warrants issued to the EIB, each giving the right to subscribe for one
share of the Company as of 1 July 2017. The EIB tendered its warrants in the
tender offer and ENGIE (through its subsidiary GDF International) exercised the
warrants on 15 June 2018.
• On 9 May 2018, ENGIE EPS signed a prepayment agreement with the EIB to
terminate the equity-linked financing up to € 30 million signed on 11 April 2017,
following to the occurrence of change-of-control event under the finance
contract.
• On 6 September 2018, in compliance with the prepayment agreement signed
with the EIB, ENGIE EPS proceeded with the early repayment the EIB Financing
for a total amount of €10 million.
7.2.2 Net financial position
Total cash and cash equivalents as at 31 December 2018 is €10.9 million while was €4.2
million in 2017 and €5.5 million in 2016.
The cash position at 31 December 2018, represented by liquid assets, amounted to
€10.9 million compared to €4.2 million at the end of 2017. A portion of the liquid assets
serves as cash collateral to guarantee financings received by the ENGIE EPS Group
that are included in net debt. The ENGIE EPS Group considers that €1.8 million of this
cash collateral is liquid to the extent that the release of the guarantees is under its
control.
43
The increase in the net financial position during the last period reflects the investments
made by the ENGIE EPS Group to set up the current industrial footprint, product
industrialization and business results mainly financed by the shareholders, the EIB and
Intesa Sanpaolo as house bank of the ENGIE EPS Group. In parallel, the increase of
the net financial position is also impacted by the working capital needs generated by the
growth in orders and revenues. In particular, trade working capital at 31 December 2018
is in strong increase compared to 31 December 2017.
Net financial position as at 31 December 2018 is positive for € 6.8 million; however, the
ENGIE EPS Group also uses the Adjusted Net Financial Position that considers the VAT
receivable outstanding for € 1.5 million and the negative net outstanding amount of trade
working capital for € 2.6 million, resulting in total € 10.9 million.
Net Financial position (amounts in €) 2018 2017 2016
Cash and cash equivalent 10,860,527 4,237,540 5,477,790
Cash at banks and petty cash 10,860,527 4,237,540 5,477,640
Cash on grants 0 0 150
Cash related to advances on grants 0 0 (150)
Current financial payables 0 0 (150)
Net financial debts (4,050,863) (16,557,841) (6,452,012)
Current financial liabilities (2,240,696) (3,154,739) (1,617,241)
Non current financial liabilities (1,810,167) (13,403,102) (4,834,771)
Net financial position before the impact of
EIB Warrants (IFRS 2)6,809,664 (12,320,301) (974,372)
Impact of EIB Warrants (IFRS 2) 0 (3,086,219) 0
Net financial position after the impact of
EIB Warrants (IFRS 2)6,809,664 (15,406,520) (974,372)
44
7.2.3 Cash flow for FY 2018, 2017 and 2016
The following table presents the cash flow over the financial years considered:
Cash position at the end of the period is the amount held on bank balances both in Euro
and in other currencies and cash deposits at leading credit institutions, including petty
cash. The cash liquidity is mainly held in Euro currency.
(i) Cash flows deriving from operating activities
Cash flows deriving from the operating activities represent net cash flow
consumption of 7,410 K€ in 2018 (and was 9,585 K€ in 2017 and 4,409 K€ in
2016).
In 2018, in addition to EBITDA (excluding SARs and New Incentive Plans
expenses) and non-recurring charges, the net cash deficit of 7,410 K€ can be
detailed as follows:
• trade receivables and prepayments are 10,291 K€ versus 11,189 K€ in
2017;
• inventory is 3,053 K€ versus 997 K€ in 2017; and
• trade & other payables are 8,260 K€ in 2018 versus 4,746 K€ in 2017.
45
As a reminder, in 2017, in addition to EBITDA (excluding Stock Option and
Warrant Plans expenses) and non-recurring charges, the net cash deficit of
9,585 k€ was detailed as follows:
• trade receivables and prepayments are 11,189 k€ versus 6,504 k€ in
2016;
• inventory is 997 k€ versus 1,144 k€ in 2016; and
• trade & other payables are 4,746 k€ in 2017 versus 6,006 k€ in 2016.
As a reminder, in 2016, the net cash deficit of 4,409 K€ was detailed as follows:
• trade receivables and prepayments variation was 1,691 K€;
• inventory variation was 470 K€; and
• trade & other payables variation was 2,881 K€.
(ii) Cash flows deriving from investments
In 2018, ENGIE EPS invested:
• 1,229 K€ investment in the Prophet project. The main goal of this project
is to develop and improve the control predictive algorithm for a multi-
Distributed Energy Resources (“DER”) microgrid. The new optimized
control will ensure the microgrid secure operation and lower the energy
cost, making best use of renewable generation and storage capability.
Moreover, the project will investigate the impact on the grid given by the
introduction of electric and hybrid vehicles, their optimal management in
terms of charging, grid services they can offer and how they can create
business cases in the microgrid context. The technical studies and the
software developments already had a practical validation, since all the
enhanced algorithms have been tested on a multi-good microgrid installed
at the Energy Department of Politecnico di Milano. The main activities
under study have been already outlined in the EPS Technology Roadmap:
optimization and control predictive functions algorithms;
distributed Smart Storage for behind-the-meter grid services;
distributed Smart Generation for multi-services and multi-
revenues optimization;
VPP: transform a microgrid into a Power Plant;
V2G to transform a car into a revenue generating asset; and
electric and hybrid vehicles fast charging, to study the impact of
future electric and hybrid vehicles charging.
• 676 K€ investment for the improvement of HyESS® (Hybrid Energy
Storage Systems) platform that will enable ENGIE EPS to face the
Distributed Energy Resources (DER) evolution and support (i) the new
role of the algorithms in light of data predictors, (ii) the machine learning
and Artificial Intelligence, (iii) VPP and (iv) Electric and Hybrid Vehicles
integration in smart grid. Development realised in 2018 consist mainly in
further development on Hydrogen Module integrated in HyESS®;
46
• 551 K€ for the development on power electronics, e-Mobility and
standardised product solutions. In detail this development regards new C-
BESS-900, C PV-900 and 100kW - 1500 VDC inverter and the design of
new standard containers suitable for applications of grid-scale storage and
big-scale solar plant;
• 135 K€ for the ERP development to support efficient, reliable and lean
actions and to enable the agile project management methodology
implemented by the ENGIE EPS; and
• 154 K€ related to new patents and licenses.
In 2017 EPS, invested:
• 937 K€ for the improvement of HyESS® (Hybrid Energy Storage Systems)
platform that will enable EPS to face the Distributed Energy Resources
(DER) evolution and support (i) the new role of the algorithms in light of
data predictors, (ii) the machine learning and artificial intelligence, (iii) VPP
and (iv) electric and hybrid vehicles integration in smart grid. In detail the
development projects realized during 2017 consist mainly in the design
review of the HyESS® platform, the development of power quality project
to adapt firmware already used in PCS to HyESS® technology and have
access to the market of application for big industrials, the development of
a control system for a multi-DER microgrid supplying heat and electricity
in order to ensure its secure and efficient operation in the presence of high
penetration of renewable generations;
• 707 K€ for the development on power electronics and e-Mobility solutions
and in detail new C-BESS-900, C PV-900 and 100kW - 1500 VDC inverter
suitable for applications of grid-scale storage and big-scale solar plant;
• 495 K€ for the further development on hydrogen module integrated in
HyESS®;
• 307 K€ for the ERP development to support efficient, reliable and lean
actions and to enable the agile project management methodology
implemented by the ENGIE EPS Group; and
• 103 K€ related to new patents and licenses.
As a reminder in 2016 1,463 K€ were invested in development and finalization
of the HyESS® integrated with the Hydrogen Module, 157 K€ on “other products
development” and 196 K€ in information technology software licenses and
development for the new ENGIE EPS Group Business Intelligence ERP.
Moreover, 190 K€ have been invested in the new production plant in Rivoli plus
98 K€ for instruments, machineries, furniture and other related expenses.
(iii) Cash flows deriving from financing activities
In 2018, net cash flow deriving from financing activities was positive for 17,952
K€ against 11,073 K€ in 2017 due in particular to:
• repayment of instalments of Intesa Sanpaolo, Unicredit and Sella medium-
long term loan and Intesa short term working capital financing for an
amount of 1,905 K€;
47
• capital increase of 30,258 K€, 28,931 K€ for the Right Issue (net of the
related expenses) and 1,327 K€ for the exercise of Stock Options and
Warrants; and
• reimbursement for 10M€ of EIB loan.
During 2017, the cash flow deriving from financing activities represented a
positive flow of 11,073 K€ principally due to:
• drawing of on the first tranche of EIB Financing for €10 million;
• repayment of instalments of Intesa Sanpaolo, Unicredit and Sella medium-
long term loan for an amount of 476 K€; and
• capital increase of 1,480 K€ reserved to the former management of EPS
Elvi.
In 2016, net cash flow deriving from financing activities was positive for 6,529
K€, due to:
• grant, in the second half of 2016, of bank loans for the sustainment of the
ENGIE EPS Group’s growth and for working capital requirements (6,522
K€); and
• strong decrease of the cash flow from public grants, in line with the ENGIE
EPS Group’s strategy to attain a non-subsidized business model (from
781 K€ in 2015 to only 5 K€ in 2016).
(iv) Changes in working capital requirements
The following table indicates in detail the change in working capital requirements
during the relevant periods:
7.2.4 Restrictions on the use of the capital
The ENGIE EPS Group is not facing any restriction on the use of its capital having a
significant direct or indirect effect on the ENGIE EPS Group’s financing, other than
guaranties securing the financings.
7.2.5 Expected sources of financing
ENGIE EPS has constantly been supported by Intesa Sanpaolo, which in February 2019
approved, subject to customary condition precedents for ENGIE group companies,
additional € 7.5 million facilities for research and development.
8 Key indicators of financial and non-financial natures
Please refer to “Selected Financial Information” as mentioned in section 6 “Activities of the
Company and its subsidiaries over the past fiscal year”.
48
9 Description of the main risks and uncertainties and indications as to the use of
financial instruments, for the Company and the ENGIE EPS Group
The material risks to which the ENGIE EPS Group is exposed, based on its own assessment,
are described below. Other, lesser risks or risks unknown to date could also affect the ENGIE
EPS Group. If these risks were to materialize, they could have a significant negative impact on
the ENGIE EPS Group’s operations, financial position and earnings, image and outlook, and/or
on the ENGIE EPS share price.
9.1 Risks associated with the success of the ENGIE EPS Group’s products
The ENGIE EPS Group operates in the growing renewable energy market, in which new, break-
through, technologies are being experienced and developed, by start-up companies and large,
traditional incumbent actors alike. The ENGIE EPS Group has to keep-up with these changes
in order to remain successful. The growth of the renewable energy market itself depends in part
on the lower attractiveness of traditional fossil energy sources and on public policies favouring
the development of renewable energy sources – those two trends could reverse and negatively
impact the growth of the ENGIE EPS Group’s market share.
9.1.1 Risks associated with the adoption of the ENGIE EPS Group’s hydrogen based
Distributed Solutions and with technological changes in the energy industry that
could render the ENGIE EPS Group’s technology obsolete.
The markets for energy storage targeted by the ENGIE EPS Group (both in terms of
sector and geography) are characterized by technological change and evolving industry
standards.
The ENGIE EPS Group has developed its Distributed Solutions around hydrogen.
Hydrogen production by the process of water electrolysis with an electric current (“power
to gas” application, “P2G”) is well known, as is the production of electricity from hydrogen
(“gas to power” application, “G2P”). The ENGIE EPS Group has deployed a solution
combining both processes where hydrogen is used as energy storage, and the electricity
used in the first reaction may be returned later (application P2P). The ENGIE EPS Group
cannot guarantee that the constraints to the adoption of P2P or G2P taken separately in
terms of profitability, logistical constraints and low modular systems will not adversely
impact the perception of and adoption of a method of storing energy to produce
hydrogen, such as that sold by the ENGIE EPS Group.
Competition vis-à-vis the ENGIE EPS Group’s systems will also come from
improvements to the current Balance of System technologies and the entrance of new
alternative Balance of Systems technologies integrated or developed by other players
or the growth of the market share of these new technologies and system integrators,
more efficient, more power and/or energy dense and/or less costly (e.g. silicon carbide
or higher voltage power conversion, high speed energy management systems, etc.).
Each of these competitors has the potential to take market share or reinforce its share
in each market targeted by the ENGIE EPS Group.
Even if it is not directly confronted by an alternative breakthrough technology, the future
success of the ENGIE EPS Group will depend on its ability to adapt quickly to changing
technologies, to adapt its products and technologies to evolving industry standards and
to improve the performance, power and energy density and reliability of its systems and
technologies in order to incorporate promptly these incremental innovations.
