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 Group 9 Months 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Renata Bonfiglio, IR Manager of A2A Group. Please go ahead, madam.

Thank you very much. Good afternoon, and welcome to A2A conference call on 9 -- first 9 months results presented by Renato Mazzoncini, our CEO; and Andrea Crenna, our CFO. A Q&A session will follow. I now hand you over to Renato Mazzoncini. Please go ahead, sir.

Okay. Thank you, Renata, and good afternoon, everyone. Thanks for joining our conference call. The board has just approved the first 9 months, 1 hour ago, our results of '21. And we are, let's say, very happy because we continued with our significative industrial, I underline industrial, and economic growth driven by sustainability and green transition. So also in this result, we have an increase in all our financial indicators, thanks both to organic growth in all the business units and the contribution of M&As, which was very important in the last 9 months. And I'm very proud to say that there is a record level of investments for the period. So to start, you have the documents, I suppose. So I try also to talk with reference to pages. So starting from page number -- Slide #3, some achievements in the third quarter. We have established A2A e-mobility. That is a NewCo, dedicated to the development of the charging infrastructure for electrical vehicles. To pay attention, we decided to divide the activities of CPOs, charging point operators from activities of MSP, mobility service providers. So mobility service provider remained in the business unit market. And the CPO is inside the business unit network in the logic in which the charging point operator has to be interoperable with all the mobility service provider. There is -- it's very important the first -- the conversion of Monfalcone, called 5 power plants in a new Class H combined gas cycle plants of 80- and 60-megawatt of power. And because we obtained the environmental impact assessment, and we are looking to having the next weeks a final authorization for the new plant. So this is absolutely good news. Probably some of you can remember that in our industrial plan, that is one plant converted in CCGT, but maybe -- but we will have in the next weeks, the good news that both Monfalcone and San Filippo del Mela can arrive to this goal. Second, for the peak in Cassano D’Adda for 6 new endothermic gas engine. We also kept on boosting our commitment towards circular economy. We acquired the 30% of, let's say, a little company. The name is F.lli Omini, leading -- that is a leading company in the demolition and end-of-life management of industrial plants. For example, the demolition of the big ship, Costa Concordia or Ponte Morandi was done by this company. So it's really a leader in this sector and is very interesting for us, of course, for a whole what we can do for the end-of-life of big infrastructure in the logic of a circular economy. We completed 2 wastewater treatment plants at Gavardo and Alfianello in the Province of Brescia, allowing us to serve more than 26,000 people through EUR 70 million CapEx investment. And also respect is very important because you know that in our strategy, water is very important. We have -- we are continuously working to find a business model that can keep the private company like ours in this sector. And finally, we reached agreement with Alfa Acciai. It is steel plant and big company that produces steel in Brescia for heat exchange and with Nuova Accademia Guardia di Finanza in Bergamo for trigeneration plants. And great operational achievements can be reached only through a change in our mindset that we are working a lot in sustainable finance. With the issuance of a new EUR 500 million green bond. So as the result of the new mindset, the sustainable finance in this moment is -- the weight of a sustainable finance or the sustainable debt that reached to 40% in our company, starting from 0, some semester ago. So there is an agreement, a partnership with Leonardo in innovative solution in cyber security of generation and distribution plans. And other agreement that is, in my opinion, interesting and the clear signal in our direction. Shifting to Slide #4. Exactly talking about the key ESG highlights. Across the first 9 months of the year, we achieved substantial results linking to BSG initiatives, both in circular economy and energy transition. As you know, our 2 pillars in the industrial plants. So for example, a steep increase in gross recovered waste, which topped 3.1 million tons, as you can see in the slides, up to 8% compared to the 9 months of last year, thanks to the higher volumes of biomass plants and in particular, through the acquisition of Agripower. So through the acquisition that we have done the last -- in November 2020. Other effect, very, very important is the 14% of growth of renewable capacity, boosted, in particular, by the acquisition of the plants -- of the portfolio -- solar portfolio of Octopus Renewables, that contributing for 180 megawatts. If we look to the increasing of energy production, renewable is 9%, not 14%. So 14% is the capacity sold. 9% is more energy production -- green energy production because there are still 3 plants in Octopus that have to be connected to that and because, as you know, the number of hours of production of solar plant is lower than the medium production in our company. But here, this number is on track with our industrial plan. But I remember, want to arrive in 2030 to 58% of renewable energy production -- on the total energy production. 28% of increase in green energy sold compared with the same period of last year. And lastly, our emission factor is equal to 316 grams of CO2 per kilowatt hours. Our target is to arrive in 2030 to 20 -- 226. So under 2030, that is the target for -- the science-based target. We are certified by the science-based target. The starting point is 2017. The reduction between 2017 and now is 26%. So good work. And then talking about people, you can see that we added 1,000 people, 999 for this position, and boosted smart working. Now we have 4,000 of employees with an increase of digitalization. And in October '21, we arrived with 100% of employees full digital. So for us a good result. Shifting to Slide #5, I ask to Andrea to say something about the strategy -- the financial strategy.

