IFRS 8 para 22(aa), judgements made in aggregating operating segments into reportable segments

ENGIE SA – Annual report – 31 December 2020

Industry: utilities

NOTE 6 SEGMENT INFORMATION (extract)

As of December 31, 2020, ENGIE was organized into 25 Business Units (BUs) or operating segments , which are essentially geographical, in order to remain close to its customers and foster initiative.

Since 2019, the Group has strengthened this structure by creating four new Global Business Lines (GBLs): Client Solutions, Networks, Renewables and Thermal which are designed to support the local teams and encourage cross-cutting performance by proposing an inter-BU strategy for their business, contributing to decisions on the allocation of resources between BUs, identifying and managing the key cross-cutting digital and excellence programs, identifying and implementing worldwide partnerships, and supporting, measuring and presenting the global performance of their business activities. These GBLs plus the Supply and Nuclear business activities form the Group’s six core Business Lines (BLs).

The Group now operates on a matrix structure with the BUs forming the primary axis and the BLs the secondary axis.

In accordance with IFRS 8, these operating segments are grouped into seven reportable segments to present the Group’s segment information. These are unchanged as of December 31, 2020: France excluding Infrastructures, France Infrastructures, Rest of Europe, Latin America, USA & Canada, Middle East, Asia & Africa and Others. The data presented as of December 31, 2019 take into account minor changes resulting from internal reorganizations (reallocation of ENGIE Impact and offshore wind projects to the Others segment).

Due to the variety of its businesses and their geographical location, the Group serves a very diverse range of situations and customer types (industry, local authorities and individual customers). Accordingly, no external customer represents individually 10% or more of the Group’s consolidated revenues.

6.1 Information by reportable segment (extract)

6.1.1 Definition of reportable segments

Each BU corresponds to an “operating segment” whose operational and financial performance is regularly reviewed by the Group’s Executive Committee, which remains the Group’s “chief operating decision maker” within the meaning of IFRS 8. The 25 BUs have now been regrouped into seven reportable segments reflecting the geographic areas where the Group operates:

  • one reportable segment corresponding to the USA & Canada operating segment;
  • five reportable segments corresponding to groups of operating segments;
  • furthermore “Others” comprises the Group’s holding and corporate activities as well as operating segments that cannot be grouped together (Global Energy Management, Tractebel, GTT, Hydrogen) as well as the activities of Entreprises & Collectivités (E&C) due to the specific nature of their businesses and markets or due to their particular risk profile.

In order to determine how to group together the operating segments, as set out above, the Group exercised its judgment to decide whether two or more operating segments could be grouped together in the same reportable segment. The following key factors were examined to assess the similarity of the operating segments’ economic characteristics:

  • nature of business and services;
  • regulatory environment;
  • economic environment in which the relevant activities operate (market maturity, growth prospects, political risks, etc.);
  • risk profiles of the activities;
  • how the activities fit into the Group’s strategy and business model.

The Group decided to organize the operating segments within the reportable segments for the following reasons:

  • the ENGIE Solutions (divided into 3 customer segments: Cities and Communities, Services and Proximity and Industries), the France BtoC, and France Renewables operating segments have been grouped together within the France excluding Infrastructures reportable segment, which encompasses all the French downstream energy businesses (energy services and gas and electricity sales and distribution to BtoB, BtoT and BtoC customers), and the increasingly decentralized renewable energy generation activities. These are complementary unregulated businesses that are supported by a well-developed local network and primarily aim to develop a combined offering for local customers: energy services, decentralized production resources and combined gas and electricity supply contracts. These BUs also operate within an environment driven by the “energy transition for green growth” law (LTECV);
  • the GRDF, GRTgaz, Storengy and Elengy operating segments, which comprise the gas infrastructure businesses mainly in France (distribution, transport, storage and LNG terminals), have been grouped together within the France Infrastructures reportable segment, as they are all regulated businesses with similar risk profiles and margins;
  • the Benelux, Nuclear, Generation Europe, United Kingdom and North, South and Eastern Europe operating segments have been grouped together within the Rest of Europe reportable segment as these BUs, which comprise all of the Group’s European energy activities excluding France, have a similar business mix (energy production, supply, sale and services), operate in mature energy markets, and are undergoing transformation as part of the energy transition, with rapid development in renewable energy and client solutions;
  • the Latin America and Brazil operating segments have been grouped together within the Latin America reportable segment, as these segments share similar growth prospects with a substantial proportion of their revenue generated by electricity sales under long-term agreements;
  • the Asia-Pacific, China, Africa and Middle East, Southern and Central Asia and Turkey operating segments have been grouped together within the Middle East, Asia & Africa reportable segment, as all these regions have high power generation requirements and consequently represent significant growth prospects for the Group in the energy and energy services businesses. They operate in markets driven by the energy transition, with rapid development in renewable energy and client solutions.