49
To achieve market acceptance for its technologies, the ENGIE EPS Group must
effectively anticipate and offer products that meet changing customer demands and
compete against alternative solutions. If the ENGIE EPS Group fails to develop products
that meet these challenges in a timely and cost-effective manner, its ability to renew its
contracts with existing customers and its ability to create or increase demand for its
technologies and products will be harmed.
9.1.2 Risks associated with competitors that are larger than the ENGIE EPS Group
Some of the companies in the energy industry (including large industrial groups,
developers and system integrators with separate business units involved in energy
storage technologies, e.g. Siemens, GE, ABB, Schneider, Wartsila) have substantially
greater capital resources, research and development staff, facilities and experience
available to them than the ENGIE EPS Group does. Such entities have applied and can
apply in the future these resources to develop products which are in competition with,
and more competitive than, the ENGIE EPS Group’s products. Additionally, they may be
able to devote greater resources to promotion and sale of such products. Even now that
the ENGIE EPS Group belongs to ENGIE, there can be no assurance that it will benefit
from higher resources than before and that the ENGIE EPS Group’s competitors will not
succeed in developing or marketing technologies that are more effective or less
expensive than those developed or marketed by the ENGIE EPS Group or that would
render its technology or business model obsolete or non-competitive.
9.1.3 Risks associated with the dependence of the ENGIE EPS Group’s operations on
the development of renewable energy market and volatile oil and energy prices
The renewable energy market is relatively young compared with the fossil fuel and
nuclear energy markets. The renewable energy market may grow less rapidly or develop
differently than currently predicted by the ENGIE EPS Group or industry analysts. Many
factors may affect the rate of growth in installed capacity and the attractiveness of
renewable energy as compared to other energy sources, including:
• the performance, reliability and availability of the energy generated by renewable
energy facilities as compared with other, conventional sources of energy; or
• fluctuations in economic and market conditions that affect the price of, and
demand for, conventional energy sources, such as increases or decreases in the
price of conventional energy sources (such as oil, natural gas and other fossil
fuels), and changes in the cost, efficiency and equipment investment needed for
other electricity producing technologies. The price of oil, natural gas and other
hydrocarbons and other energy prices are volatile and vary notably in response
to fluctuations in supply and demand at local, regional and global levels, and due
to political entities, such as the Organization of Petroleum Exporting Countries
(“OPEC”), and general economic and political conditions.
In the field of energy storage solutions integrated with renewable energy sources, the
decline in oil and gas prices, reducing the cost of producing electricity from fossil fuels
could make the solutions proposed by the ENGIE EPS Group less competitive against
other solutions, such as diesel generators and gas and coal conventional generation and
therefore reduce the interest in and market for the ENGIE EPS Group’s solutions.
Furthermore, if the renewable energy market grows less quickly or in a different manner
than anticipated, equity and debt investor appetite for these investments may decline,
50
and the ENGIE EPS Group may have difficulty in funding its development targets or
business objectives.
9.1.4 Risks linked to the evolution of national or international policies and regulation
The ENGIE EPS Group expects it will encounter an evolving national and international
policy and regulatory framework across the energy markets in general, and the energy
storage market specifically, for a relatively long period of time. This evolution is likely to
lead to uncertainty for the ENGIE EPS Group, its customers and its partners regarding
the conditions for commercialization and usage of the ENGIE EPS Group’s technology.
The adoption or implementation of new laws, regulations or government policies, or the
formulation of specific requests from the competent authorities or the loss of a vital
approval for the operation of production facilities could restrict the ENGIE EPS Group
development opportunities, its ability to continue production and/or require significant
investment. For example, government policy and regulation may (i) force potential
customers to implement energy solutions which may impact the development of the
infrastructure required by the ENGIE EPS Group’s technology or (ii) prevent the
deployment of storage technologies and, therefore, affect the ENGIE EPS Group’s
business, results and prospects.
Further, activities related to energy storage are at present favoured by certain public
policies both at the national and international levels that support carbon free energy
either through favourable rates, tax credits, subsidies or other mechanisms such as
environmental regulations limiting carbon dioxide emissions. These policies could be
altered or even be reversed, because a government decides instead to favour traditional
energy sources, such as coal in the U.S. currently, or because of budget constraints
leading to a reduction of public funds available for implementing such policies.
The occurrence of one of these factors could bring about a reduction or a slowing in the
demand for the renewable energy sources, storage technologies and/or the activity of
the ENGIE EPS Group.
9.2 Risks associated with the ENGIE EPS Group’s project development activity
Grid-Support Solutions and Off-Grid Power Generation Solutions are complex projects,
extensive in scope and subject to significant uncertainties. When designing the project, to
respond to an RFP either for a Grid-Support Solution or an Off-Grid Power Generation Solution,
the ENGIE EPS Group makes certain assumptions on the costs, viability and reliability of the
technical solutions that it will implement, and these could be wrong, leading to mis-pricing of the
project by the ENGIE EPS Group and impacting its profitability. It also makes certain
assumptions on the size of the market being targeted and the revenues that the project will
generate, and these could also be wrong, with the same consequences for the ENGIE EPS
Group. Finally, as the ENGIE EPS Group takes more and more a Project Development approach
(as opposed to an Engineering, Procurement and Construction one), it needs to secure financing
for the project and, for Off-Grid Power Generation Solutions, a Power Purchase Agreement.
When operating as the project developer, the ENGIE EPS Group is in charge of successfully
completing and commissioning the project. It may not be able to do so as planned or at all. In
the course of development, the ENGIE EPS Group may uncover problems or encounter
difficulties with projects (for instance linked to obtaining the land rights and permits necessary
or the necessary connection to the grid) which result in delays or additional costs that could
render the projects less competitive than the ENGIE EPS Group initially anticipated. This could
lead to project postponement or abandonment, delays in payments to be received from
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counterparties or penalties to be paid to them, to the project being less profitable than expected
and result in significant losses, depreciations or write-offs.
9.2.1 Risk associated with securing and designing projects
9.2.1.1 Risks associated with the complexity of Distributed Solutions
The Distributed Solutions have a high degree of complexity, which entails extensive
client education and project incubation, and may condition the growth potential of the
ENGIE EPS Group. Furthermore, the complexity of the Distributed Solutions increases
the risks of design inaccuracies or performance misestimation, implying the risk of
potential cost overruns during execution or performance penalties from clients during
operation.
9.2.1.2 Risk associated with the actual revenue pool targetable by the projects differing
from the potential revenue pool anticipated by the ENGIE EPS Group
Within the context of responding to RFPs, the ENGIE EPS Group undertakes and will
undertake case studies based on working hypotheses developed with network/grid
operators, with the aim of determining the market that will be served by the contemplated
project and the revenues it will be able to capture. These case studies are based on
complex and general parameters, from the industry and/or specific data from that
instance (client activity, applications, geographic area, and climate conditions). It is
therefore difficult for the ENGIE EPS Group to generalize results to the entire market
and determinate the actual market from the specific results of the case studies.
The ENGIE EPS Group cannot guarantee that the economic benefit of these case
studies can be generalized in all circumstances and provide a valid benchmark to assess
the profitability of new projects.
9.2.1.3 Risk associated with obtaining financings
When operating as a Project Developer, the ENGIE EPS Group depends on arranging
financing from various sources, in particular external debt financing. It also needs, in
certain circumstances, to be able to post bonds for tenders.
The ENGIE EPS Group may experience difficulty, under certain conditions or in certain
markets, in securing debt financing for its projects in a timely fashion, on terms that
enable satisfactory project profitability or even at all, or such financing may be subject to
restrictive terms that increase project operating costs and reduce project values.
Furthermore, the ENGIE EPS Group’s ability to obtain debt financing for its projects may
vary by jurisdiction and as the ENGIE EPS Group expands into new markets, there can
be no assurance that banks that provided debt financing for the ENGIE EPS Group’s
projects in the past will continue to do so for new projects or markets. Factors that could
adversely impact the availability or cost of financing for the ENGIE EPS Group’s projects
include, but are not limited to, the following:
• an increase in market interest rates, which would increase the cost of debt
financing and hence lower the projects’ returns on investment;
• diminished credit quality of the ENGIE EPS Group’s counterparties (network/grid
operators);
• elevated country or state risk, particularly in non-OECD markets;
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• technical or legal issues for a project, identified in the course of the bank due
diligence;
• lack of availability of, or difficulty securing, sufficiently bankable technologies or
equipment for planned projects; and
• adverse general lending market conditions.
If the ENGIE EPS Group is unable to arrange debt financing or if it is only available on
unfavourable terms, the ENGIE EPS Group may not be able to build some projects or
may be able to do so only on less profitable terms.
9.2.1.4 Risk associated with securing a PPA
A key component of the ENGIE EPS Group’s Off-Grid Solutions is to secure a PPA for
the project. The ENGIE EPS Group may not be able to secure such PPAs, and in
particular PPA with purchasers whose counterparty risk supports bank financing, on
terms enabling sufficient project profitability or at all.
The value and viability of the ENGIE EPS Group’s renewable energy projects depends
upon its ability to sell the electricity produced by the relevant projects under agreements
with creditworthy counterparties at adequate price levels, in particular pursuant to PPAs.
Financing for the ENGIE EPS Group’s projects in most of its markets is generally
contingent on securing one or more PPAs for the relevant project.
If the ENGIE EPS Group is unable to secure PPAs for its projects or is unable to secure
PPAs on sufficiently favourable terms, it will generally be unable to sanction such
projects or secure project financing for those projects or may only be offered financing
on unfavourable terms. Failure to build such projects will result in write-off of the relevant
development costs.
9.2.2 Risks associated with the successful completion of the projects
9.2.2.1 The ENGIE EPS Group may not be able to complete projects under construction.
Once a project has been awarded to the ENGIE EPS Group, it remains subject to risks
in the construction phase relating in particular to engineering, equipment or EPC
performance. The inability to complete construction, or to complete it on a timely basis,
may result in contractual defaults, termination of PPAs, impairment of assets or a
reduction in the period of eligibility for specified tariffs as a result of a failure to meet
certain milestones, among other adverse consequences. Projects may encounter a
range of difficulties in the construction phase that result in delays or higher than expected
costs that may not be fully covered or adequately addressed by EPC guarantees,
damages clauses or insurance, including but not limited to the following:
• delays due to unforeseen events;
• damage to equipment in the course of delivery as a result of accidents or
otherwise;
• adverse weather, environmental and geological conditions, force majeure and
similar events;
• theft and vandalism; and
• regulatory authorisations or difficulties in obtaining permits.
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There can be no assurance that any individual project will be completed and reach
commercial operation. If these efforts are not successful, the ENGIE EPS Group may
abandon a project under construction and write off the costs incurred in connection with
such project. Further, ineffective project management and execution in the construction
phase could result in delays or unanticipated cost overruns in respect of completed
project.
Some of these risks and other, related ones, are more further developed below:
9.2.2.2 Risks related to Distributed Solutions developed for sophisticated grid operations
Distributed Solutions are the result of long-term complex projects with major actors in
the grid business, such as TSOs and major utilities. They require the implementation of
reliable solutions, in particular with regard to the grid-tie or grid-forming inverter,
algorithms of the remote management and industrialization in order to be replicated on
a large scale.
For all Distributed Solutions, the ENGIE EPS Group’s products are installed directly on
site, without the possibility of testing in full in the context of the factory acceptance test
(“FAT”). Any failure, fault or delay in testing, sites and installations or on their remote
control system could adversely affect the ENGIE EPS Group’s reputation,
competitiveness and reduce its ability to sell its products. The Distributed Solutions on-
site and their remote control may encounter problems and delays for a number of
reasons, including the failure of technologies implemented by the ENGIE EPS Group,
the failure of the technology owned by other companies and integrated in the ENGIE
EPS Group’s Distributed Solutions, failure to combine these technologies properly,
operator error, and the failure to ensure the maintenance and servicing of test prototypes
correctly. Most of these potential problems and delays are beyond the ENGIE EPS
Group’s control. In addition, these site installations, by their nature, can involve delays
associated with products and changes to their design, as well as the involvement of third
parties in particular for testing and test protocols.
In addition to the impact on the completion of a particular project, any problems or
difficulties of Distributed Solutions on site, whether from technology, installation, or
remote management, could adversely affect the ENGIE EPS Group’s reputation and the
reputation of its products and limit sales, especially as customers of these applications
consist of major utilities and grid operators. Such failures or faults could deteriorate
relations with customers, prevent the participation to tenders and requests for proposal
and force the ENGIE EPS Group to further develop its technology to address these
failures before installations on other sites, increasing research and development costs
and manufacturing costs and the costs of its concurrent projects.
