A2A S.p.A. (A2A) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the A2A Full Year 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Renata Bonfiglio, IR Manager. Please go ahead, madam.

Thank you very much. Good afternoon, and welcome to A2A conference call. Renato Mazzoncini, CEO; Andrea Crenna, CFO, will comment the 2020 financial year results. The presentation is available on our website and has also been sent to you. For the sake of time, Renato Mazzoncini will leave the conference at 2:45 sharp, having to rejoin the Board meeting. I now hand you over to Renato Mazzoncini. Please go ahead.

Okay. Good afternoon to everyone, and thanks for joining our conference call. If you have the presentation, I can say to go to Slide #3 to start. Considering that 2020 was a very harsh period, of course, in worldwide, but in particular, in the north of Italy, in Lombardy, particularly in Brescia and in Milan, marked by COVID-19 emergency. But let's say, we acted and reacted from day 1 by implementing a sound recovery plan. And now the Board has just approved this morning's satisfactory year-end results. We achieved a great last period, last trimester, and with 10%-plus performance at the EBITDA level compared to the same period of 2019. We showed stride, solid and resilience, and we are very proud of this. So to start with, let me briefly sum up our main achievement in 2020. Looking at this chart, you can see it's a circular economy and energy transition, following our presentation of our industrial plan that circular economy and the energy transition, of course, development trends in the long [indiscernible] and the stride in our industrial plan '21-'30. But there have been 2 pillars of growth even in 2020: pursuit with acquisition, alliance, agreements; and of course, internal developments. So talking about circular economy, you can see that we consolidated our leadership in biomass treatment and biogas, thanks to the acquisition of Agritre, Argipower. In the fourth quarter of '21, we acquired a stake in Saxa Gres. Saxa Gres is very [indiscernible] because it's a company focused on the production of tiles using an innovative end-of-waste process that enables materials such as the ash produced by waste-to-energy plants -- by our waste-to-energy plants to be recovered from the waste cycle and reused to make a new product. So remaining in the circular economy, we signed a crucial agreement with Suez and ENI in order to expand an Italian waste treatment infrastructure aiming to maximize circular economy technological solution. In the [indiscernible] sector, we created with Suez a new player of excellence in industrial waste treatment, but is, in this moment, the market leader in Italy. In a very fragmented market, we are now the market leader. And also with ENI, we've developed the treatment of the most critical waste of its industrial production, while they defined potential new initiative in Italian or for England market. So talking about energy transition. We opened a very important chapter for our company by acquiring the first new plant of the group. Installed capacity is [indiscernible] because it's 8 megawatt [indiscernible] is necessary to start from some points. But this sector is [ faced ] with high-tech solutions perfectly suited with the business like ours. Since we are used to manage large power plants, so I think that for a company like A2A, it's very important to stay inside the wind sector because it's a sector that, let's say, needs more engineering than the solar one. And so probably is also more fitting with our energy competencies and industrial competencies. Indeed, we are ambitious. We wanted to be part of the carbonization process, as demonstrated also by the validation of emissions target by the Science Based Targets initiative, the first multi-utility in Italy that is certified. And we are committed to further accelerate the energy transition. And as you know, we recently bought 173 megawatts of solar plants. We joined the European Clean Energy Hydrogen Alliance, and we signed pivotal agreement with Snam, Ferrovie Nord Milano and Ardian for the development of the Hydrogen Valley. Talking about the renewable is very important for us, the acquisition from Octopus of the solar plants that bring our companies to be the further player in Italy in solar production. Other achievements, we can say that we closed the partnership with AEB in Brianza, it's a multi-service company, from the first half of November. And that, let's say, is -- it complements -- to complete in Lombardy the territory integration with the other utilities. In this moment, only Mantova is out of our perimeter. And EUR 500 million of 12-year corporate bond with a record low coupon of 0.625%. And I think that we can shift to the next slide. I can leave the floor to Andrea Crenna, our CFO, to describe quickly the highlights of the period from economics. Thank you.

