22. Goodwill - €13,779 million

 

Millions of euro at Dec. 31, 2019 Change in consol. scope Exchange differences Impairment losses Offsetting cost with accum. impairment losses Other changes at Dec. 31, 2020
  Cost Cumulative impairment Net carrying amount           Cost Cumulative impairment Net carrying amount
Iberia 11,177 (2,392) 8,785  - - - - - 11,177 (2,392) 8,785
Chile 1,209 - 1,209 - (4) - - - 1,205 - 1,205
Argentina 276 - 276 - - (253) - (1) 275 (253) 22
Peru 561 - 561 3 - - - - 564 - 564
Colombia 530 - 530 - - - - - 530 - 530
Brazil 1,411 - 1,411 - (138) - - - 1,273 - 1,273
Central America 23 - 23 2 - - - - 25 - 25
Mexico 19 - 19 - (1) (18) - - 18 (18) -
Enel Green Power North America 70 - 70 - - - - - 70 - 70
Enel X North America 335 - 335 - (28) - - (123) 184 - 184
Enel X Asia Pacific - - - - - - - 84 84 - 84
Enel X Rest of Europe (1) 3 - 3 4 - (3) - 39 46 (3) 43
Enel X Italy 19 - 19 (19) - - - - - - -
Market Italy (2) 579 - 579 - - - - 1 580 - 580
Enel Green Power Italy 20 - 20 - - - - - 20 - 20
Romania 414 (13) 401 - (7) - - - 407 (13) 394
Total 16,646 (2,405) 14,241 (10) (178) (274) - - 16,458 (2,679) 13,779

(1) Includes Tynemouth and Viva Labs.
(2) Includes Enel Energia.

GOODWILL MATRIX AT DECEMBER 31, 2020

Millions of euro Thermal Generation and Trading Enel Green Power Infrastructure and Networks End-user Markets Enel X Services Other Total
Enel Green Power SpA Italy - 20 - - - - - 20
Market Italy (1) - - - 580 - - - 580
Iberia - 1,190 5,788 1,807 - - - 8,785
Argentina - 3 19 - - - - 22
Brazil - 397 876 - - - - 1,273
Chile - 992 213 - - - - 1,205
Colombia - 307 223 - - - - 530
Peru 43 201 320 - - - - 564
Central America - 25 - - - - - 25
Romania - - 336 58 - - - 394
Enel Green Power North America - 70 - - - - - 70
Enel X North America - - - - 184 - - 184
Enel X Asia Pacific - - - - 84 - - 84
Enel X Rest of Europe (2) - - - - 43 - - 43
Total 43 3,205 7,775 2,445 311 - - 13,779

(1) Includes Enel Energia.
(2) Includes Viva Labs.

GOODWILL MATRIX AT DECEMBER 31, 2019

Millions of euro Thermal Generation and Trading Enel Green Power Infrastructure and Networks End-user Markets Enel X Services Other Total
Enel Green Power SpA Italy - 20 - - - - - 20
Market Italy (1) - - - 579 - - - 579
Enel X Italia - - - - 19 - - 19
Iberia - 1,190 5,788 1,807 - - - 8,785
Argentina - 40 236 - - - - 276
Brazil - 397 1,014 - - - - 1,411
Chile - 996 213 - - - - 1,209
Colombia - 307 223 - - - - 530
Peru 43 198 320 - - - - 561
Central America - 23 - - - - - 23
Romania - - 342 59 - - - 401
Enel Green Power North America - 70 - - - - - 70
Mexico - 19 - - - - - 19
Enel X North America -  -   - -  335 -  -  335
Enel X Rest of Europe (2) 3 - - - - - - 3
Total 46 3,260 8,136 2,445 354 - - 14,241

(1) Includes Enel Energia.
(2) Includes Tynemouth.

The decrease of €462 million in goodwill is mainly attributable to impairment losses of €274 million, mainly in Argentina (€253 million) and Mexico (€18 million) following impairment testing, as well as €3 million on the goodwill recorded in respect of Tynemouth.

The decrease attributable to the change in the consolidation scope is exclusively due to the finalization of the allocation of the purchase price of Paytipper, partly offset by the €4 million recorded for Viva Labs in respect of a consolidation difference pending allocation through the PPA process and by the goodwill recognized with the acquisition of new companies (Los Pinos, Enel Solar).