I guess you've seen during the year, what we have done in terms of sustainable finance. We have done a lot of things starting from the new financial framework at the beginning of the year. Since then, basically, whatever we have done in finance has been under the program or in any case, under the ESG umbrella. We have done share buyback, loans and bonds, sustainable bonds and lately, green bonds. 100% of our funding has been ISG. We issued 1 billion of bond with over -- with an average life of 11 years at a rate of 0.8% on average, which has dragged down the total cost of debt to 1.6% from 2.3%. We got the same last year at the end of September. And now as Renato said, 44%, be more actually than 40%, 44% of our total gross debt is ESG, a bit ahead of our expectations towards 70%, which is the target in our 10 years plan. Renato?

Okay. And skipping to Slide #6, some industrial highlights in this period. Surely, we benefited from a positive energy scenario. Also mitigated exactly the opposite direction like last year, the COVID year, by our prudent hedging strategy, aimed at continuing risk and volatility over the medium term, mainly, of course, in the generation -- business unit generation, trading and excellent performances of ancillary services. The good period last winter in particular for District Heating, so very important volumes, 16% more than the same period of 2020. Good news, the water cycle tariffs following ARERA decisions . And of course, M&A contribution, in particular, our subsidiary IB in the north of Milan, in Sereno. But also Octopus, the solar portfolio, Agritre and other operations that we have closed during the year. The negative effect was mainly the gas portfolio, with a negative impact connected to the incredible energy scenario that we have seen, in particular, in the last -- in the third quarter. And the hydroelectric concession fees that grows more than, of course, than the last year. But is -- let's say, it is also an edging through the risk that we have on the concession. Okay. Skipping to Slide #7, you can see a quick outline of our main figures before Andrea provided some more insight. So the revenues increased of 34%, reaching more or less EUR 6.5 billion. The growth is mainly driven by higher volumes and prices in electricity, let's say, about 50% of this growth. M&A contribution is -- and organic growth is the rest. But a robust organic growth show more than 10% in all the business unit and the positive contribution of M&A transaction, boosted the reported EBITDA to EUR 959 million, so up to EUR 137 million versus the first 9 months of last year. Net of one-off contribution, ordinary EBITDA still recorded 16% of increase. The group net income recorded an extraordinary result. So EUR 394 million, 81% growth compared with 2020. Apart from the significant nonrecurring tax contribution of about EUR 145 million due to the realignment between book value and tax based value of tangible and intangible assets. You know the topic because the companies. Following below EUR 104 million 2030. The ordinary group net income recorded 17% of organic growth, reaching EUR 255 million against EUR 218 million of the last year. The net financial position increased by, let's say, only EUR 310 million, topping EUR 3.78 billion, of which over EUR 400 million are related to change of perimeter and ESMA. So excluding this effect, the net financial position showed a reduction of EUR 130 million. Now I leave the floor to Andrea for some detail in the single business unit. Then I will come back talking about CapEx and the guidance, please, Andrea.