Thank you very much, Renato. Good afternoon, good morning. We are now on Page 4. We highlight the major plus and minus versus last year. On the plus side, we had a very positive year on the ancillary services, one of the best of the last few years with over EUR 170 million of margin out of this activity versus [ EUR 115 million ] in 2019. At the same level, retail customer base marked a growth of over 268,000 new customers on the free market, 150,000 of which are coming from variations in the perimeter and especially from [indiscernible] and the integration of AEB. Our sales in the B2B, in general, but particularly on the electricity has been very positive. We here have recorded [indiscernible] almost 1.5 gigawatt hours. Waste treatment prices keep on remaining very strong. We closed to a 10% increase in treatment prices as well. This follows on the [indiscernible] mark of growth. Then with M&A, Renato just [indiscernible] with positive results of [indiscernible] and then the AEB consolidation. On the weak side, we should believe we suffer from a headwind from the scenario of prices, commodity prices, for hedging activities amounted to over EUR 80 million, 8-0. And then we clearly got some hedging, which mitigated [indiscernible] of the [indiscernible] effect. Hydro production were negative. They were not bad in absolute terms, but they were negative compared to last year, which was really exceptional. Gas volumes, mass market and small enterprises because of COVID emergency [indiscernible]. And here, we are reporting a weaker performance. Then something we have already discussed more than one time is the revision, especially on the recognized OpEx on the electricity and gas networks, which accounted for EUR 9 million of negative performance year-over-year. Certainly, we did have a positive year for scenarios effect on the district heating. I'll come back to the point in one second. And the overall COVID, despite the fact that we almost completely offset all the negative, still some negative effect remain on our financials. On the next page, Page 5, as I was saying, the total negative effect was about EUR 10 million. This is clearly the outcome of much stronger negative gross, negative effect and all the activities we have put in place, especially on the cost side, but also on some revenue side on stronger performance of the MSD, for instance, which came as a partial offset of the weak scenario. At the end of the story, just EUR 10 million were left. Where the impacts are on the generation business, the lion's share is certainly out of the scenario. Demand was weaker. The demand in Italy was down 5%, and some of our plants clearly suffer from that. On the market, the negative impact of COVID was mostly on the new net acquisitions, i.e., the marketing activity to acquire new customers on the free market. We ended up with almost 100,000. Certainly, a good number. It's lower than the previous years and certainly lower than our expectation that was due to the COVID-19. Waste scenario effect and treated volume, plus, same as in the networks, increasing cost for managing the emergency. We instead go out there, but we will talk later on, on that. I will spend a few words. We didn't record at the end of the year material negative impact on the working capital and mainly on the trade receivables. That were a bit high around June, July, but then most of them were reabsorbed by the end of the year. I would leave to Renato to comment on the ESG highlights, which were also very positive. Renato, please. [indiscernible] Renato?

You can listen me or not?

Now we can.

Okay, okay. Well, turning to Page 6. I'd like to summarize briefly main ESG growth in 2020 before describing the economic and financial results. We are striving to reduce our carbon footprint, of course, increasing the circularity of economy, while creating a safer and more equal workplace for our workers. So in fact, in 2020, we increased both the level of urban waste sorted. You can see it from 69% to 71% of our average level. But I remember is an average between Milan. Milan is a big town and the level of waste sorting in Milan is about -- in this moment, is about 63%. We can grow. But in this moment, is the benchmark of metropolitan area in Italy or one of the best performer in Europe. Talking about the city's [ medio ] sites like Brescia. We are, in this moment, about -- to 73%. So this is the average level, but it's also important that there is no urban waste that was sent to the landfill because 100% of the waste goes to energy for recycling with material. Talking about our emission, dropped from 345 to 310. So it's a good result according to the SBTi level. And also the indirect emissions were cut by 85% compared with the last year. And we was able to sold to final customers, 3.9 terawatt hours. It is 70% more of green energy than last year. We do care for our people and community. In 2020, the injury index dropped to 10.6 compared with 12.8 of 2019. In each way, the overall -- the woman to man average salary ratio is above 90% compared with an average of 83% in Italian private sector. So we are happy. Of course, we can improve, but the level above 90% is good now. And the total workforce surged to slightly less than 13,000. So I think there is a great achievement, a clear signal that the group is growing to a more sustainable work. But sustainability is absolutely the midstream of our development. Andrea, if you want to explain the financial indicators. No, Andrea is not -- Renata, Andrea is not connected.

Andrea, can you -- Andrea?

Okay.

Just a moment, I think because there were some problems of connection.