“Exchange differences” are mainly due to adverse exchange rate developments in Brazil, the United States, Romania, Chile and Mexico.

“Other changes” are attributable to the reallocation of the goodwill associated with a number of CGUs in order to reflect the effects of the corporate reorganizations concluded by the Group in 2020, with particular reference to:

  • the separation of the Mexican renewables business from the Central America segment, which was merged as part of the Astrid operation following the organizational changes implemented in 2020;
  • the definition of the Enel X Rest of Europe and Enel X Asia Pacific CGUs to complete the process of reorganizing the assets (essentially related to intellectual property) of Enel X North America.

The criteria used to identify the cash generating units (CGUs) for impairment testing purposes were essentially based – in line with management’s strategic and operational vision – on the specific characteristics of their business, on the operational rules and regulations of the markets in which Enel operates, on the corporate organization, and on the level of reporting monitored by management.

The reallocation of goodwill among the new CGUs mentioned above was carried out specifically or on the basis of the “relative value” of each CGU in accordance with the applicable accounting standard.
The recoverable amount of the goodwill recognized was estimated by calculating the value in use of the CGUs using discounted cash flow models, which involve estimating expected future cash flows and applying an appropriate discount rate, selected on the basis of market inputs such as risk-free rates, betas and market-risk premiums.
Cash flows were determined on the basis of the best information available at the time of the estimate, taking account of the specific risks of each CGU, and drawn:

  • for the explicit period, from the Business Plan approved by the Board of Directors of the Parent on November 23, 2020, containing forecasts for volumes, revenue, operating costs, capital expenditure, industrial and commercial organization and developments in the main macroeconomic variables (inflation, nominal interest rates and exchange rates) and commodity prices. The explicit period of cash flows considered in impairment testing was three years;
  • for subsequent years, from assumptions concerning long-term developments in the main variables that determine cash flows, the average residual useful life of assets or the duration of the concessions.

More specifically, the terminal value is calculated based on the specific characteristics of the businesses related to the various CGUs subject to impairment testing:

  • perpetuity, for the businesses of large-hydro (LH) power generation and of distribution, in which the licenses and public concessions are of a long-term nature and are easily renewable; as well as for the Enel X businesses, as they feature the development of specific know-how that is sustainable over the long term;
  • annuity, for CGUs that are predominantly characterized by retail business, for which the residual life is, therefore, essentially correlated with the average duration of the customer relationships; as well as for businesses of conventional thermal power generation (G&T). An annuity was also used for the renewable energy (Enel Green Power) businesses to take account of: (i) the value resulting from the remaining useful lives of the plants; and (ii) the residual value, in the event of plant decommissioning, associated with licensing rights, the competitiveness of the production facilities (in terms of natural resources), and network interconnectivity.

The nominal growth rate (g-rate) is equal to the long-term rate of growth in electricity and/or inflation (depending on the country and business involved) and in any case no higher than the average long-term growth rate of the reference market.
The Group has also taken account of the long-term impact of climate change, in particular by considering in the estimation of the terminal value a long-term growth rate in line with the change in electricity demand in 2030-2050 based on the specific characteristics of the businesses involved.

The Group therefore confirmed its strategic direction based on the trends associated with the energy transition. The use of capital has been focused on decarbonization through the development of generation assets that use renewable sources, on the enabling infrastructures linked to the development of networks and on the implementation of platform models, making the most of technological and digital evolution, which will foster the electrification of energy consumption, as well as the development of new services for end users.
In 2020, Enel’s decarbonization roadmap was updated to capture the acceleration in the spread of renewables and the reduction in thermal generation capacity envisaged in the new 2021-2023 Strategic Plan and in the 2030 ambitions presented on the 2020 Capital Markets Day, setting the following objectives in line with the Paris Agreement:

TIME
HORIZON
GREENHOUSE GAS (GHG) REDUCTION TARGET
Short term 2023
  • Direct emissions of Scope 1 greenhouse gases to 148 gCO2eq/kWh (-32% compared with 2020)
Medium term 2030
  • Direct emissions of Scope 1 greenhouse gases to 82 gCO2eq/kWh (-80% compared with 2017, consistent with the 1.5 °C path as certified by the SBTi)
  • 16% reduction in indirect Scope 3 emissions associate with gas consumption by end users compared with 2017
Long term 2050
  • Full decarbonization of energy mix


In addition, the scenarios used to determine cash flows took account of the impact of COVID-19.