9.2.2.3 Risks linked to the deployment of the ENGIE EPS Group’s solutions in off-grid
areas
The market of Off-grid Power Generation Solutions and therefore for off-grid areas is
characterized by geographical fragmentation, often in remote areas that require the
deployment of significant human, educational, financial, logistical and technical
expertise. Operational and financial risks associated with this market could be larger
than those inherent in projects related to these applications. The inability of the ENGIE
EPS Group to manage these risks could jeopardize its position or its profitability in these
markets, as the Atakama Desert, Puntland and South Pacific Islands.
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9.2.2.4 Risks associated with the reliability of systems designed for microgrids
The systems that are developed for Off-Grid Power Generation Solutions and microgrids
in particular applications are particularly complex. These applications imply levels of
technology, logistics, and innovation that are particularly high, notably as concerns the
remote and local management of the electrical microgrid. There is no guarantee that the
ENGIE EPS Group would successfully manage these complexities.
9.2.2.5 Risks associated with contractual targets, performance milestones and failure to
meet such target and milestones
The ENGIE EPS Group has a number of customers and prospective contracts that
require adherence to milestones and performance targets. In the event that the ENGIE
EPS Group fails to meet particular milestones or performance targets under its
commercial contracts, collaborations, joint developments or joint venture arrangements,
it would likely result in the failure of the project and possibly the termination of the
commercial contract, collaboration, joint development or joint venture.
9.2.2.6 Risks associated with warranty claims
The ENGIE EPS Group produces high technology systems and provides its customers
with a warranty period of 2 years and, upon payment of a specific warranty extension,
up to 20 years. The ENGIE EPS Group manufactures and buy single components
applying strict standards and tolerances using complex manufacturing processes and
rigid procurement policies. Failures of any component could give rise to substantial
product warranty costs and claims and significant in-house and on-field repairing costs.
At present, the ENGIE EPS Group has not yet had to face any material warranty claims.
Accordingly it does not have a provision for warrantees in its accounts. These costs are
typically un-predictable and generally not insurable.
9.3 Risks associated with certain market pricing trends
The ENGIE EPS Group is faced with both declining prices of competing technologies and rising
prices of certain raw materials used in its solutions.
9.3.1 Risk generated by declining prices of competing technologies
The market for businesses for whom a continuous supply of electricity is necessary to
their operations and the diesel generators industry are mature sectors and are served
by both traditional diesel and gas generators manufacturers and large industrial players
like Caterpillar, Wartsila, Tesla, Nidec, BYD, ABB, NEC, RES, Aggreko, and Siemens
and by emerging technology providers. The industry is characterised by progressive
sales price erosion both for traditional and for emerging technologies in both cases
mainly thanks to the increased volume and improved manufacturing processes.
This trend is expected to become more pronounced in the future and the ENGIE EPS
Group could be unable to offset this drop in prices with an increase in volume of systems
sold or the development of new solution on a timely and cost-effective basis, or even to
reduce its costs.
9.3.2 Risks associated with volatility or increases in raw material prices
The ENGIE EPS Group, its manufacturers and the companies within its supply chain,
purchase lithium, titanium, cobalt, nickel and platinum typically used in electronic
components, battery-based technologies and electrolytic cells and stacks. Price
increases with respect to raw materials used in developing and manufacturing the
55
ENGIE EPS Group’s products that cannot be recovered by a corresponding price
increase in the ENGIE EPS Group’s products could have a material adverse effect on
the competitiveness and success of the ENGIE EPS Group’s solutions.
Further, a shortage of such primary materials could, beyond the impact on prices, delay
production and/or require that changes be made to certain components of the systems
developed or used by the ENGIE EPS Group. This would impact the ENGIE EPS
Group’s capacity to complete its projects in time.
9.4 Risks associated with client base and suppliers
The ENGIE EPS Group faces a limited number of clients, some of which are large. It is also
dependent on certain suppliers.
9.4.1 The ENGIE EPS Group’s revenues depend on a small number of clients
The ENGIE EPS Group currently relies on revenues from a small number of customers
and there can be no assurance that it will be able to retain them or obtain additional new
customers.
The following table shows the revenues of the ENGIE EPS Group’s generated by its 10
largest customers in 2018 and the percentage that these represent in relation to 2018
total sales:
The ENGIE EPS Group might not be able to retain its principal clients or continue
developing business relationship with such clients. The ENGIE EPS Group might even
lose one or several principal clients (in case of non-renewal or early termination for
example).
9.4.2 Risks associated with large customers having significant buying power and
complex decisional processes
The energy market, including the renewable energy and energy storage markets, are
characterized by the presence of sizeable clients (such as government-backed single
buyers, large vertically integrated government-owned utilities, large industrial groups
interested in energy solutions) with significant buying power and very complex decisional
processes that involve several departments in order to have a purchase order approved
(i.e. procurement, infrastructure, grid, innovation, legal, finance and research and
development departments). Business development activity of the ENGIE EPS Group
requires proximity in order to regularly deal with the different decision makers in the
ENGIE EPS Group’s targeted markets.
Client Revenues 2018 %
Client 1 5,887,178 38%
Client 2 2,478,409 16%
Client 3 2,188,759 14%
Client 4 1,450,950 9%
Client 5 660,122 4%
Client 6 583,189 4%
Client 7 543,729 3%
Client 8 380,712 2%
Client 9 361,616 2%
Client 10 280,396 2%
Total 10 principal clients 14,815,060 95%
Revenues 2018 15,660,681 100%
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The strong buying power of these customers could reduce the ENGIE EPS Group’s
gross margins, impacting its profitability, while the complexity and length of the decisional
process could create a delay in the issue of purchase orders.
9.4.3 Risk of dependence on certain suppliers of raw materials or core components and
certain sub-contractors
The ENGIE EPS Group carries out all the research and development and engineering
activities relating to its Distributed Solutions. However, the ENGIE EPS Group relies on
third party suppliers of raw materials and to assemble all or part of its solutions. In 2018,
the three principal suppliers represented 25% of the purchases.
The following table shows the amount of purchases from the 10 largest suppliers of the
ENGIE EPS Group in 2018 and the percentage that this amount represents in relation
to the total purchases in 2018:
Furthermore, there are relatively few counterparties who have the necessary scale and
skill set to produce the components of the ENGIE EPS Group’s systems or to assemble
them in containerized solutions. Accordingly, due to a supplier’s failure to supply
materials or components in a timely manner, or to supply materials and components that
meet the ENGIE EPS Group’s quality, quantity or cost requirements, the ENGIE EPS
Group could have to replace one of the existing strategic manufacturers. In this situation,
there may be a limited number of alternatives and the ENGIE EPS Group may not be
able to secure commercially acceptable terms (in particular in terms of lead times,
delivery and manufacturing set-up times) or at all from an alternative manufacturer.
If a third-party manufacturer were to breach its contractual commitments to supply the
ENGIE EPS Group’s products, the ENGIE EPS Group’s only redress may be to sue the
manufacturer for damages and such an action could be time-consuming and costly, and,
even if successful, may not adequately compensate the ENGIE EPS Group for any
delays suffered, loss of profit or loss of business opportunity.
Furthermore, the ENGIE EPS Group frequently subcontracts a part of the maintenance
and installation of its products to third parties. As such, the ENGIE EPS Group cannot
maintain the same level of oversight and control over these outsourced operations as it
would if these operations were carried out internally and relies on its suppliers in terms
of quantity, quality, yield and costs of services and products. If one such third party fails
to fulfil its obligations in a timely manner and in compliance with the specifications, the
ENGIE EPS Group may not be able to complete its projects, install and assure the
SuppliersPurchase
2018%
Supplier 1 2,819,027 15%
Supplier 2 1,341,000 7%
Supplier 3 564,918 3%
Supplier 4 412,952 2%
Supplier 5 391,013 2%
Supplier 6 384,440 2%
Supplier 7 332,781 2%
Supplier 8 263,517 1%
Supplier 9 240,413 1%
Supplier 10 236,272 1%
Total 10 principal suppliers 6,986,333 38%
Total 2018 18,538,334 100%
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maintenance of its products and systems in a timely manner and within the required
quality standards.
9.5 Risks associated with the ENGIE EPS Group’s financial performance
The ENGIE EPS Group’s revenues and profits are exposed to two potential causes of volatility:
in the short term, that linked with success on the tenders and RFPs to which the ENGIE EPS
Group participates; in the medium to longer term, in addition to that first factor, the irregularity of
revenues generated by long-term contracts.
9.5.1 Risk related to the potential volatility linked to the ENGIE EPS Group’s success in
tenders and RFPs
The ENGIE EPS Group’s business depends in particular on the success of a limited
number of tenders and RFPs, which the ENGIE EPS Group will wish to respond, but
which individually can represent a multiple of the revenue compared to the historical
sales of the ENGIE EPS Group.
Therefore, sales and the ENGIE EPS Group operating results may vary significantly and
unexpectedly from one period to another.
9.5.2 Risks related to the sales and operational cycle for Distributed Solutions
The ENGIE EPS Group may enter into long-term contracts for its Distributed Solutions,
which sales and operational cycle, including a preparatory phase and an implementation
phase may occur over several months. This risk will increase as the ENGIE EPS Group
keeps pursuing a Project Developer model. A number of events may occur during (i) the
project preparation phase, such as the questioning of the project, despite the length of
the test phases, studies, efforts and funds pledged by the ENGIE EPS Group, and (ii)
the execution phase, such as technical problems relating to the components supplied by
the ENGIE EPS Group or third parties, delays of subcontractors, financial difficulties of
users or partners, resulting in an increase of costs or of losses.
There could also be delays and lag between the execution of these contracts, the
recording in revenues and the actual receipt of the amounts. Therefore, the ENGIE EPS
Group’s revenues could experience a significant time difference between payments and
expenses, with an impact on its cash flows.
9.6 Risks related to the ENGIE EPS Group’s international development
The ENGIE EPS Group has operations in multiple countries and is there exposed to the general
risk associated with being a multinational group, but these risks are enhanced as some of these
operations are conducted in emerging countries.
9.6.1 Risks associated with operating in multiple foreign countries
Besides the countries in which the ENGIE EPS Group is active today, i.e. Somalia,
Comoros, New Caledonia, Kenya, Chile, the operations of the ENGIE EPS Group might
be extended to other countries (i.e. Brazil, Indonesia and the Philippines) in accordance
with its strategy. The international deployment of the ENGIE EPS Group will expose it to
different economic, fiscal, legal, regulatory and political frameworks. The possible
complexity of these and future rules and regulations could result in delays in project
execution and/or significant costs in order to assure compliance with these rules and
regulations.
58
The costs associated with entering and establishing in such new markets may be higher
than expected, and the ENGIE EPS Group may face significant competition in such
markets and a range of risks and challenges including:
• regulatory and legal requirements affecting its ability to enter new markets
through joint ventures with local entities such as difficulties in obtaining
regulatory local approvals and authorisations or export and import restrictions;
• difficulties in managing overseas operations;
• difficulties and delays in contract enforcement and the collection of receivables
under the legal systems of foreign countries;
• unclear multiple regulatory and tax regimes (including regulations relating to
transfer pricing and withholding at the point of generation and other taxes on
remittances and other payments from subsidiaries) and divergent commercial
and employment practises and procedures;
• foreign investment restrictions and currency risks, foreign exchange controls and
restrictions on repatriation of funds; and
• economic and/or financial sanctions concerning certain countries notably those
taken or imposed by the United Nations, the European Union, France or the
United States.
The ENGIE EPS Group could be unable to manage the risks related to its expansion
and growth in new markets and therefore fails to establish a strong presence in those
markets.
9.6.2 Risks associated with operating in emerging markets
A portion of ENGIE EPS’s actual and future businesses and projects are located in
countries outside the EU and North America, mainly in Africa (Kenya and Nigeria),
Central and South East Asia (Indonesia) and Central-Southern America, where the
socio-political framework and macroeconomic outlook are less stable than in the OECD
countries. Adverse political, social and economic developments, such as internal
conflicts, revolutions, establishment of non-democratic regimes, protests, strikes and
other forms of civil disorder, contraction of economic activity and financial difficulties of
the local governments with repercussions on the solvency of state institutions, inflation
levels, exchange rates, disruptions to economic activity, loss of output, plant closures
and shutdowns, project delays, the loss of personnel or assets and similar events in
those non-OECD countries may negatively impair ENGIE EPS’s ability to continue
operating in an economic way, either temporarily or permanently. They may force the
ENGIE EPS Group to evacuate personnel for security reasons and to increase spending
on security.
The ENGIE EPS Group could be unable to manage the risks related to its expansion
and growth in emerging markets and/or frontier markets.
9.7 Risks associated with regulatory compliance and defective products
The ENGIE EPS Group’s activities are subject to a vast and complex array or regulations,
notably because its products contain certain potentially dangerous substances such as
hydrogen, oxygen, lithium and caustic potash. Because of the international nature of its
activities, the ENGIE EPS Group is subject to different regulatory regimes in each country in
59
which it operates and also to the international sanction’s regimes. Finally, the ENGIE EPS Group
could face substantial liability claims as a result of a defect in one of its products.