It's not a problem, guys. If you go to Slide 7, you can see all the financial -- the key financial indicator. In fact, excluding a one-off contribution, which was particularly significant in 2019, the ordinary EBITDA stands at EUR 1.191 million, particularly exactly the same level of 2019, exactly EUR 1 million of differences in noncore in 2019. This is an excellent result achieved, thanks to the diversification of business, our releases and a quick response against COVID-19. So the weak energy scenario, which mainly affected the business unit generation and the segment hit in business unit networks was mitigated by an excellent performance in energy retail, but did 3% more than 2019 and waste maybe the 5% more than the last year. So the group net income at EUR 364 million, so 6% less compared to 2019 as discounted lower one-off at EBITDA level, higher depreciation from our strong investment plan and higher net provision and was partially mitigated by the reduction in net financial expenses and lower taxes due to prior years' adjustments. In 2020, we increased the CapEx, and we are very proud about this, topping at EUR 738 million, that is 18% more than 2019. That was the record year in CapEx in our groups. And the dividends, EUR 23 million more compared to 2019, but affecting the net financial position. Excluding M&A impact, mainly related to business unit waste generation, but financial position increased by EUR 173 million. By year, also M&As, we arrive to EUR 3.472 billion. So Andrea, if you want to come back, if you want to...

Thank you very much, Renato. Let's move to Page 9 now of the presentation. Here, we have the usual waterfall of the EBITDA, where it's EBITDA clearly is in line with what we already disclosed with our preliminary results. Here, it's pretty clear that the negative variance still very limited. It's 100% due to the performance of the generation business unit, which actually, at the end of Q3, at the end of September, was negative for over EUR 50 million. So we recover a lot during Q4. And all the other businesses apart from the networks, which have been penalized by the district heating, has performed quite well. If we move to Page 10 on the generation, I already commented on the strong headwind on the scenario and positive contribution from the hedging activity. We were affected by volume -- negative volume effects on the hydro productions, though, once again, overall, the production has actually been higher than the average of the past 10 years, which is the parameter we typically use for forecasting the normal -- "normal" production, that basically drove EUR 10 million negative impact on the EBITDA. All the CCGTs on the other side of performance in terms of volumes was pretty flat. Coal, I think it's worth mentioning that basically, we stopped producing by coal. The power station was quite closed, basically. And MSD, I already commented, very, very strong. If we move to Page 11 on the market, let me please comment on the retail. [indiscernible] and gas retail from the other activities in the market business in retail was up almost 10%. I think it was a very, very good result in this business unit for another year. Actually, last year was equally very strong. The free market customer base growth in B2B volumes, unitary margins, regulated components, all these drivers basically marked a positive sign. The only negative was in the consumption per unit -- unitary consumptions. Then you see a negative contribution that was expected. Result was actually better than budget, both in terms of P&L. I mean we suffered a loss, but was lower than the expected loss. And in terms of customer acquisitions, which was the goal of the initial year. And energy efficiency was negative for EUR 6 million [indiscernible] result, partially EUR 4 million out of EUR 6 million is a change in perimeter. We had deconsolidated and moved to the asset held for sales our equity stake in Consul System, and that only accounted for EUR 4 million. And EUR 2 million out of a weaker performance in the trading of white certificate. Page 12, on the waste business, there are basically 4 drivers, one of which I already mentioned, explaining the performance of the business unit, growing 5%. On the positive side, the treatment prices, I already commented on that. The M&A, that accounted for about EUR 10 million. Electricity prices were negative. Unfortunately, the weak [indiscernible] also impacted partially the electricity produced by the waste-to-energy plants. And on the other side, the positive was the effect of the electricity volumes. You might recall last year -- the year before, we closed some plants for extraordinary maintenance in the turbines of the WTE. This year, they work 100%, and we were able to increase electricity production. Page 13 on the networks. Just to only recall that the price at which we sell our heating, it's basically indexed 50% to the [indiscernible] to the energy price, the national energy prices, 50% to the P4, which is related to the gas prices. Both of them has been very weak. So more than 100% of the negative performance is price effect, whilst on the volume effect, we have not been hit negatively by the thermal, the degrees of the year and neither by the commercial development, which on the other side, has been positive. On Page 14, the waterfall from EBITDA to the net income. I will try to explain the 2 or 3 numbers, which probably differ from the expectation of the market. I wouldn't say the EBITDA -- sorry, the D&A apart from 50% of the EUR 55 million is due to the consolidation of AEB. So it's a variation in perimeter. And then provision for risks. Here, we are reporting an important increase about -- for EUR 58 million, of which EUR 51 million, so one single item relate to potential liability that relates to our landfill in Grottaglie, as you may call, we completely wrote off in terms of asset value last year. That -- it's a potential liability out of a dispute with Taranto province that relates to a request to remove a certain amount of waste from the landfill. We have provisioned 100% of what we believe could be the maximum liability. And clearly, we will have discussions with the province. You will find more information on that on our annual report as soon as it will be available. And I believe the second other news is on the income taxes. Here, we have reached an agreement with the Italian Inland Revenues agency about the possibility for the company for [indiscernible] to fully discount from the tax base from the EBIT -- sorry, from the tax -- from the new tax the capital loss we have realized by selling EPCG, basically our stake in EPCG. You all know that sale was made at a loss. We have discussed about the visibility of this loss with Agenzia delle Entrate, with the inland revenue. We have reached an agreement about the possibility to fully deduct this amount, the positive impact on the tax due is EUR 51 million. So we have acknowledged this lower tax burden into our annual report. If we move to Page 15, we have the CapEx. I think Renato already probably commented on that. It's an 18% increase year-on-year despite the situation in which we have deployed actually this CapEx. So I don't think we need to spend more time on that. And finally, on the free cash flow, which is Page 16. This is also quite explanatory. I just would like maybe to anticipate one question. The increase in net working capital is only for a minimal part due to the COVID-19 effects on the -- on slowdown on receivable collection. The DSO at the end of the year are pretty much in line with December 31 of the year before. So yes, we have suffered some delays. There is a kind of EUR 10 million, EUR 50 million of this amount, which relates to installment plans granted to the customer base. But overall, so far, thanks God, we have not suffered a lot on our net working capital for the COVID. That ends up the -- our presentation. So I think we can open, Renata, the -- for Q&A session.