Thank you, Renato. On Page 8, on the usual waterfall of the EBITDA. You can see the group is still reporting solid growth in the 9 months of 16% on the ordinary EBITDA. This result includes the contribution from the M&A. So the variation in a consolidated perimeter, which accounts for EUR 50 million or EUR 128 million, EUR 30 million of which being IB and remaining the other assets we acquired last year and at the end of last year and the beginning of this year. Q3 has been strong on all the BUs, as you see, but generation where peculiar market condition have closed a quarter versus quarter performance to reduce for about EUR 25 million, which in turn has been more than offset by the increase in profitability in all the other BUs. If we now -- turn to the generation, I'll try to give you a bit more flavor. You still see a '19 ordinary growth in the business unit. But as I just said, Q3 has been tough. You can clearly compare with H1 results. Despite or actually due to the very volatile market scenario. And as I just said, this scenario for the reasons is just about, say, took a reduction of about EUR 25 million in the performance of this BU in the quarter. As you know, we were completely hedged on our respective production, especially on the hydroelectric. And then we have -- the hedging levels were at about a bit more than EUR 50 per megawatt hour. Then extraordinary things have happened. On one side, we have got lower hydro production volumes than we were expected. And more importantly, we got very, very high demand of energy from our customers. The combination of these 2 effects drove an unbalancing between offer and supply that we have been forced to match on the market at current market prices, which were above EUR 119 per megawatt. Let me say that on balancing between planned productions is very much business as usual. It always happens. In this quarter, and actually, it was not even this quarter was September, it was very much limited to the month of September, but we got more demands from our customers actually higher than the contractualized volumes. And at the same time, we had to meet the gap, the incredible crisis that you all know. So that basically explains the performance of the generation in the quarter. This was mostly the performance of the portfolio, which is this amount I just mentioned, was mostly offset by unequally, but on the other side, performance in the MSD market. We have got EUR 53 million, which is EUR 13 million more than same quarter last year. And the overall EUR 25 million is, therefore, explainable for EUR 5 million roughly on the industrial portfolio for the reasons I just mentioned. And we got higher concession fees as 2 regions, Friuli and Calabria basically updated alongside below the concession fees, taking substantially to the same situations where Lombardy already took the beginning of the year. And then the performance of the gas portfolio, which was already weak in June has been unfortunately confirmed as weaker in Q3 for always very high gas prices. If we move to market, in this case, the performance is very easily explainable. We're not having different drivers than we got in H1. IB always contributed to the performance for about 50%, EUR 10 million to EUR 20 million. Once again, the free market customer growth is okay. We added 30,000 in the quarter. Now the overall amount is EUR 126 million. We have very, very strong growth in volumes. We have unit margin okay, holding up and actually increasing a bit in the mass market in the gas B2B. And on the other side, we're suffering on the unit margins on the B2B in the electricity, not actually for reasons related to competitions, which accounts for a minimal part, but we also got imbalancing in this business -- effects related to the imbalancing in this business unit as well. Waste, it's even simpler. We really very much aligned with H1 with always the same reasons underneath, M&A, Agritre and Agripower. We got organic growth. We have stronger energy prices, waste tariffs to gate, our treatment plants gates keep on growing. So the situation here doesn't call for any specific comment unless you have specific questions. And networks, again, has been once again very much in line. Here, we have IB. Most of the contribution of IB is in the networks, it's EUR 19 million out of EUR 30 million, EUR 13 million of which -- EUR 13 million of the EUR 19 million boils down to the gas network. And then excluding IN and some stronger capitalized costs related to the higher CapEx, basically on personnel. The growth in the distribution networks has been still very solid, exceeding 6% and driven by tariff increase in the water, networks and volumes and scenario effects we already commented in H1. Clearly, Q3 for District Heating is a quarter in which there's no activity basically. From the EBITDA to the group net income, I can confirm that we will have around EUR 660 million of depreciation and amortizations on the full year. Risk provision, the consensus pretty much again. Clearly, last year, we were hit by an extraordinary provision on our growth value landfill, which is not going to be repeated. As I said, cost of debt is today 1.6%, and the tax rate will remain between 31%, 32%. Please remind that this year, we will have the positive effect of the compliance with the low 140,000 in '20. We did in H1 where Renata and myself can provide all the details. Then we got the positive effect, which was already in our semi-annual results, and clearly, we'll be repeated on the full year. I will leave Renato to comment on the CapEx.