9.7.1 Risks linked to the specific regulatory environment applicable to Distributed
Solutions
The products and technologies used by the ENGIE EPS Group are governed by
numerous regulations including environmental, quality, health and safety. This regulatory
framework is complex and specific depending on the activity performed (production,
transport or storage of electrical components, hydrogen, oxygen and lithium) and
depending on the type of application (stationary, mobility and portable). It is also different
in each country in which the ENGIE EPS Group operates. It is incumbent on the ENGIE
EPS Group to identify the regulations applicable to each product developed for its
business and to meet the requirements.
In addition, the use of hydrogen, lithium and advance system integration technologies
as an energy storage source involves a technological breakthrough, the development of
which may be hindered by existing regulations not always suited to the technology.
Monitoring and complying with this vast array of regulations is costly and time
consuming. Even though the ENGIE EPS Group has dedicated resources assigned to
this task, there is no guarantee that it will comply with all applicable regulations. Any
such compliance failure could result in delays in the completion of the ENGIE EPS
Group’s projects, exclusion from tenders and RFPs, being barred from operating in the
relevant jurisdiction, facing fines or be held liable for any resulting damages.
9.7.2 Risks associated with environmental damages resulting from the development,
manufacturing and operations of its Distributed Solutions
The ENGIE EPS Group’s business exposes it to the risk of harmful substances escaping
into the environment, resulting in personal injury damage to or destruction of property
and natural resources.
The substances dangerous for the environment handled in the manufacturing phase, in
particular during the testing of the equipment, are (i) hydrogen, (ii) oxygen and (iii) caustic
potash. Hydrogen is an explosive gas which may cause explosion and fire, especially in
an atmosphere enriched with oxygen. Caustic potash in aqueous solution is the
electrolyte used on our alkaline electrolysers. The solution is highly corrosive and irritant
and an accidental release of caustic potash may affect and damage the environment
because of its basic pH. Lithium is also flammable and accordingly potentially
dangerous. In addition, acids and heavy metals contained in the battery-based
technologies integrated in the Distributed Solutions deployed by the ENGIE EPS Group
can be toxic and potentially dangerous.
The ENGIE EPS Group’s operations may not comply with future laws and regulations,
and the ENGIE EPS Group may be required to make significant unanticipated capital
and operating expenditures in order to comply with those. If the ENGIE EPS Group fails
to comply with applicable environmental laws and regulations, governmental or
administrative authorities may seek to impose fines and penalties on it or to revoke or
deny the issuance or renewal of operating permits and third parties may seek damages.
Under those circumstances, the ENGIE EPS Group might be required to curtail or cease
operations, conduct site remediation or other corrective action, or pay substantial
damages.
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In addition, the ENGIE EPS Group may be held responsible for damages beyond the
scope of its insurance coverage and the ENGIE EPS Group’s current insurance policies
may not adequately reimburse it for costs incurred in settling environmental damage
claims, and in some instances, it may not be reimbursed at all. The ENGIE EPS Group
also cannot predict whether it will be able to maintain insurance coverage on acceptable
terms.
9.7.3 Risks related to international sanctions
The ENGIE EPS Group operates and has clients and partners located around the world,
including in emerging countries. As such the ENGIE EPS Group must comply to
international sanctions regimes relating to corruption, money laundering and terrorism
financing, in the jurisdictions in which it operates.
In particular, the ENGIE EPS Group must comply with the sanctions regimes imposed
by the United States of America, the European Union and the United Nations on certain
countries, entities and individuals.
These regimes are complex, frequently overlapping and frequently changing. There is
no guarantee that the ENGIE EPS Group will not run afoul of these regimes, directly but
also, and more likely, because of the ENGIE EPS Group’s relations with a third party that
would itself violate them. Third party compliance is particularly difficult to monitor and
these sanctions regimes can assign liability to an innocent party because of such
monitoring failures.
As at the date of this report, the ENGIE EPS Group is not subject to any sanction
procedure and/or any international sanctions. Also, the ENGIE EPS Group has limited
commercial relationships with certain counterparties located in sanctioned countries
(such as Somaliland), but these are carried out in compliance with applicable laws and
regulations.
Any such violation of a sanctions regime could result in exclusion from tenders and
RFPs, being barred from operating in the relevant jurisdiction or facing substantial fines.
9.7.4 Risks related to defective products
The risk of defective products creating the ENGIE EPS Group liability is inherent in the
development, manufacturing, marketing and sale of its products. A product is considered
defective when it does not provide the expected performance or the safety which a
person is entitled to expect.
The exposure of the ENGIE EPS Group to such liability is heightened because of the
production and usage of technologies and media in its products. Storage technologies
and media, like hydrogen, oxygen or lithium, are flammable and accordingly potentially
dangerous. In addition, acids and heavy metals contained in the battery-based
technologies integrated in the Distributed Solutions deployed by the ENGIE EPS Group
can be toxic and potentially dangerous.
Any accident involving the ENGIE EPS Group’s solutions could generate huge civil and
criminal liabilities and impact the demand for products developed by the ENGIE EPS
Group or substantially stop the general acceptance of such products. Furthermore, the
ENGIE EPS Group’s reputation could also be affected by negative publicity resulting
from difficulties or accidents in connection with its products.
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9.8 Risks associated with the intellectual property
Intellectual property, know-how and trade secrets constitute a very important part of the ENGIE
EPS Group’s assets and value. Even if they are protected by patents or confidentiality measures
within the ENGIE EPS Group or agreements with third parties, there is no guarantee that they
can be successfully protected.
9.8.1 Risks associated with dependence on proprietary technology underpinned by
intellectual property which the ENGIE EPS Group may not be able to obtain,
maintain, defend or enforce
The ENGIE EPS Group’s success will depend in part on its ability to obtain, maintain,
defend and enforce its patents, registered trade secrets and the other intellectual
property rights that underpin its proprietary technologies and products.
There is no assurance that:
• any currently pending or future patent applications will be granted;
• that the ENGIE EPS Group’s patent applications (and any subsequent or
resulting granted patents) will not be challenged by third parties;
• where patents have been issued to the ENGIE EPS Group, that others will not
be able to design around such patents to create a competing technology or
product;
• that competitors will not develop similar products which are not within the scope
of the ENGIE EPS Group’s patents;
• that third parties’ rights, including third party patents, will not have an adverse
effect on the ENGIE EPS Group’s ability to pursue some or all aspects of its
business;
• that, where the ENGIE EPS Group relies on confidential and/or proprietary know-
how, others will not gain access to it notwithstanding the ENGIE EPS Group’s
protocols for protecting that know-how; or
• that protection of patents or other intellectual property rights protection will be
available or effective in all the jurisdictions that the ENGIE EPS Group is
targeting.
The protection by the ENGIE EPS Group of its intellectual property rights represents a
significant cost tied notably to the cost of obtaining and maintaining intellectual property
rights and other related payments. This cost could greatly increase if the ENGIE EPS
Group has to defend its intellectual property rights. The ENGIE EPS Group may have to
pursue court proceedings, potentially in more than one jurisdiction, to enforce its
intellectual property rights. Intellectual property litigation is typically costly and time-
consuming and its outcome is often unpredictable and, as such, even if the ENGIE EPS
Group is successful in defending its intellectual property, the costs incurred and the
diversion of management time and attention could have a material adverse effect on the
ENGIE EPS Group’s business, results, prospects, or financial condition. Any failure to
defend its intellectual property rights could result in competitors having access to the
technologies developed by the ENGIE EPS Group both internally and could entail the
loss by the ENGIE EPS Group of a competitive advantage.
62
Furthermore, the ENGIE EPS Group faces the risk that there may be patents issued to
third parties that relate to its proposed product applications and technology of which the
ENGIE EPS Group is not aware or that it must challenge in the courts to continue its
operations as currently contemplated. Hence, if the ENGIE EPS Group is found to
infringe a third party’s patent, the ENGIE EPS Group could be required to obtain a
license from such third party to continue developing and marketing its products and
technology or the ENGIE EPS Group may elect to enter into such a license in order to
settle litigation or in order to resolve disputes prior to litigation. However, the ENGIE EPS
Group may not be able to obtain any required license on commercially acceptable terms
or at all. The ENGIE EPS Group could also be forced, including by court order, to cease
to develop or market products based on the infringing technology or product and/or pay
financial penalties. Any of these events could have a material adverse effect on the
ENGIE EPS Group’s business, financial condition, results of operations or prospects.
9.8.2 Risks associated with the inability to protect confidentiality of information, trade
secrets, know-how and intellectual property generally
When the ENGIE EPS Group cooperates with large groups and utilities, information
and/or products may be disclosed or entrusted to public or private entities, clients,
subcontractors or any other contracting party under current or future agreements with
the ENGIE EPS Group, for the purpose of deployment, testing and development. In such
cases, the ENGIE EPS Group requires the signature of confidentiality agreements.
Technologies, source codes, software, firmware and know-how generally, as well as
proprietary unpatented and/or un-patentable data are deemed equivalent to trade
secrets which the ENGIE EPS Group seeks to protect in part through such confidentiality
agreements. However, despite the huge effort of the ENGIE EPS Group is dedicated to
that, there is no guarantee that the methods used by the ENGIE EPS Group to protect
intellectual property and/or know-how will give the expected level of protection or will be
complied with by third parties, nor that the ENGIE EPS Group will be able to take action
in the event of non-compliance. More specifically, the ENGIE EPS Group has no control
over the conditions under which the third parties with which it does business in turn use
the services of other parties and protect their confidential information, despite any
clauses it may include in its confidentiality agreements.
9.9 Financial Risks
9.9.1 Risks associated with foreign currencies
The ENGIE EPS Group expects to be exposed to currency exchange rate risk. The
Consolidated Financial Statements of ENGIE EPS are prepared in euros, and
historically, the ENGIE EPS Group has carried on its business in euros, and will continue
to do so. However, a significant part of the ENGIE EPS Group’s business might be
conducted in the future in currencies other than euro such as the US Dollar. The ENGIE
EPS Group is likely to sign contracts under which payments are expected to be made
and received in other currencies, particularly in emerging countries’ currencies as
Brazilian Real. Also, a part of the ENGIE EPS Group’s purchases is made in currencies
other than euro, such as the US Dollar.
Therefore, the ENGIE EPS Group is exposed to exchange rate, conversion and
transaction costs. The risk associated with currency fluctuations occurs during the
conversion into euros of the value of assets and liabilities not denominated in euros, and
the results of its subsidiaries not denominated in euros. To the extent that the exchange
rates of these currencies are exposed to fluctuations, they are likely to affect the
63
Consolidated Financial Statements of the ENGIE EPS Group, which could also have a
significant effect on the ENGIE EPS Group’s financial position and its results, as
represented in the ENGIE EPS Group’s accounts. The risk related to foreign exchange
rate changes may occur due to the difference in exchange rates between the closing
date of the commercial transaction and the date of settlement.
Currently, the ENGIE EPS Group’s exposure to foreign currency risk is not specifically
hedged. In the future, the ENGIE EPS Group may consider entering into hedging
agreements.
In 2018, the ENGIE EPS Group registered costs in foreign currency for a total amount
of 809 K USD and 1 K GPB, 18,862 CLP and 4 K CHF corresponding to a total amount
of 1,010 K€. This amount is not significant compared to the total costs of the ENGIE EPS
Group in 2018.
9.9.2 Interest rate risk
The ENGIE EPS Group is exposed to an interest rate risk to the extent that credit lines
are float-rate financing linked to Euribor.
The ENGIE EPS Group’s financial debt at 31 December 2018 was 4,050 K€, 100 % of
which was denominated at floating interest rate.
9.9.3 Credit and/or counterparty risks
Credit risk is the risk that a counterparty will not meet its obligation under a financial
instrument or customer contract, leading to a financial loss. The ENGIE EPS Group is
exposed to credit risk from its operating activities (primarily for trade receivables under
PPA) and from its financing activities, including deposits with banks and foreign
exchange transactions.
The ENGIE EPS Group seeks to reduce counterparty credit risk under its PPA in part by
entering into contracts with state-owned companies, private companies or other
customers of strong credit quality and by obtaining guarantees of the off-taker’s
obligations. However, to the extent that any of the ENGIE EPS Group’s current or future
PPA counterparty do not have, or lose, such strong credit quality and the ENGIE EPS
Group cannot obtain government guarantees, it is or will be exposed to heightened credit
risk. Similarly, the ENGIE EPS Group may not be able to fully limit exposure to regional
economic downturns and the resulting credit risk, despite locating its assets in different
geographic areas. These risks can increase when global or regional economies are
experiencing periods of volatility.
Customer credit risk is managed by the administration, finance and control department
at each reporting date on an individual basis for major clients. The maximum exposure
to credit risk is represented by the carrying amounts of trade receivable in the
64
Consolidated Financial Statements of the ENGIE EPS Group (approximately € 8 million
as at 31 December 2018).