Yes, okay. Thank you very much. We can start with the Q&A session. The Q&A session will start with a preset of questions that we had received from some analysts, and will continue with an open session. May I remind you again that the CEO will have to leave at 2:45 sharp, but the CFO will still be available thereafter. Let's now go ahead with the preset questions. The first question, Renato, can you please give us some examples of A2A investments eligible for the recovery plan?

Okay, Renata. First of all, it's very important to consider that every euros that can arrive our recovery plan is an upside on our plan. So I want only to remember that inside the EUR 16 billion of the CapEx investment in our industrial plan, only EUR 0.2 million are inside the recovery plan, considering recovery plan that is a project of Cassano d'Adda. So only to say, not that I think that is difficult to have money for recovery, but that can be a very interesting upside for some investments. In particular, we send to -- through our association, National Association [indiscernible] Italia. We send around EUR 3 billion of investment to -- eligible in our opinion for the recovery plan. For example, about water cycle, so network upgrading and water losses reduction, [indiscernible] exactly the project of Cassano d'Adda. Only this project is EUR 600 million. Energy storage, because I think that all the water loss, the flexibility, can be eligible for recovery. So battery, energy storage, hydrogen, energy generation, upgrading of existing thermal plant and conversion from crude oil to gas on [indiscernible]. The new waste-to-energy plants for EUR 1 billion, in particular, because we want to develop this technology in center of South of Italy, which can be -- there is a big gap from waste-to-energy and waste material. So there are lots of waste that goes to landfill. And so I think that there is very possibility to have money from recovery for these activities. And also renewable. In some case, in mobility, for example, for our plan also developing of public charging points. So this is, I think, the answer to this question, Renata.

Okay. The second question again is for Renato. Can you please give us some additional details on your latest acquisition of photovoltaic assets?

Well, of course, we are talking about the acquisition of the portfolio from Octopus. The rationale, of course, is to plan with them A2A's foothold in the solar industry. We -- if you remember in our industrial plan, we want that to 3.7 gigawatts of new renewable, about 30%, 35% from solar production. And about -- we said about 12% of the development by M&A and the other, Agritre. So the operation to acquire from Octopus this asset was to -- a quick acceleration of our strategy. Our interesting plans both for capacity because in this moment, our 173 megawatt prerepowering. But there are some very interesting upside, in particular the total power, also repowering, in 2030 will be 245 megawatts. And it is also possible, and we are working for -- including some of these plants, batteries, storage to increase the performance and marginality of these plants. Our 17 plants, so with an average capacity of 10 megawatts, 70 megawatt are on industrial areas, 100 megawatt in agricultural areas. And there is an EBITDA around EUR 10 million, but postrepowering will arrive to EUR 18 million. This considering -- without considering upside from battery storage, hydrogen planting, coupling with these plants. But all imported is from seller side. But of course, we considering with attention. But in our evaluation of the price, that bring the equity IRR to 6%. We haven't considering upside from storage or hydrogen. The total outlay equity is EUR 205 million, and the debt is EUR 13 million. Additional investment required for repowering to reach the full capacity in 2031 is EUR 64 million. If there are other question, Renata, we can give more information.