Yes. Thanks, Andrea. As I said before, I'm very proud about the result in CapEx. A quick overview is in the Slide 15, there is, let's say, a standing plus 55% of increase versus the first 9 months of 2020, arriving to EUR 640 million. But it's very important to underline that most of them are developments, so full for future growth, accounting, the EUR 390 million in only development. That is the same size of all the investment development and maintaining of 2020. And this 70% more against the previous year. And this is so important also because if you look on the right of the slide, you can see that this growth is in all the business unit, of course, very important in networks, EUR 100 million, but also 50% more in environment in the business unit market everywhere. Digitalization with our corporate. And I want also to underline that EUR 81 million of this CapEx are compliant with the SDGs and well-balanced between pillar, so 52% in energy transition and 48% in circular economy. Andrea, if you want to comment on the net free cash flow.

Yes, I think it's worth nothing that we're still cash positive before the M&A, despite a strong CapEx undertook in the period and then negative free cash flow, it has been basically due to the M&A transactions carry out so far. This also includes the EUR 100 million of buyback we have done on our shares to serve the merger with LGACA. Then in this quarter or in these 9 months, you see a positive flow from the net working capital, which is expected to reverse in Q4 as we will close the gap to the EUR 1 billion CapEx, which is our target. And also because it's normal for a company like to enter into the winter season and see stronger revenues from the turnover calling from higher working capital. So the net working capital will reverse sign. We are expecting to basically have 100, 200 -- between EUR 100 million and EUR 200 million of negative free cash flow on the ordinary cash flow before the M&A and variations . Now if you want to give...

Yes. And to close the guidance, we are arriving to the end of this year. So the guidance probably well aligned with the closing of the year. You can see that the EBITDA is between EUR 1,320 million and EUR 1,340 million. And we confirm EUR 1 billion of CapEx. Let me say that when we presented industrial plan in January, a lot of analysts said that the plan -- the business plan, the industrial plan was, let's say, ambitious. I said that was absolutely possible to do it. And this is the first year of our industrial plan and it's working very well. It's working very well, but is surely the scenario that is useful, but EUR 1 billion CapEx is the proof that the capacity of our company of its way to grow is very, very important. But we are -- we will be able to do the industrial plan that we presented in January. Okay. Thanks. I think Renata that we can open to questions.

Q&A session now. Please go ahead with your questions.

[Operator Instructions] The first question is from Javier Suarez of Mediobanca.

3 questions. First one is on the generation business. The management has mentioned the balance in the market during the month of September that has been closed buying up electricity on the market at very high prices, et cetera, et cetera. But obviously, the scenario has been very positive for A2A. So the question for you is the current scenario of very high energy prices is changing at all your forward selling strategy or your hedging strategy? And if you can give us latest details on that for our strategy for the next 18 months or so. That is the first question. The second question is also on the generation business. I think that during the presentation, the CFO has mentioned the increase in the concessional fees in 2 regions, following the decision to increase concessional fees in Lombardy. If you can give us details on -- in absolute terms of the increase that those concessional fee means on your EBITDA. The third question is on the working capital. If you can -- I have been surprised to see a positive net working capital impact during -- so far this year because I may have expected the opposite. So you can help us to understand the dynamics of working capital so far the years, and why there is this improvement in working capital of almost EUR 100 million year-to-date. And the very last question, you can give us an update on the process to create a joint venture on renewal synergies with Ardian.