The ENGIE EPS Group does not hold counterparty insurance but the requirement for
impairment is analysed by the administration, finance and control department for each
new customer and reviewed at each reporting date on an individual basis for major client.
The calculation of estimated risk is based on actual incurred historical data.
9.9.4 Liquidity risk
The liquidity risk represents the risk that the financial resources are not sufficient to fund
the financial and commercial obligations within the pre-established periods and due
dates. The risk of liquidity to which the ENGIE EPS Group is subject to may emerge from
late payments on its sales and more generally from the difficulty of obtaining financing
to support operational activities in the time necessary.
Capacity to obtain additional financings depends on a certain number of factors, in
particular the ENGIE EPS Group’s operational performance and financial situation, the
market conditions and other factors that are not subject to the ENGIE EPS Group’s
control. Such factors can also make the financing’s terms and conditions uninteresting
for the ENGIE EPS Group. It might not be able to raise additional funds when needed
and, consequently, its capacity to run its business correctly, to develop it and to progress
may be affected.
The ENGIE EPS Group monitors its exposure to a risk of a shortage of funds using a
recurring liquidity planning tool in a short-term base and the annual budgeting process
in a medium/long term base.
The revenue stream of the past three years did not allow the ENGIE EPS Group to
finance its own cash needs and shareholders’ support has been material to keep the
Company a going concern.
These funds are sought with banks and are subject to bank guarantees or with equity
commitment.
The following table shows the schedule of the ENGIE EPS Group’s debt and the
treasury’s amount at 31 December 2018:
Table on the schedule of the ENGIE EPS Group’s debt and the treasury’s at
31 December 2018
NET FINANCIAL POSITION
(amounts in Euro)
31/12/2018
Cash and cash equivalent 10,860,527
Cash at banks and petty cash 10,860,527
Net financial debts (4,050,862)
Current financial liabilities (2,240,696)
Non-current financial liabilities (1,810,167)
NET FINANCIAL POSITION 6,809,665
Other financial liabilities – revaluation of the EIB Warrant liabilities 0
NET FINANCIAL POSITION – after revaluation of the EIB Warrant liabilities
(IFRS 2)
6,809,665
65
9.9.5 Risks associated with shares and other financial instruments
Except for the participation of ENGIE EPS in EPS Elvi, EPS Manufacturing and MCM,
as at the date of this report, the ENGIE EPS Group does not hold any direct or indirect
interest in listed or unlisted (except for the ENGIE EPS Group subsidiaries) companies,
and therefore does not bear, as such, risk on shares.
9.10 Risks associated with the ENGIE EPS Group’s organization
In addition to certain risks specific to the ENGIE EPS Group’s organisation, investors are faced
with the risk associated with being a minority shareholder.
9.10.1 Risks related to the holding company structure
The Company is a holding company whose main assets consist in its direct or indirect
interests in its subsidiaries, including its subsidiary EPS Manufacturing and EPS Elvi and
MCM, which respectively generates and will generate most of the ENGIE EPS Group’s
financial flows. The core assets of the ENGIE EPS Group’s business, including material
contracts for the activity and the ENGIE EPS Group’s development are held by EPS Elvi.
The capacity for the latter to make payments in favour of the Company depends on
economic, commercial and contractual considerations and legal constraints that may be
applied from time to time.
Therefore, the ENGIE EPS Group cannot guarantee that any future profitability or results
of the operating subsidiaries will allow financial flows to the Company sufficient to cover
future payments of any dividend to its shareholders.
The Company has been incorporated in 2014 and, since then, it has been active as
holding of the ENGIE EPS Group. Several investments have been made – directly and
indirectly - by the Company in Italy and abroad pursuant to the strategy developed by its
Board of Directors. Although the ENGIE EPS Group Companies are principally located
in Italy, the Company envisages a continuous worldwide expansion in terms of
networking and clients.
At the date of this report, the Company has its tax residence in France, despite the fact
that the Company holds currently Italian assets such as the investment held in the
ENGIE EPS Group Companies and, hence, the risk of being identified as Italian taxpayer
cannot be excluded, the Board of Directors believes that the Company has been actually
and effectively managed from France so far. This is, in the opinion of the Board of
Directors, particularly evident from the fact that the ENGIE EPS Group in 2018 held 16
Board of Directors’ meetings in Paris, lasted on average 1.25 hour and with an
attendance rate of approximately 79.2%.
In addition, the Company did not cause any events – such as disposal of investments or
dividends upstream – that may trigger material taxes to be paid both in Italy and in
France.
The ENGIE EPS Group is subject to a risk of transfer price relating to operations
performed with counterparties belonging to ENGIE Group worldwide.
9.10.2 Risk of not being able to retain qualified and key human resources
The success of the ENGIE EPS Group and its business strategy are dependent on its
ability to attract and retain key management, commercial and technical personnel,
including those with engineering expertise.
66
The ENGIE EPS Group’s solutions require customizations, interventions, engineering,
installation and commissioning support as well as structured post-sale service level. To
provide this, the ENGIE EPS Group has set up a specialized engineering department
and suitable technical support made by electrical system engineers, an extremely rare
job position. However, the increase in system sales may require that the ENGIE EPS
Group recruit accordingly further qualified personnel to perform this type of operation.
As a result of recent improvements in economic sentiment and the relative scarcity of
qualified electrical engineers in Italy, the level of competition for the services of qualified
engineers is high which may hinder the ENGIE EPS Group’s recruitment efforts, lead to
higher than planned staff attrition and/or lead to increased personnel costs.
To manage this staff growth phase and scarcity issue, the ENGIE EPS Group is studying
the possibility of establishing new partnerships with an international scope with
companies who could take over all or part of such support and installation activities post
sale. One of the preferred partnership in that sense may be with ENGIE.
In case the ENGIE EPS Group is unable to recruit quickly enough, or if the ENGIE EPS
Group was unable to establish such partnerships, the ENGIE EPS Group may not be
able to penetrate certain markets and / or honour its commitments. The ENGIE EPS
Group’s development pace could be affected.
In addition, some of the ENGIE EPS Group’s senior executives have built up extensive
technological and scientific experience throughout their academic and professional
careers, such as Daniele Rosati (who is Chief Technology Officer ) and Giuseppe Artizzu
(who is Executive Director – Global Strategy ). If any such executive leaves the ENGIE
EPS Group, this could result in a loss of know-how and strategic drive which would
weaken several corporate governance, business and technology processes, especially
if the executive joins a competitor, as well as gaps in the range of strategic and technical
skills that could slow down operations and might adversely impact the ENGIE EPS
Group.
To date, the ENGIE EPS Group has taken out a so-called “key person” risk insurance
policy (covering permanent disability and/or death). In view of this risk and for the future
mitigation of the key person dependency, the ENGIE EPS Group has put in place a
retention plan including in particular, a remuneration policy and growth schemes based
on performance. There is no assurance, though, that these measures would be
successful in retaining such personnel.
9.10.3 Risks related to the information systems
ENGIE EPS is increasingly dependent upon cloud services, shared digital tools and
infrastructures and information technology applications for its whole business and
processes. The main risks are related to the availability of such services and the
confidentiality and integrity of data. Any failure of these infrastructures, applications,
tools, services or data communication networks, any interruption linked to the failure of
security of data centers or networks as well as any accidental or intentional loss of data
and any use of data by third parties, could block or slow down its research activities,
production or business, delay or taint certain decisions and, more generally, have an
adverse effect on the ENGIE EPS Group’s activities and results. Also, this could lead to
a loss of revenues, the non-compliance with contractual obligations and may expose the
ENGIE EPS Group to fines and sanctions.
67
9.10.4 Risk of dependence on ENGIE (through its subsidiary GDF International), majority
shareholder of the Company
As of the date of this report, ENGIE (through its subsidiary GDF International) holds
60.50% of the Company's share capital and voting rights. Consequently, ENGIE may
have a significant influence on the ENGIE EPS Group's strategic decisions and/or may
adopt or reject all resolutions submitted to the shareholders of the Company for approval
at ordinary and extraordinary general meetings, including the nomination of members of
the Board of Directors, the approval of the annual accounts and the distribution of
dividends and the authorization to carry out capital increases or other issues of
securities, mergers or contributions or any other decision requiring the approval of the
shareholders of the Company under the conditions provided for by law.
ENGIE’s interest may not be always aligned with that of the other, minority, shareholders,
who would therefore, in such a situation, have limited opportunities to make their views
prevail.
9.11 Risks insurance and coverage
There is a risk that the ENGIE EPS Group’s insurance policies may not be adequate. However,
the ENGIE EPS Group has implemented a coverage policy for the main insurable risks with a
guaranteed upper limit that the ENGIE EPS Group considers consistent with its activities and
the volume of its actual business. The ENGIE EPS insurance policies taken so far by the ENGIE
EPS Group are detailed in the table below:
68
69
The total premiums paid for all of the ENGIE EPS Group’s insurance policies amounted to
220 K€, 143K€ and 60K€ in fiscal years 2018, 2017 and 2016 respectively.
10 Information on terms of payment with suppliers
Payment period
As provided by article L.441-6-1 of the French Commercial Code (“Code de Commerce”),
the following table shows the ageing of trade payables in 2018, 2017 and 2016.
Trade payables refer to invoices received from suppliers for the purchase of goods and
services; in 2018, this item amounts to 4,248 K€. Invoices to be received, estimated from
purchase orders or contracts already signed, amount to 1,266 K€. The total of trade payables
over the 3 relevant periods is in line with the evolution of the operating activity.
II. FINANCIAL INFORMATION
1 Breakdown of and changes in shareholding structure
1.1 Ownership of the share capital
As at the date of the report, the main shareholders of the Company were:
To the Company’s knowledge, there is no other shareholder holding directly or indirectly,
more than 5% of the share capital or the voting rights of the Company. No shareholder has
declared to the stock-exchange authorities that they are acting in concert with another.
TRADE PAYABLES
(amounts in Euro) 31/12/2018 31/12/2017 31/12/2016
Trade payables 4,248,256 2,136,695 3,976,765
Invoices to be received 1,265,693 936,385 589,688
TOTAL TRADE PAYABLES 5,513,949 3,073,080 4,566,453
70
1.2 History of the share capital
Date Nature of the operations Issue/merger/contribution
premium
Number of shares issued
Number of shares
composing the share
capital
Nominal value per
share
Share capital (in Euros)
26 December 2014 (creation)
Subscription on incorporation None 37,000 37,000 €1,00 37,000
6 March 2015 Division of the nominal value of the
share N/A 148,000 185,000 €0,20 37,000
21 April 2015 Increase in share capital
(contributions in kind) 1,004,255 € 5,021,275 5,206,275 €0,20 1,041,255
21 April 2015 IPO 13,782,356.7
€ 1,941,177 7,147,452 €0,20 1,429,490.40
21 May 2015 Overallotment 233,270.50 32,855 7,180,307 €0,20 1,436,061.40
4 December 2015
Increase in share capital (private placement)
4,629,900 € 701,500 7,881,807 €0,20 1,576,361.40
29 June 2017 Increase in share capital (Exercise
of Stock Options or Warrants) - 147,906 8,029,713 €0,20 1,605,942.60
31 July 2017 Increase in share capital (reserved to ENGIE EPS Management and Elvi Elettrotecnica Vitali S.p.A.)
1,368,677.40€
196,932 8,226,645 €0,20 1,645,329.00
8 August 2017 Increase in share capital (Exercise
of Stock Options or Warrants) - 212,984 8,439,629 €0,20 1,687,925.80
1 January - 14 June 2018
Increase in share capital (Exercise of Stock Options or Warrants)
1,099,482.85€
475,003 8,914,632 €0,20 1,782,926.40
15 June 2018 Increase in share capital (EIB
Warrants) - 660,513 9,575,145 €0,20 1,915,029.00
8 August 2018 Increase in Share Capital (Right
Issue) 28,292,871.48
€ 3,191,715 12,766,860 €0,20 2,553,372.00
Total 12,766,860 12,766,860 2,553,372.00
2 Names of controlled companies with a stake in the Company’s treasury stock
and proportion of capital thereby held
Not applicable.
3 Significant equity stakes over the fiscal year in companies with their head
office in France
Not applicable.
4 Purchase and sale by the Company of its own shares
On the date of this report, the Company holds none of its own shares and no share of the
Company is held by one of its subsidiaries or by a third party on its behalf.
The shareholders meeting of 26 June 2018 renewed via the 31st resolution the authorization
for the Board of Directors for the purchase by the Company its own shares, in the context of
a share buy-back program. This resolution has a validity of 18 months starting on the date
of the shareholders meeting of 26 June 2018. As of the date of this report, no share buy-
back program has been implemented.
71
5 Employees’ stake in share capital
The Company's corporate officers, members of management and employees do not hold
any shareholding in the Company's share capital.