Okay. Thanks very much. Now the third question is for the CFO, for Andrea. Andrea, can you please give us some color on the 2021 EBITDA? Could you consider your guidance of EUR 1.2 billion conservative at this stage given the improving energy scenario? Could you also give out the updated figures on forward sales? That's all for you.

I will answer the last question first, which then has to give an asset to the initial 2. We are currently hedged on 2021, a bit more than 60%, 6-0, with actually the production of fixed price, hydro and WTA -- WT hedged roughly 90% and 50% gas production. Prices, the weighted average prices, which we hedged on the fixed price is about EUR 50, which is not very different from the achieved price in 2020, which was EUR 49 million, including clearly our hedging, which we made last year. The initial 2 months in terms of performance of the generation, which is clearly the most volatile has been pretty much in line with our expectations, a bit better. Ancillary market has been in line, in line to last year. Few millions better, but really a few millions. So right now, we can -- what we can say that we will comment more on that at the end of Q1. Right now, we believe that the expectations on the full year, we have provided a couple of months ago when we presented the plan are still valid. These 2 months basically confirm that our expectation is well posed that the COVID-19 doesn't seem to have the risks that we have experienced in 2020. And also, we are now sufficiently cover to mitigate the positive-negative impacts of the scenario, which has been the real determinant of the gross loss of marginality that we suffered last year before the recovery then. So in a nutshell, today, the expectations seems fair, but we are only at the start of the year.

Okay. And now we can turn to the open session of the Q&A. If -- please, the operator, if you can invite the analysts for their questions.

Thank you, madam. This is the operator. [Operator Instructions] The first question is from Javier Suarez with Mediobanca.

The first question is on the evolution of the supply energy business for the company. So in the presentation, you are mentioning that there is a remarkable increase on the pre-market customer base. So I wanted to understand the dynamic that you see on the market. So that increase on the number of customers are clients moving from the protected market into the liberalized business? Or that is a new capture of clients? And also, I'm interested on the margins that you see on the supply energy activity? That would be the first question. The second question is on the presentation. The company mentioned a very strong waste treatment prices. So you could be giving us some more details of what do you see on the market in terms of prices for the waste treatment activity? And the third question is more on the cash flow statement. There is a negative impact on working capital during the presentation. I think the CFO has said that this is just due partially to the COVID-19 situation. So were that negative number should be in 2021, in your view, that number should be at 0 or there should be some negative impact impacting the work capital? And finally, a very final thing, there has been also an increase on the provisions for risk, that it is fair to say that the difference versus last year is fully due to the extra provision into the Grottaglie landfill. And therefore, in 2021, we should be back to the level of 2019?

There is no...

Okay. Talking about energy retail, the situation is this one. As of course, you know, the exit from the majority tell us to go through the -- through liberalization has a delay of 1 year. Consider that in our forecast, we thought to arrive to liberalization by 1st of July 2022. So for us, in our industrial plan, the delays of 6 months and not to 1 year. And we, frankly speaking, I think that with the government -- with the Premier Draghi will arrive absolutely to the liberalization. In this period, we are growing in -- with customer in the market through, first of all, the development of men. Men is growing in a few months, a rate to 40,000 new customers and only 5% arriving from our customer base, a historical customer base. So 95% from other players. That confirms that is a different target and -- but it's a good idea to do charity again with different instruments through digital customers or, let's say, near the customers that love men. Talking about a A2A Energia, we are working a lot to increase the customer base in the market. And the result is a little like numbers, we are under the budget because, of course, in 2020, very difficult to do activities of commercial activities, marketing, pushing with all the limitations that we had for COVID-19. But the customer base is growing monthly. And we think to use the delay of 6 months to increase more the customer base from our major retailer, from our customers in major retailer to be able to arrive better to competition in '22. Talking about the marginality, we put in our industrial plan a reduction of 3% each year. But let's say, in this moment, this reduction of marginality, also talking '21. That is the third year in which we forecast to have a reduction of marginality of 3%. In this moment, it seems to be a conservative hypothesis. Of course, we live inside the industrial plan, the 30% of reduction of marginality of the commodities in the horizon of the plan. But if you ask to our business unit net capital is -- in this starting '21, there is a reduction of marginality to gain new customers, the answer is not. Andrea, do you want to talk about, for example the...