6.1.2 Description of reportable segments

  • France excluding Infrastructures: encompasses the activities of the following BUs: (i) ENGIE Solutions: energy sales and services for buildings and industry, cities and regions and major infrastructures and which designs, finances, builds and operates decentralized energy production and distribution facilities (heating and cooling networks) (ii) France BtoC: sales of energy and related services to individual and professional customers, (iii) France Renewables: development, construction, financing, operation and maintenance of all renewable power generation assets in France.
  • France Infrastructures: encompasses the GRDF, GRTgaz, Elengy and Storengy BUs, which operate natural gas transportation, storage and distribution networks and facilities, and LNG terminals, mainly in France. They also sell access rights to these terminals.
  • Rest of Europe: encompasses the activities of the following BUs: (i) Nuclear (electricity generation at nuclear power plants), (ii) Benelux (the Group’s business in Belgium, the Netherlands and Luxembourg: renewable electricity generation, sales of natural gas and electricity and energy services activities), (iii) Generation Europe, which comprises the Group’s thermal electricity generation activities in Europe, (iv) United Kingdom (management of renewable energy generation assets and the portfolio of distribution assets, supply of energy services and solutions, etc.) and (v) North, South and Eastern Europe (sales of natural gas and electricity and related energy services and solutions, operation of renewable energy generation assets, management of distribution networks).
  • Latin America: encompasses the activities of (i) the Brazil BU and (ii) the Latin America BU (Argentina, Chile, Mexico and Peru). The subsidiaries concerned are involved in centralized power generation, including renewable energy, gas chain activities (including infrastructure), and energy services.
  • USA & Canada: encompasses power generation, energy services and natural gas and electricity sales activities in the United States, Canada and Puerto Rico.
  • Middle East, Asia & Africa: encompasses the activities of the following BUs: (i) Asia-Pacific (Australia, New Zealand, Thailand, Singapore and Indonesia), (ii) China, (iii) Africa (mainly Morocco and South Africa) and (iv) the Middle East, South and Central Asia and Turkey (including India and Pakistan). In all of these regions, the Group is active in electricity generation and sales, gas distribution and sales, energy services and seawater desalination in the Arabian Peninsula.
  • Others: encompasses the activities of (i) GEM, whose role is to manage and optimize, on behalf of the BUs that hold power generation assets, the Group’s physical and contractual asset portfolios (excluding gas infrastructure), particularly in the European market, to sell energy to major pan-European and national industrial companies, and to provide solutions related to its expertise in the financial energy markets to third parties, (ii) Tractebel (engineering companies specialized in energy, hydraulics and infrastructure), (iii) GTT (specialized in the design of cryogenic membrane confinement systems for sea transportation and storage of LNG, both onshore and offshore), (iv) Hydrogen (design of renewable hydrogen-based zero carbon energy solutions), as well as (v) the Group’s holding and corporate activities which include the entities centralizing the Group’s financing requirements, Entreprises & Collectivités (E&C) and the contribution of the associate SUEZ until the sale of ENGIE’s stake in October 2020.

The main commercial relationships between the reportable segments are as follows:

  • relationships between the “France Infrastructures” reportable segment and the users of those infrastructures, i.e. the “France excluding Infrastructures” and “Others” (GEM and E&C) reportable segments: services relating to the use of the Group’s gas infrastructures in France are billed based on regulated rates (or revenues) applicable to all users. Revenue and margins related to the GRDF business continue to fall within the scope of “France Infrastructures”;
  • relationships between the “Others” (GEM) reportable segment and the “France excluding Infrastructures” and “Rest of Europe” reportable segments: GEM manages the Group’s natural gas supply contracts and sells gas at market prices to commercial companies within the “France excluding Infrastructures” and “Rest of Europe” reportable segments. As regards electricity, GEM manages and optimizes the power stations and sales portfolios on behalf of entities that hold power generation assets and deducts a percentage of the energy margin in return for providing these services. The revenue and margins related to power generation activities (minus the percentage deducted by GEM) are reported by the segments that hold power generation assets (“France excluding Infrastructures” and “Rest of Europe”);
  • relationships between the “Generation Europe” operating segment, which is part of the “Rest of Europe” reportable segment, and the commercial entities in the “France excluding Infrastructures” reportable segment: a portion of the power generated by thermal assets within the “Generation Europe” BU is sold to commercial entities from these segments at market prices.

Due to the variety of its businesses and their geographical location, the Group serves a very diverse range of situations and customer types (industry, local authorities and individual customers). Accordingly, no external customer represents individually 10% or more of the Group’s consolidated revenues.