As of the date of this report, there are no outstanding securities entitling the holders of which
to access the capital of the Company. In accordance with the New Incentive Plan:
• the previously existing share options and warrants were all exercised by their
beneficiaries, with the exception of 200,000 stock options granted to the CEO, which
were replaced by SARs;
• the previously stock options and the unvested warrants were replaced by individually
allocated SARs - corresponding to the exercise prices of the different stock options
or warrants for existing shares;
• in addition, the CEO and other members of the ENGIE EPS Group’s management
received Additional SARs; and
• on 28 September 2018, the Board of Directors resolved upon the adjustment of the
reference price and of the floor price following the capital increase that have occurred
on August 2018. The adjustment amounts to 0.63€ with respect to the original
reference price and the original floor price.
The table below summarises the allocation of SARs decided by the Board of Directors on 6
March 2018 to the Chief Executive Officer, the Chairman of the Board of Directors and the
other members of the Board of Directors, in replacement of the existing unvested stock-
options or warrants:
Allocation of Stock Appreciation Rights to Carlalberto Guglielminotti (CEO)
N° of plan and
strike price
Number of
allocated SO
Number of
vested SO
Number of
unvested SO
Number of
SARs
allocated
Exercise
terms
Plan n°1
March 2015
Strike price: €
0,20
319,476 319,476 0 107,970 30% of SARs
from 7 March
2020, 70% of
SARs per
quarterly
tranches of
17,5% in the
following two
fiscal years
Plan n°2
21 April 2015
Strike price: €
5,11
131,472 92,030 39,442 131,472
TOTAL 450,948 411,506 39,442 239,442
Number of Additional SARs allocated: 291,096
Reference price: €3.66
Exercise terms: Subject to the completion of the condition of presence within the ENGIE EPS Group, 100%
from 7 September 2021
72
Allocation of Stock Appreciation Rights to Massimo Prelz Oltramonti (Chairman of the Board of Directors at the date
of allocation)
N° of plan and
strike price
Number of
allocated BSA
Number of
vested BSA
Number of
unvested BSA
Number of
SARs
allocated
Exercise
terms
Plan n°2
21 April 2015
Strike price: €
5,11
32,868 23,008 9,860 9,860 Same as for the
original BSA
plans
Plan n°5
9 September
2016
Strike price: €
3,66
40,000 0 40,000 40,000 Same as for the
original BSA
plan
TOTAL 72,868 23,008 49,860 49,860(*)
* Pursuant to their terms 29,209 SARs (6,409 related to Plan n°1 and 22,800 related to Plan n°2) have been exercised by Massimo Prelz Oltramonti during 2018. The number of SARs held by Massimo Prelz Oltramonti is now amounting to 20,651.
Allocation of Stock Appreciation Rights to the Directors (excluding the CEO and the Chairman of the Board of
Directors)
Directors
(at the date
of
allocation)
N° of plan
and strike
price
Number of
allocated
SO/BSA
Number of
vested
SO/BSA
Number of
unvested
SO/BSA
Number of
SARs
Exercise
terms
Giuseppe
Artizzu
Plan n°2
21 April
2015
Strike price:
€ 5,11
98,604 69,022 29,582 29,582
Same as for
the original
SO or BSA
plans
Plan n°3
26
November
2015
Strike price:
€ 5,81
45,236 25,785 19,451 19,451
Plan n°6
20
December
2016
Strike price:
€ 4,56
30,000 0 30,000 30,000
Plan n°4
22 April
2016
Strike price:
€ 4,56
0 0 0 11,933
Plan n°2
21 April
2015
Strike price:
€ 5,11
0 0 0 22,779
TOTAL 173,840 94,807 79,033 113,745
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Allocation of Stock Appreciation Rights to the Directors (excluding the CEO and the Chairman of the Board of
Directors)
Number of Additional SARs allocated: 42,808
Reference price: €3.66
Exercise terms: Subject to the completion of the condition of presence within the ENGIE EPS
Group, 20% from 7 March 2020, 30% of SARs per two tranches of 15% in the following fiscal
year
Michela
Costa
Plan n° 5
9
September
2016
Strike price:
€ 3,66
60,000 0 60,000 60,000 Same as for
the original
SO or BSA
plan
Plan n° 8
15 May 2017
Strike price:
€ 5,43
11,802 0 11,802 11,802 Same as for
the original
SO or BSA
plan
TOTAL 71,802 0 71,802 71,802
Overview of the current shareholding of the ENGIE EPS Group executives,
mandataires sociaux and officers
The following table indicates the number of shares held by Group executives, mandataires
sociaux and officers on a diluted basis as of 31 December 2018, 31 December 2017 and
31 December 2016.
Names
Updated information
(*) % of the share capital
2018 % of the
share capital
2017 % of the
share capital
2016 % of the
share capital Number of
shares held
Number of
shares held
Number of
shares held
Number of
shares held
Massimo Prelz Oltramonti (administrateur)
- 0,0000% - 0,0000% 191,945 2.2743% 81,945 1.0400%
Ilaria Rosso (Directrice du département innovation)
- 0,0000% - 0,0000% 10,000 0.1185% - 0.0000%
Emanuela Banfi (administrateur non dirigeant)
- 0,0000% - 0,0000% 109,159 1.2934% 2,667 0.0300%
Cesare Maifredi - 0,0000% - 0,0000% 6,000 0.0711% 3,126 0.0400%
Carlalberto Guglielminotti (Directeur Général)
- 0,0000% - 0,0000% 17,135 0.2030% 17,135 0.2200%
Davide Peiretti (administrateur) - 0,0000% - 0,0000% 5 0.0001% 5 0.0001%
Trough dpCube S.r.l. - 0,0000% - 0,0000% 146,492 1.7358% - 0.0000%
Giuseppe Artizzu (administrateur) - 0,0000% - 0,0000% 5 0.0001% 5 0.0030%
Sonia Levy Odier (administrateur) - 0,0000% - 0,0000% 5 0.0001% 5 0.0030%
Total - 0,0000% - 0,0000% 480,746 5.70% 104,888 1.34%
6 Equity acquired by employees in an employee buyout
Not applicable.
7 Any adjustments for share equivalents in the event of share buybacks or
financial transactions
Not applicable.
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III. LEGAL AND TAX INFORMATION
1 Amount of dividends distributed for the previous three fiscal years
No dividends or reserves have been distributed by the Company since its incorporation.
2 Injunctions or financial sanctions for anti-trust practices
Not applicable.
3 Information on control and risk management procedures
Between the end of 2018 and February 2019, EPS implemented its internal control device
for the application of anti-corruption best practices taken from the organizational models
provided by the relevant national (i.r. law 231/2001 or Loi Sapin II) and international (UNI
ISO 37001:2016) regulations. In particular, the process for obtaining certification for the
prevention of corruption’s management system, currently underway, together with
compliance with national regulations, have led to an update of the assessment of the main
corporate processes in charge of risk management of corruption, carried out through the
assessment of a preliminary level of risk, based on the appreciation of the probability of
happening of the single event and on the potential impact of the same, the identification of
mitigating factors and the tools available for prevention and control of the risk itself. The risk
assessment aim to define, in addition to the governance and monitoring activities for the
purpose of preventing the risk of corruption from the management, targeted audits carried
out with the support of external consultants. These audit activities concerned the company
procedures integrated within the anti-corruption management system, with reference to the
processes related to the following areas: commercial process, purchase procedure,
personnel selection process, donations and sponsorships, reports with the Public
Administration, information flows to the Supervisory Body, administration, finance and
control procedures. The activities are planned for the financial year 2019 and partially carried
out on the date of this Management Report.
About anti-corruption, during the first half of 2019, pre-audit activities and technical audits
on company processes are also planned, which will be carried out by a certifying body and
aimed at obtaining, from the Company, the UNI ISO 37001 certification.
The Company has implemented internal control and risk management procedures mainly
based on the guidelines established by the Italian Legislative Decree No. 231 of 8th June
2001, as amended from time to time (“Decree 231”), considering that the major operational
subsidiary of the Group, EPS Elvi Energy S.r.l., is based in Italy.
The Company’s aims are:
• To create and to preserve values, activities and reputation of the Company;
• To assure that the decision-making processes and the operational processes
contribute to the achievement of the Company’s goals;
• To promote actions compliant with the Company’s values;
• To engage employees with the main risks and raise them awareness of the specific
risks of their activities.
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To face internal and external risks the Company has established an organization and
implemented policies intended to identify, evaluate and prevent these risks in order to limit
any adverse impact, which are intended to ensure:
• The compliance with laws and regulations;
• An honest behaviour and the promotion of a culture of integrity;
• The application of Group policies;
• The effectiveness of the Company’s internal processes, especially those concerning
the safeguarding of its assets;
• Reliability of the financial information.
Generally, internal control and risk management procedures contributes to the control of the
Company’s business, the effectiveness of its operations and the efficient use of its resources.
Since most of the activities of the Group are performed in Italy, in compliance with
Decree 231, EPS Elvi Energy S.r.l. adopted a new Organizational, Management and Control
Model (the “Model”), approved on 8 February 2017 by the Board of Directors. The Model
integrates the new Group business model and procedures, in order to comply with the AMF
Risk Management Guidelines and the specific aspects of the Group business model.
The Model will be subject to further updates and integrations considering the legislative and
regulatory changes or Company’s developments.
The Group Companies adopted also an Ethical Code, which is an integral and substantial
part of the Model (the “Ethic Code” or “Ethical, Anti-Fraud and Corruption Code of Conduct”).
Both the Model and the Ethical Code are published on EPS website, in the section “Media
& Investors” > “corporate governance”, under sub-section “Organizational and Management
Model”.
The Company and all the Group Companies are compliant with all the principles and
guidelines set forth in the Model and the Ethical Code, which can be considered the basis of
the Group’s conduct.
In view of the Group's structure, it seemed more relevant and significant to mention here the
information on this point at the Group level, and not only at the level of the Company.
During the last quarter of 2018, the Group adopted the ENGIE Code of Ethics and Practical
Guide to Ethics, which replaced the ENGIE EPS Code of Ethics and will be incorporated into
the updated model. ENGIE EPS has also adopted the anti-corruption guidelines.
The Model, which is compliant with the guidelines drawn up by trade associations and with
the corporate governance best practices, is composed by a “General Part”, including a
comprehensive framework for the organization, management and control of the Company,
and a “Special Part”, attaining to different kinds of breaches, violations and potential criminal
offences and misbehaviours to be prevented.
The purpose of the Model, in addition to the design of a comprehensive framework for the
organization, management and control of the Company, is to prevent the commission – in
the interest or to the benefit of the Group – from committing certain offences, by individuals
who are:
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• representatives, Directors or managers of the Company or of one of its
organizational units that have financial and functional independence, or by
individuals who are responsible for managing or controlling the Company (individuals
in top management positions or "apical");
• managed or supervised by an individual in an apical position (individuals under the
management and control of others).
The general part of the Model is divided into the following chapters:
• "The Legislative Decree 8 June 2001, n. 231", a general overview of the regulation;
• “The Company EPS Elvi Energy S.r.l.”, describing the Company’s structure;
• “Adoption of the Model by EPS”, concerning the aims, methodology and structure of
the Model, as well as the recipients and the implementation and updating program;
• “The Supervisory Body”, describing its functions and powers as well as the
information flows to and from the structure itself;
• “Disciplinary system and measures in case of breach of the Model”, which contains
the definition of sanctions imposed in case of violation of Model;
• “Diffusion of the Model and training”, with the identification of the recipients of the
Model, the definition of the principles and rules for the extension of it and the
communication of the same to the staff and the market, including the adoption of
contractual clauses for any relations with third parties.
The special part covers the risk analysis, the control system and the specific procedures and
illustrates in detail all the crimes to be prevented by the Company.
Risk analysis and Internal Control’s system
The identification of business activities which may entail the risk of committing breaches
underlying corporate liability pursuant to Decree 231 (hereinafter, the "Sensitive Activities")
is achieved through the detailed analysis of business processes and the possible ways of
commission illustrated in the special part of the Model.
Each Sensitive Activity is associated with a specific reference person for any individual
corporate process (Key Officer), as well as existing operational and management conditions,
and existing control factors.
A comparative analysis is then carried out between the existing internal control system and
the principles and contents of the Model (in particular control tools).
The internal control system implemented by the Company is a set of rules, procedures and
instruments prepared and/or implemented by the management to ensure the achievement
of efficiency of business operations, reliability of financial information, compliance with laws
and regulations and protection of the Company’s assets.
The main elements of the risk analysis carried out regularly within the framework of the
internal control system implemented by the Company are:
(a) Control of the management attitudes:
It reflects the attitudes and actions of top management with reference to internal
control within the organization. Such control includes the following elements:
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• integrity and ethical values;
• management philosophy and style;
• organizational structure;
• assignment of authorities and responsibilities;
• personnel policies and practices;
• personnel’s skills.