Yes. On the cash flow statement, well, if we assume a normal year without COVID, then the net working capital variation, which we will be expecting is something of EUR 10 million, EUR 20 million, EUR 30 million net working capital absorption, negative effect. That basically will come from growth and especially of the growth in volumes by the energy -- by the retail business, basically. So it's a volume effect. Then it's clearly very, very difficult to say. So this is our scenario, okay? When we have planned at the beginning of the year, we have assumed a normal year, okay, which, by the way, is not different from last year, which was not a normal year, but at the end of the story looks like a normal year in terms of net working capital absorption. Then if the COVID-19 situation worsen, then I can give you, for instance, what happened last year at certain point in time or in July -- in July, August. We were requested to agree on delayed payment programs by basically making some installment payment to our customers. And the peak reached a delay amounting to EUR 60 million, which is to say about 5 days, 6 days of longer DSO. So I don't think that even in a difficult scenario, we will see huge numbers in terms of negative working capital variation. For pathological situation, if our turnover explodes as we hope, then we might have a volume effect. It's not a worsening of the collecting conditions. If I move to the -- your fourth questions on the provisions, yes, you're right. There was, "extraordinary effect," both in the nature and in the magnitude, I would say. And I think it's -- today, it's reasonable to assume that 2021 will be a, "standard year," in terms of provisions.

Your question about waste?

Waste on the treatment prices?

Yes, exactly.

On the treatment prices, on the treatment prices, the 8%, as I think I said is about the overall increase, making 100% our contracts. Clearly, we don't have the possibility to renegotiate every year 100% of the contracts. We don't renegotiate the treatment prices with the municipality of Brescia in Milano that takes the lion's share. So if you go and calculate the increase on the contracts, which we have been able to renegotiate, this percentage is -- was -- excuse me, was higher. Having said that, I think that 2021, we are not expecting similar increases. That would be the first year after, I think, 5 years in a row. And a reason is also partially still related to the COVID effects. And the reason is that if the economical activities, especially on the small, medium businesses are slow down, the amount of the waste to be treated reduces. Hence, the value of the scarce resource, which is the treatment places, the idle capacity on treatment plants becomes less strong. So we have planned, basically, a minimum increase, and then we will see if we are able to have better performance for this reason, okay? And we're sure -- we're confident that if the COVID-19 is definitely sorted out, then the issue of the scarce treatment capacity will reappear in all its powerful strength, and we might see more favorable condition on the plant owners basically.

Your next question is from Enrico Bartoli with Stifel.

The first one, I'd like to go back to the acquisition of the PV plants from Octopus. You indicated 6% equity IRR. If you can elaborate a bit on the assumption in terms of proper prices that are behind this number and deleverage that you assume in the acquisition of the plant. Second is, again, on the guidance. Just a clarification, if in the guidance of EUR 1.2 billion that you're providing in January, you included also the acquisition of the PV plants. And if this is also the case regarding the indication on the CapEx that you gave is -- it included the EUR 200 million cash out from the transaction. Then the third one is related to the [ Gelsia ], there were some legal developments recently. If you think that can give us some details, and if you think that there would be some risk to the integration of the company. And lastly, very quickly, if we can expect additional M&A activity and renewables in 2021?