The value in use calculated as described above was found to be greater than the amount recognized on the statement of financial position.
In order to verify the robustness of the value in use of the CGUs, sensitivity analyses were conducted for the main drivers of the amounts, in particular WACC, the long-term growth rate and margins, the outcomes of which fully supported that amount.

The table below reports the composition of the main goodwill amounts by CGU, along with the discount rates applied and the time horizon over which the expected cash flows have been discounted.

Millions of euro Amount of goodwill Growth rate(1) Pre-tax WACC discount rate(2) Explicit period of cash flows Terminal value(3) Amount of goodwill Growth rate(1) Pre-tax WACC discount rate(2) Explicit period of cash flows Terminal value(3)
  at Dec. 31, 2020 at Dec. 31, 2019
Iberia 8,785 1.65% 4.06% 3 years Perpetuity/24 years EGP/11 years G&T 8,785 1.80% 4.59% 5 years Perpetuity/26 years EGP/9 years G&T
Chile 1,205 1.97% 6.95% 3 years Perpetuity/25 years EGP/7 years G&T 1,209 2.07% 7.41% 5 years Perpetuity/25 years EGP/9 years G&T
Argentina 275 11.79% 41.61% 3 years Perpetuity/1 year G&T/5 years LH 276 6.36% 21.84% 5 years Perpetuity/1 year G&T/4 years LH
Peru 564 2.30% 6.73% 3 years Perpetuity/24 years EGP/10 years G&T 561 2.39% 7.46% 5 years Perpetuity/23 years EGP/9 years G&T
Colombia 530 3.04% 8.54% 3 years Perpetuity/28 years EGP/17 years G&T 530 2.97% 9.01% 5 years Perpetuity/27 years EGP/16 years G&T
Brazil 1,273 3.25% 9.35% 3 years Perpetuity/26 years EGP/8 years G&T 1,411 3.61% 10.64% 5 years Perpetuity/26 years EGP/7 years G&T
Central America 25 1.97% 8.15% 3 years 22 years 42 2.01% 9.68% 5 years 22 years
Mexico 18 1.43% 8.83% 3 years 25 years n.a. n.a. n.a. n.a. n.a.
Enel Green Power North America 70 1.97% 5.49% 3 years 25 years 70 2.01% 6.58% 5 years 25 years
Enel X North America 184 1.97% 8.25% 3 years Perpetuity 335 2.01% 10.89% 5 years Perpetuity
Enel X Asia Pacific 84 2.02% 9.07% 3 years Perpetuity n.a. n.a. n.a. n.a. n.a.
Enel X Rest of Europe 39 2.02% 8.70% 3 years Perpetuity n.a. n.a. n.a. n.a. n.a.
Market Italy 580 1.30% 9.98% 3 years 15 years 579 0.48% 10.23% 5 years 15 years
Enel Green Power Italy 20 1.38% 5.44% 3 years Perpetuity/24 years 20 1.03% 6.15% 5 years Perpetuity/25 years
Romania 394 2.35% 7.98% 3 years Perpetuity/26 years 401 2.00% 7.27% 5 years Perpetuity/18 years
CGUs with no recognized goodwill but that underwent impairment testing given the presence of the indicators provided for in IAS 36 (4)                    
Australia - 1.35% 4.42% 3 years 26 years n.a. n.a. n.a. n.a. n.a.

(1) Perpetual growth rate for cash flows after the explicit forecast period.
(2) Pre-tax WACC calculated using the iterative method: the discount rate that ensures that the value in use calculated with pre-tax cash flows is equal to that calculated with post-tax cash flows discounted with the post-tax WACC.
(3) The terminal value has been estimated on the basis of a perpetuity or an annuity with a rising yield for the years indicated in the column (G&T = Generation & Trading, EGP = Enel Green Power, LH = Large Hydro).
(4) With regard to Australia it became necessary to perform the test following the deterioration in local market conditions.

At December 31, 2020 the impairment tests performed on the CGUs to which goodwill was allocated revealed an impairment loss of €253 million on the Argentina CGU and €308 million on the EGP Mexico CGU. With reference to the CGUs with no goodwill recognized, an impairment loss of €23 million was found for the Australia CGU.