(b) Risk Assessment:
Definition of processes aimed at identifying and managing the most relevant risks
that may prevent the achievement of corporate goals.
(c) Information and communication:
Definition of an information system (computer system, reporting flow, system of
process/activity indicators) enabling both upper management and operational staff
to perform the tasks assigned to them.
(d) Control activity:
Definition of corporate regulations ensuring an organized management of risks and
corporate processes and allowing to achieve set objectives.
(e) Monitoring:
Such process checks the quality and results of the internal controls over time.
The above-mentioned components of the system of internal control are considered for the
analysis of the risks outlined under Decree 231.
In particular, the analysis activity is focused on identifying the Sensitive Activities of the
Company which may potentially lead to the commission of the violations provided for by
Decree 231 and whose potential methods of commission have been previously identified,
detecting appropriate control standards to prevent the commission.
For ethics and compliance, evaluation the implementation of measures is part of a
continuous improvement process. In this context, ENGIE EPS determines and promotes the
necessary compliance controls. It ensures that ethical audits are conducted, reporting the
results to the Compliance Committee and, if necessary, to the Group’s Executive Committee.
The aim of such activity is to ensure the maintenance and the updating of the identification
of risk area, as well as the mapping and classification of significant business activities subject
to risk, even for the purposes of supervisory activities.
Supervisory Body
EPS Elvi Energy S.r.l. appointed a Supervisory Body, which defines and carries out its duties
in accordance with the rule of collective operating process and is entrusted with
"independent powers of initiatives and control", pursuant to article 6, paragraph 1, letter b)
78
of Decree 231 (“Supervisory Body” or “Surveillance Committee”). The Supervisory Body
performs its duties under its set of rules.
The Supervisory Body’s autonomy and independence are guaranteed by its position within
the organizational structure of the Company, as well as by the necessary requisites of
independence, good reputation and professionalism of its members
The Supervisory Body is supported by and liaise regularly with the Human Resources
department and the management team, as well as with the Audit Committee and Statutory
Auditors.
Non-operational geographic entities (India and the United States) are not included in this
illustration.
The Supervisory Body was appointed exclusively for EPS Elvi Energy S.r.l., while statutory
auditors were appointed for EPS Elvi Energy S.r.l., EPS Manufacturing S.r.l., MCM Energy
Lab S.r.l., although this is not provided for by law.
Recipients of the Model and diffusion thereof
The principles and contents of the Model are publicized both inside and outside the Group.
The Supervisory Body monitors the initiatives aimed at promoting communication and
training regarding the Model, whose principles and contents concern the members of
corporate bodies and management, the employees as well as the business partners who
work in Italy or abroad for the achievement of the Company’s objectives.
Communication and staff training are important requirements for the effectiveness of the
Model. The Company undertakes to facilitate and promote the knowledge of the Model to
the management and the employees, with trainings shaped on the different positions and
roles, encouraging the active participation in them for the diffusion of the Model principles
and contents.
Each member of the Board of Directors is also personally committed to comply with the
provisions contained in the Model, adopted or updated by means of a Board resolution.
The Directors that have not participated in the decision concerning the adoption or update
of the Model sign a declaration of knowledge and adherence to its principles and contents.
Such declaration is filed and kept by the Supervisory Body.
The Model is communicated to all the executives and the heads of organizational units, but
also to employees and blue collars workers.
ENGIE EPS expects its employees and Group entities to act in accordance with the Group’s
ethical principles, in all circumstances, and whatever their jobs, level responsibility and
contacts. A healthy working environment contributes to the successful operation of the Group
and to employee well-being.
The Group therefore pays great attention to quality of life at work. Respect and trust must
guide relationships between employees and dialogue with social partners. Everyone, from
board members to employees has the responsibility never to act in any way which might
raise the slightest doubt about the Group’s ethics.
It is important to point out that ENGIE EPS promotes all the ethical principles among all of
its stakeholders and, regarding customers, the Group pays utmost attention to their
satisfaction, based on quality products and services, an open dialogue, procedural
transparency, honouring commitments and respecting rules of competition.
79
The principles and contents of Decree 231, AMF Risk Management Guidelines and Model
are also explained in training courses and dedicated EPS Academy sessions (please see
Environmental and Social Responsibility Report). Attendance to the courses is mandatory.
Structure of the training courses is approved by the Supervisory Body upon proposal of the
relevant Company departments.
(i) Training and communication for managers, employees and blue-collar
workers (including heads of units, line and staff functions)
The Model is published on EPS website and notified to each employee. Dedicated
training initiatives are also organized for managers, employees and blue-collar
workers (including heads of units, line and staff functions), subject in each case to
the mandatory participation in training initiatives related to the Code of Ethics.
(ii) Training and communication by mean of Information Technology tools
The Model is available to all employees on the Company’s Intranet site and it is also
available to all users - even non-employees - on the website of EPS. The dedicated
training and information initiatives may also be performed remotely and using IT
resources. In 2017 the Company will set most of the training courses via dedicated
webinars.
(iii) Communication to third parties and the market
In accordance with the regulations contained in the Group Code of Ethics, the
principles and contents of the Model are brought to the attention of all those with
whom EPS maintains contractual relationships. The commitment to the observance
of the law and principles of the Model by the third parties that have a contractual
relationship with the Group is provided by a clause in the relevant contract and it is
subject to its acceptance by the third-party contractor.
The standard clause which is mandatorily inserted in any contract or agreement with
any counterparty of the Group is reported below:
The Company is committed to the highest standards of ethics, honesty, openness
and accountability. It is crucial that the Company takes all necessary steps to protect
the reputation of the Company and the value of the Company brand. As an
organization, the Company takes a zero-tolerance approach to any form of
corruption: in the course of business activities the Company does not endorse any
form of fraud or corruption from either its own staff or those acting on its behalf.
The Company fully endorses all applicable anti-bribery, fraud, corruption, and
money-laundering legislation. The Company and its Supervisory Committee
(Organismo di Vigilanza) provide ongoing bribery awareness training to employees
and have developed proportionate procedures across all its areas of operations to
ensure that bribery and corruption risks are minimized and eliminated where
possible.
This commitment is reflected in the key principles contained within the Ethical, Anti-
Fraud and Corruption Code of Conduct approved by the Company, which the
Company expects all its staff and those acting on its behalf to understand and comply
with.
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In this respect, the Partner agrees to – and undertakes to fulfil any provision of – the
Ethical, Anti-Fraud and Corruption Code of Conduct approved by the Company and
therefore agree, inter alia, to perform its activities under this agreement in the full
respect of business, corporate and professional ethics, preventing the Company
from any relationship, agreement or role that may negatively affect its reputation,
values and commitment to the highest standards of ethics, honesty, openness and
accountability.
In that respect, and without prejudice to the above, any payment to be made by EPS
to the Partner or any of its affiliated companies shall be made in compliance with any
applicable anti-money laundering regulation from time to time.
Furthermore, the shares of Electro Power Systems S.A. are listed on the regulated
market of Euronext in Paris. In this context, compliance by the Partner with rules
applicable to stock transactions and the holding and use of material non-public
information it may receive in the course of its activities under this Agreement is
crucial for the Company. Such rules mainly stem from Articles 621-2 to 622-2 of the
General Regulation of the “French Autorité des Marchés Financiers” (AMF) and
Articles L. 465-1 et seq. of the French Monetary and Financial Code.
The Company aims at respecting and enforcing the applicable legislation in terms of
securities law and the principles and applicable regulations and the
recommendations of the market authorities on to the holding, the disclosure or the
use of material non-public information.
It should be noted that the Partner may also be concerned by similar rules and/or
those applicable in the countries it is present, or it conducts its activities. In any event,
it is the responsibility of each Partner to ensure compliance with the different laws
that could apply to its situation”.
In this regard, internal regulations define standard clauses that, depending on the
activity governed by the contract, bind the counter-parties to comply with the Model,
also providing appropriate contractual remedies (such as the right to early terminate
and/or suspend performance of the contract and/or penalty clauses) in case of non-
compliance.
(iv) Functions, powers and budget of the Supervisory Body
The tasks of the Supervisory Body are defined as follows:
• supervision on effectiveness of the Model (including the Ethical Code) and
monitoring of the Model implementation and updating activities;
• review of the adequacy of the Model, i.e. its real (and not merely formal)
effectiveness in preventing unlawful conduct pursuant to Decree 231;
• analysis of the maintenance, over time, of the accuracy and functionality of
the Model;
• promotion of the necessary updating of the Model, based on a dynamic
approach;
• approval of the annual schedule of supervisory activities within the
Company’s structures and departments (the "Audit Plan"), in compliance with
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the principles and contents of the Model as well as with the internal control
system plan;
• coordination between the implementation of the Audit Plan and of the
scheduled or unscheduled control inspections; examination of the results of
the activities carried out and relevant reports; drawing up of directives and
guidelines for Company departments;
• assurance of relevant information flows to the Company departments;
• any other task assigned according to the law or to the Model.
In carrying out its duties, the Supervisory Body has unrestricted access to corporate
information for their own investigations, analysis and monitoring which are performed
directly, through competent units of the internal audit function, other internal
corporate functions or professionals/third-party companies. Any Company
department, employee and/or member of the Company’s bodies is subject to the
obligation to disclose any information to the Supervisory Body upon request or in
case of relevant events or circumstances.
The Supervisory Body can arrange meetings, even on a periodical basis, with the
heads of the departments of the Company, for purposes of being informed on issues,
events or circumstances that are relevant for carrying out its activities and exchange
related data and assessments.
The Supervisory Body is granted with:
• the faculty – with autonomous representation powers - to enter into, modify
and/or terminate professional engagements - by means of the relevant
business units - with third parties having the specific expertise necessary for
the best execution of the task concerned; and
• the availability of the financial resources necessary for the performance of
the activities falling within the field of competence of the Supervisory Body,
with the obligation to inform the Board of Directors.
(v) Risk analysis and system of internal control: information flows from the
Supervisory Body towards the upper management
The Supervisory Body reports on the implementation of the Model and on possible
critical aspects emerged and communicates the result of the activities carried out
while performing its tasks. The lines of reporting are the following:
(a) continuous reporting line, towards the Managing Director, who informs the
Board of Directors through the information notes regarding the
implementation of the delegations granted;
(b) yearly, to the Chairman, the Audit Committee and the Statutory Auditors; in
this regard there is a semi-annual meeting on the activities carried out,
illustrating the outcome of the supervisory activities carried out and the
eventual legislative amendments related to administrative liability of entities;
in such event, meetings may be organized with the Chairman, the Audit
Committee and the Statutory Auditors to discuss the topics covered in the
report and any additional issues of common interest;
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(c) yearly, to the attention of the Board of Directors; the Supervisory Body
prepares an annual report, signed by all its members, disclosing the following
elements:
• a description of the main activities carried out during the previous year;
• the Board’s overall assessment of the implementation and
effectiveness of the Model, including any suggestions for its
integration, correction, or amendment;
• any problems regarding the implementation of the Model; and
• any action plans implemented and that will be implement;
(d) immediate reporting line, in case of ascertained facts of special importance
and significance, towards the Audit Committee and the Statutory Auditors,
after informing the Chairman and the Managing Director.
(vi) Information flows towards and for the benefit of the Supervisory Body:
required information
The Supervisory Body shall be informed by the parties that are required to comply
with the Model about any events that may entail a responsibility of the Company
pursuant to Decree 231.
Each Group Company is subject to the information flow towards the Supervisory
Body. In this regard:
• the Executive Vice President or head of business unit shall provide to the
Supervisory Body a report in case of breach of the Model or of the Ethical
Code;
• the manager in charge of drawing up the Company’s accounting documents
shall inform the Supervisory Body on the results of the audits carried out on
the management of financial resources;
• each manager or employee shall report any behaviours which are not in line
with the principles and contents of the Model, contacting the Supervisory
Body;
• consultants, collaborators and business partners shall report on their activity
carried out for the Company directly to the Supervisory Body upon request.
The Supervisory Body shall evaluate the reports received and the actions to be
taken.
The reporting parties in good faith are protected against any form of retaliation,
discrimination or penalization. In any case confidentiality on their identity shall be
ensured, without prejudice to the obligations under the law applicable and the
protection of the rights of the Group or of the individuals wrongly accused/accused
in bad faith.
“Dedicated Information Channels” are established in order to facilitate the
communication and information flow. Each information flow may be addressed to:
83
It is anyhow possible for the Supervisory Body to establish at any time, even on a
periodical basis, information channels dedicated to the discussion of important
issues with the heads of the relevant functions and business units.
Function of the disciplinary’s system
The sanctions (which shall be proportional to the violation committed), that are applicable in
case of violation of the Model, are designed to contribute mainly to the effectiveness of the
Model, and to the effectiveness of the control process carried out by the Supervisory Body.