Okay. Sorry, is the last answer that I can give because I have to come back to the board back. Talking about guidance, EUR 1.2 billion is without the EBITDA of renewable from Octopus inside because it was not expected in our margin, let's say. Talking about AEB, there is absolutely no risk inside the litigation for the simple fact that the litigation is not against the act -- the civil act done for the constitution of the company. I can understand that it's difficult to understand, but the litigation is against the administrative decision taken by Comune di Seregno to build the new AEB with us. But there is no litigation in civil law against AEB. So the risk for us is exactly 0. There is, let's say, a risk only for Comune di Seregno to restore, in hypothesis. But frankly speaking, I consider completely foolish. But to restore some opportunity lost by the companies that are doing litigation against us. Coming back to the guidance, the total CapEx that we put in '21 if you remember, is EUR 1.05 billion in CapEx, more EUR 250 million in M&A. And so with of course, some main surname, but not -- we are not obliged to follow exactly the forecast that we did. Of course, the total investment is EUR 1.3 million -- billion. And so in this moment, so in the 15 -- let's say, 18 of March 2021, we are inside our budget of cash out. Of course, your question if with the new operation of M&A inside the renewable, so probably you're talking about Glennmont global operation. We are looking, so it is a possibility. It's a possibility with other partners, because we are looking how to accelerate how development in renewable maintaining, absolutely, our strong investment grade position. So looking [ for a] solution to do operation of development with partner to be able to push our growth, but without maintaining the ratio between net financial position and EBITDA under EUR 3.5 billion. That is our milestone that we can pass. So you'll find that probably or surely, we'd find a way to grow quickly, maintaining our strong investment grade position. Sorry, I have to leave the meeting. I'll leave you to Andrea to talk better about the hypothesis and Octopus to arrive to 6% of IRR, the leverage and so on. Okay. See you. Bye-bye.

Thank you, Renato. Bye-bye.

I'm so sorry that today, we have terrible line here on the company. The hypothesis underneath the Octopus. The energy scenario, the energy prices have been assumed in line with our 10-year plan to be consistent, of course, and you have a full disclosure of that. Then we have made the assumptions of financing through corporate debt, which is our marginal cost, more or less how much we pay. We will refinance all the existing debt. And then basically, that's it for the most important assumptions. I don't think -- we certainly made some other assumptions in terms of OEM, efficiencies, we can start and so on and so forth, but I don't think we need to go so much basically.

I think you just the leverage that you assume more or less in the project?

6% or 7%.

Your next question is from Roland Vetter with Praxis Partners.

We can't hear the question.

Mr. Vester open. Maybe your telephone is on mute.

Can you hear me now? Hello?

Yes, please go ahead.

Sorry for the problem. Andrea, Can you maybe clarify what is included in your guidance for the net income for 2021? For example, do you include any one-offs from disposals or any other kind of one-off items in the EUR 300 million?

For 2021, you mean?

Yes, for '21.

Basically our recurring EBITDA independent from big one short around EUR 300 million, we should make it without one-off. Then there is a possibility of making one-off, which could take at the end of the story, the net income a bit higher. We cannot close the amount, which relates to a potential sale of some of our real estate properties. And we have a project whereby we are building, actually, a new corporate headquarter in Milano and sell-off 2 or 3 of our properties still in Milano. If we do that, that will be made very likely at the capital gain, which net of the equivalent taxes, corresponding taxes. We have a positive impact on the net income. But around EUR 300 million, we should make it even without -- here, without this extraordinary item.

The next question is from Stefano Gamberini with Equita.

Two quick question from my side. First, regarding the impact, the potential impact that you can have in 2021 and '22 on this spectating. You underlined that in 2020, there was an impact EUR 10 million due to the weak fuel prices and gas prices. Could you remind us what is the time lag in order to have the opposite effect on the figures? So if the full impact will arrive in '21, what is more or less the money could considering the current market prices, both gas and electricity? And the same question regarding the water. In the water, you recorded a very good improvement in '20. Could you help us understand what is the expectation for '21? The second, regarding the CapEx plan. You stressed that you have EUR 1.1 billion of investments, like-for-like, excluding M&A, if I understood correctly. If I'm not wrong, in 2022, there should be a huge acceleration of these investments. So considering that, theoretically, you need all the authorization by far in advance to go ahead with all these investments. Could you help us to understand what could be the further acceleration that we can expect in 2021 in terms of CapEx, considering the 2020, the EUR 700 million, you already reached your peak level, historical peak level. So a little bit worried if this acceleration should be reached in 2021 and in particular, in 2022?