For this purpose, it is established a disciplinary system in order to punish the non-compliant
to the prescriptions contained in the Model, applicable both to individuals in apical positions
and individuals subject to the management and control of the former. The disciplinary system
is applied independently from the development and results of any possible criminal
procedure carried out by the relevant judicial authorities.
The Supervisory Body reports any violation of the Model to the relevant departments, and
monitors, along with the General Counsel and the management, the application of the
disciplinary measures.
Structure of control’s tools
The tools aimed at preventing the risk referred to in Decree 231 and supporting compliance
with the Ethical Code, are structured on two control levels:
• general standards of transparency of the activities, which must always be present in
all Sensitive Activities illustrated in the Model;
• specific control standards, which contain special provisions designed to regulate
specific aspects of Sensitive Activities and that must be contained in the Company
applicable regulatory instruments. Such instruments include the reference to the
Model, as standard reference.
Rules for updating the Model
Because of the complexity of the organizational structure of the Group and of the Model, its
update is based on an innovation implementation program proposed by the Supervisory
Committee and approved by the Board of Directors.
General standards of transparency and activities carried out
General standards of transparency of Sensitive Activities pursuant to the Model are:
• Segregation of duties: there must be segregation of duties between executing
parties, controlling parties and authorizing parties. In that respect, (i) the role of the
Chairman has been separated from the role of the Managing Director and CEO, (ii)
two technical committees have been created within the Board of the Company and
(iii) independent Statutory Auditors have been appointed for each Company of the
Group;
• Regulations: Company regulations should provide at least general reference
principles to monitor the Sensitive Activities. In this respect, the Model and the
Ethical Code, along with the Market Ethics Charter are parts of such regulations. The
Ethics charter contains the fundamental ethical principles which must be applied in
professional practices and in behaviour towards the Group’s contacts. The Ethics
charter, along with the Practical guide to ethics, is the foundation for all the
84
referential, internal policies and codes of conduct adopted by the Group, and which
each and everyone involved must promote and protect, whatever its position in
hierarchy, its entity, or its geographical sphere of intervention.
• Powers of signature and authorization: formal rules should be implemented to
exercise powers of signature and internal powers of authorization and to ensure that
the assignment of the powers is in line with the organizational responsibilities
assigned;
• Protection of whistle-blowers: people receiving an ethics incident report inform the
ethics & compliance officer of the entity concerned. In all circumstances, these
people and the ethics & compliance officer will keep the information received
confidential. A person expressing in good faith and selflessly their ethical or
compliance concerns cannot have any measures brought against them for
expressing this concern.
• Traceability: the parties or departments concerned and/or the information system
used should ensure the identification and traceability of sources, of information and
of the checks carried out supporting the adoption and implementation of Company’s
decisions, as well as financial resources management modalities. In that respect, a
new ERP has been implemented in 2016 and updated in 2018.
General standards of transparency are introduced by the competent functions within the
internal regulatory instruments relating to Sensitive Activities. These regulatory instruments
are communicated and diffused by the relevant functions in accordance with the laws
together with the contracts and bind the management and employees to their observance.
Internal control procedures relating to the preparation and processing of accounting
and financial information
The accounting and financial function is managed in-house by a team of seven persons,
including an Administrative and Financial Director. General and local accounting, along with
consolidated accounting, is done in-house and reviewed by locally qualified chartered
accountants. The tax review and payroll management are conducted by external qualified
consultants in each jurisdiction.
The scope of consolidation comprises the French Company and its subsidiaries. The
consolidation of the accounts is carried out by the Administrative and Finance Department
on a half-year basis. The Company is formalizing further accounting procedures, which
thanks to the new ERP (please see 5.7(d) above) will be based on a monthly reporting (a
light reporting, consisting of commercial and projects data) and a quarterly reporting format
(a more completed economic and financial reporting).
The aims of consolidation procedures are to:
• Guarantee compliance with the applicable rules (group policies, AMF Risk
Management Guidelines, etc.) through the implementation of general procedures
and the issuance of specific consolidation instructions to the various entities;
• Provide assurance concerning the reliability of financial information, through the
execution of controls provided for by the system;
• Guarantee data integrity through high level security systems (please see a detailed
description of the new system security implemented in the Registration Document).
85
Each Group Company will have an annual budget. The budgeting process and consolidation
procedures will enable the Company to constantly monitor the performance of the various
units and to swiftly identify any variances from the budget in order to carry out immediate
corrective actions.
Notwithstanding the fact that the Group Companies’ accounting is currently done in-house,
each subsidiary can consider the opportunity to outsource some functions to optimize
financial information flows.
The Auditors of the Group at the end of the first half conduct a limited review of the interim
financial statements and at the end of the fiscal year certify the reliability of the year financial
statements. The accounts of EPS Elvi Energy S.r.l., EPS Manufacturing S.r.l., MCM Energy
Lab S.r.l. will be audited by independent Auditors.
A review of the quarterly, half and year results is also conducted by the Audit Committee
before their submittal to the Board for their approval.
Statutory Auditors
EPS Group’s half and full year financial statements are certified by the Auditors with a
specific report.
The Auditors can identify, during their mandate, either risks or lacks that could have an
impact on the financial accounts and monitor:
• The administrative and accounting system and the reliability of the latter in accurately
representing operations;
• Full compliance with legal reporting requirements;
• That the annual financial statements show a true and fair view of the Company’s
financial situation.
IV. INFORMATION RELATING TO CORPORATE OFFICERS
1 In the event that stock options are awarded, details of information upon which
the Board of Directors based their decision (i) either to prohibit Directors from
exercising their options before leaving office, or (ii) to oblige them to hold all
or part of the shares resulting from options already exercised until they leave
office
As of the date of the report, there is no security entitling the holder to access the capital of
the Company. In accordance with the New Incentive Plan:
• the previously existing share options and warrants were exercised by their
beneficiaries, with the exception of 200,000 stock options granted to the CEO, which
were replaced by SARs;
• the previously stock options and the unvested warrants were replaced by individually
allocated SARs - these different SARs corresponding to the exercise prices of the
different stock options or warrants.
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2 Information on transactions by directors and related parties involving the
Company’s shares
Pursuant to article L. 621-18-2 of the French Monetary and Financial Code and article 223-
26 of the AMF Regulation, the transactions below have been disclosed by members of the
management or of the Board of Directors as of 31 December 2018:
3 In the event that bonus shares are awarded, details of information upon which
the Board of Directors based their decision:
• either to prohibit Directors from selling shares awarded to them free of charge before
leaving office; or
• to establish the quantity of such shares that they are obliged to hold until they leave
office.
Not applicable.
V. ENVIRONMENTAL AND SOCIAL INFORMATION
Financial risks related to the consequences of climate change and measures taken
by the Company to control such risks by implementing a low-carbon strategy in every
component of its activity.
Although climate change is not directly affecting our business, one of the ENGIE EPS’ Group
top priority is climate protection.
In fact, the ENGIE EPS’ Group aim is to tackle this issue by further expanding renewable
energies, both in mature economies and in emerging countries, and to contribute to replacing
older and polluting power plants, which generate high levels of emissions, with new and
highly efficient plants.
ENGIE EPS is playing a key role in structuring the energy transition so as to solicit and
enable a carbon-neutral electricity supply, while at the same time being in a position to make
provision for future energy needs with a high quality of backup power supply over the long
term.
DATE OF
TRANSACTIONNAME
NATURE OF THE
TRANSACTION
PRICE OF
THE SHARE
TOTAL OF THE
AMOUNT OF THE
TRANSACTION
06/06/16 Massimo Prelz Oltramonti Share Acquisition 4.70 16,462.95
07/06/16 Massimo Prelz Oltramonti Share Acquisition 4.62 25,410.00
08/06/16 Massimo Prelz Oltramonti Share Acquisition 4.59 5,505.72
09/06/16 Massimo Prelz Oltramonti Share Acquisition 4.45 4,446.37
10/06/16 Massimo Prelz Oltramonti Share Acquisition 4.50 10,342.57
15/06/16 Massimo Prelz Oltramonti Share Acquisition 4.43 11,523.46
15/06/16 Massimo Prelz Oltramonti Share Acquisition 4.32 16,836.30
27/09/16 Giuseppe Artizzu Share Acquisition 5.59 27.95
28/09/16 Sonia Levy-Odier Share Acquisition 7.23 36.15
14/10/16 Carlalberto Guglielminotti Share Acquisition 0.02 278.72
27/12/16 Cesare Maifredi Share Acquisition 7.03 7,030.00
29/12/16 Cesare Maifredi Share Acquisition 7.17 6,266.58
29/12/16 Cesare Maifredi Share Acquisition 6.23 404.95
30/01/17 Cesare Maifredi Share Acquisition 6.23 3,694.39
30/01/17 Cesare Maifredi Share Acquisition 6.23 1,059.10
30/01/17 Cesare Maifredi Share Acquisition 6.23 1,071.56
30/01/17 Cesare Maifredi Share Acquisition 6.12 5,140.80
10/02/17 Cesare Maifredi Share Acquisition 6.12 979.20
15/02/17 Cesare Maifredi Share Acquisition 5.66 3,543.16
87
In the public debate, climate protection also plays an important role. Our stakeholders,
mainly customers, institutions and politicians expect us to support the accomplishment of
ambitious targets and to deliver a consistent approach directed towards the reduction of
greenhouse gas emissions.
Our operations require energy which gives rise to the carbon dioxide emissions, directly or
indirectly. To reduce greenhouse gas emissions, the ENGIE EPS Group has decided to
introduce a hybrid corporate fleet and will also evaluate the introduction of electrical vehicles
for urban business trips.
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VI. ENGIE EPS standalone information
The activity performed during the past financial year resulted in a turnover of 3,187 K€
compared to 1,417 K€ for the previous fiscal year, with an increase of 125%.
Total operating expenses amounted to 6,384 K€ after provisions and depreciation for 13 K€.
The total cost of personnel, including social security contributions, increased from 24 K€ to
705 K€. The increase is mainly due to the integration of the Italian branch EMobility.
The operating result amounted to -2,822 K€ compared to -1,300 K€ for the previous financial
year, marking a decrease of 117%.
The financial result, amounting to 82 K€, compared to -2,236 K€ for the previous financial
year, shows a result before taxes amounting to -2,740 K€ compared to -3,537 K€ as of 31
December 2017.
The extraordinary result amounts to 353 K€, compared with 39 K€ for the previous year.
No income tax was accounted for this year.
Net Result as of 31 December 2018 improved by 32% compared to 2017, from -3,498 K€ to
-2,387 K€ (75% of turnover excluding taxes).
1 Balance sheet
Gross Value Amortisation
and
depreciation
31/12/2018 31/12/2017
ASSETS
Intangible assets
Patents 101,625 25,808 75,817 25,750
Goodwill 213,538 213,538
Other intangible assets 374,190 374,190 87,708
Financial assets
Investment in other companies 59,891,379 2,253,383 57,637,996 45,716,206
Other non current financial assets 300 300 300
TOTAL NON CURRENT ASSETS 60,581,032 2,279,191 58,301,841 45,829,964
Inventories
Work in progress 374,850 374,850
Receivables
Trade receivables 4,827,191 4,827,191 2,098,367
Credit notes from suppliers 3,510 3,510 7,447
VAT receivables 254,502 254,502 171,461
Other current receivables 10,692,731 119,376 10,573,355 1,003,298
Other
Cash and cash equivalents 8,061,370 8,061,370 1,385,658
Prepayments and accrued income
89
Prepaid expenses 43,398 43,398 61,434
TOTAL CURRENT ASSETS 24,257,553 119,376 24,138,177 4,727,664
TOTAL ASSETS 84,838,585 2,398,567 82,440,018 50,557,628
LIABILITIES 31/12/2018 31/12/2017
Issued capital 2,553,372 1,687,926
Share premium 83,811,019 54,418,664
Retained earnings (7,966,221) (4,468,438)
Profit (Loss) of the period (2,386,604) (3,497,783)
NET EQUITY 76,011,565 48,140,369
Financial liabilities
Loans and debts with credit institutions 418
Financial liabilities with subsidiaries 113,772 865,257
Current liabilities
Trade liabilities 4,407,786 1,428,330
Social security and tax debts 382,905 123,055
Other debts
Other debts 1,488,194 200
Deferred revenue 34,953
DEBT 6,427,610 2,417,259
Translation differences 843
TOTAL LIABILITIES 82,440,018 50,557,628
90
2 Income statement
91
3 Company’s results for each of the last five fiscal years
4 Activity of subsidiaries
The main subsidiary of ENGIE EPS is EPS Elvi Energy. 2018 turnover of EPS Elvi Energy
(after elimination of group intercompany operations) amounts to 13,907 K€ under IFRS 15.
5 Non deductible expenses
In 2018, ENGIE EPS did not supported any non-deductible expenses (article 223 of the
French Tax Code)
6 Table payments delays clients/suppliers