On the district heating, the time lag is basically 3 months. Every 3 months, the prices are set now. Therefore, apart from Q4, you might consider that within the year are catch all the plus or minus of the variation in the pool prices and gas prices. Clearly, 2020 was weak 9 months out of 12. Then, of course, duplicating is more sensitive to Q1 and Q4 because we are in the winter season, and we set heating basically. But there is no -- and then we clearly account for competence and not for cash. So we estimate, in making our accruals, the amount of heating prices that will be applied by the end of the year. So you don't have to assume, carryforward or carryover effects on the distribution, basically, okay? On water, it's not the question of volumes. It might be a question of volumes, but it's not much a question of volumes. It's not a question of prices, is a regulated assets, of course, we are expecting for 2021 growth in the allowed revenues, but in the region of plus 2%, so bit less than the 5% we got last year. And as far as the CapEx plan, as far as the CapEx lending, the right number is EUR 1.05 billion, excluding the M&A. That clearly compares with the EUR 750 million, let me round the number, we achieved in 2020. That number EUR 750 million is about EUR 50 million lower than our budget. We budgeted for close to EUR 800 million. And apart from very, very minimal amount that relates to authorization. That number -- I mean, the delay, the EUR 50 million delay is due to the consequences of the lockdown in the first part of the year, where we haven't got the possibility basically to make some of these investments. Still, the growth is significant. However, as I think we commented with the planned presentation, at least in 2021, this do not relate to authorizations, for authorization, we mean approval by the provinces of the regions of the municipalities, which are behind, for instance, new WTE or investments like that. Yes, it depends on authorizations. For instance, if we want to do investments into electricity networks in Milano, we need the approval by the municipality to do the -- basically the works. But this is business as usual, it's not specific authorization. In a normal year, we would have run EUR 800 million. Last year, will did EUR 650 million, right? I always round the numbers. So yes, it's challenging, but it's not impossible. And it's not impossible. And then clearly, the curve gets steeper in 2022 and '23. But up until 2024, '25, we have basically already got the authorizations for most of this CapEx. If we think a new thing to the waste business as well because we will have to roll out the investments into Corteolona and Parona, which have been already authorized. So it's -- as we said, the plan is front-ended in terms of CapEx as well. Then, of course, if we go [ NASA ] we do have some plants in the [ FOSU ] for instance, which is urban waste treatment, which still has to be authorized in strict [ process ]. And -- but what -- this do not count for the vast majority of the CapEx. I don't know if I fully satisfied your question.

Absolutely. Just to be clear, so you expect despite that is challenging this increase to 1.05 billion US CapEx in 2021, even a further acceleration in 2022, if I understood correctly, because you used to have all -- you have all...

That's the plan. That's the plan, yes.

The next question is from Emanuele Oggioni with Banca Akros.

Can you hear me?

Yes.

Okay. I have 2. The first one is on the retail business. I wonder what is the growth pace are you expecting for new customers additions in 2021. And also, if you are expiring, which is the trend in Q1 so far as regards the volume of electricity and gas sold during this lockdown period. And the second question related to the retail business. I'd like to understand better the impact of the potential postponement of the full liberalization of the market. I suppose it's quite negligible for you, but I'd like to understand better. And the second question is on the future of the generation in the pump storage hydropower, I know it's not including the current business plan, but I wonder if you are planning in the future to invest also in this technology, in the pump, the storage, hydropower, which is more efficient than green hydrogen storage, for example.

Yes. Retail business, we have a target in 2021 of about 250,000 new customers on the free market. This is very high compared to what we -- what we achieved in 2020, which has been 100,000. But as a matter of fact, we have done EUR 220 million back in 2019. Here is one of the goals, which is -- which can be influenced by the situation in terms of sanitary emergencies as we have experienced last year. If lockdown are serious, then people is less keen to think about changing the supplier, basically. So it's one, the elasticity, if I may say in this, with the elasticity to the new acquisition to the COVID is very high. So in a normal year, 2050 is our target. First 2 months, in line with the budget. As bizarre as this might seem, there is some seasonality in the acquisitions. And the first 2 months of the year are not in strong seasonality. Having said that, we were at budget. Impact of the postponement of the liberalization is on 2022 as the postponement so far has been from mid-year to -- at the beginning of 2023. It's for a reduction of EBITDA between EUR 15 million and EUR 20 million. And then as far as comparisons with our plan, basically, it turns to be 0 from 2023. If the auctions are celebrated, of course. All the rest of our assumptions being equal. So the true postponement of 6 months has a negative impact on the initial year, which was 2022 between EUR 15 million and EUR 20 million. And then pump storage, we do have some projects on some of our power stations, especially in Calabria. But it's fair to say that in the plan, we have not put a lot of CapEx on this item. And yes, we are taking them into consideration together with the other the other storages and other possibilities. It's probably not one of the streams where you will see we are to overinvest.

[Operator Instructions] Ms. Bonfiglio, gentlemen, there are no more questions registered at this time.

Okay. Thank you very much for your time and attention. The Investor Relations team is available for follow-ups. And so goodbye to you all.

Thank you very much. Good bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.