Javier, I will take initial 3 questions, and Renato, the Ardian one. On the generation and the unbalancing, I think it's no news to anybody that we were hedged for, let's say, 100%. It's never 100% anyway. It can be very close to 100%, and we hedge the expected production. We don't have a policy, a deterministic policy, if I can say so in which every month, we hedge a certain defined amount of the expected production. There's a committee. We meet, there's discussions over the follow view on how the market is doing, how many gigawatt hours or billions of tons we have secured or contractualized, and we take decisions. The energy management that we are carrying out is not changing because of the situation, and it's not changing because of the bad result we have got in September, which is not to say that we won't learn from some suboptimal decisions we have taken. I'm saying that, as I will tell you in a second, we have already hedged in line with what we have done over the past 10 years, part of 2020 and '22, for instance now. So there is no radical change in the hedging policy because of what happened in September, and we don't hedge by way of strict deterministic rules. What happened is that we always -- every month, over the past 10 years, and I'm sure, over the next 10 years, we always experience unbalancing, but the quantities are minimal, and the prices are basically the price that we have been known for years. This year was exceptional both in Q and in P, okay. And also, we got less productions than we were expecting. And as far as the fact that we have hedged 100%, it's always, I think, important to remember that when we hedge is because we find on the market, the level of the prices, which is higher than the budget or than the plan. So when we present the numbers of our plan or our guidance on the full year, to the financial community, we have certain assumptions that in the first year, we shared with you, by the way, if we can hedge at better conditions with basically locking in an extra margins versus our plan. Then clearly, once you have hedged, you might have taken the right decisions around the season. But last year, we took a right decision. We had the positive mark-to-market so on and so forth. So now which kind of coverage ratios we have on the full year 2022. For instance, we are hedged on 2022 production today, i.e., before the end of the previous year, 40% overall. But out of this 40%, we are hedged about 55% on the fixed price. So on the hydro productions and the WTE. And we are hedged 55% on the other productions are better terms than we had in the 2022 of the older plan, okay. So I don't know if I have sufficiently and completely answered your question. And then clearly...

You can share with us the level of prices for that agent that would be helpful.

Yes, I can. We hedged the 55% of 71%, 7-1. And we hedged 30% on the CCGT at EUR 7 per megawatt hour of spread, of course, CCGT. Concession fees, your second question, we have a EUR 12 million increase year-on-year from EUR 32 million to EUR 44 million. Calabria went up -- first and foremost, do you remember that the concession fees are -- today with the new laws are a stratification of 3 different components. One is the concession fee per se. It's a flat fee, depending on the power. The second component is the free energy. So we have to provide a certain amount of energy for free, which clearly, it's a full cost or an opportunity cost. And second point is the variable component, a certain amount of concession fees, which depends on the revenues. So the 3 of them all make up to the overall concession fees that we have to give to the regions yearly. So with all these 3 together in mind, Calabria went up from 5.5% to 8.2%. 8. 2% on the 9 months, of course. Friuli went up EUR 1 million. LGACA -- a few plants of LGACA went up 2 million and Valtellina, Lombardy, which was already there, but clearly, we get the variable component here, which is very important, went up for about EUR 6 million. I did round, so I don't know whether it turns to EUR 12 million, but it should be. On the full year...

Yes, yes, yes, sorry. The EUR 12 million is for the 9 months by end September, correct?

The increase of EUR 12 million is for the 9 months.

Okay.

The next question is from Enrico Bartoli from Stifel.

I still -- I think still owe an answer to -- we still actually owe 2 answers. One was the networking capital and the or the Ardian. I will be very short on the net working capital. The positive variance is due to the CapEx. CapEx are usually paired with payment terms over 60 to 90 days. So most of the CapEx in this quarter will turn into cash on the following quarter. Since we increased a lot of CapEx, the increase in payables more than offset the increase in inventories, which is mostly gas. And we actually didn't record a very strong increase in receivable because the increase in volumes were offset by better performance. The DSO reduced. Next quarter, we will have the other way around. Next quarter, we will have winter seasons, we will start selling gas and District Heatings and this increase in turnover will call for higher receivables, and the CapEx will basically fade down to the target that we get. But what I can tell you is DSO, DPO inventories days are either flat or improving.

Yes, Javier. Talking about Ardian, you know that is a very big deal, but we are on track. So in this moment, we have a lot of activities. In particular, we are working for the due diligence on the 2 portfolio of Ardian, the 2 portfolio of renew and for new and vice versa. So on Ardian, we are working on the due diligence on our assets. And the time line is to close the due diligence, let's say, until the first week of December to be able to design all the agreement until this year because we want to present the update of our industrial plan in the first quarter of next year with the numbers of the NewCo with Ardian inside. So this is the update.

So the next question is from Enrico Bartoli of Stifel.

3 questions on my side. First of all, on the gas margins, you highlighted this negative impact in the first 9 months. Can you update on, say, your hedging policy on this side, on the procurement side of the gas? And if we can expect some negative impact also in the fourth quarter? And if you can share some light on the -- what you expect the evolution on these margins in 2022? Second question is related to other concessions. It was mentioned by the press that the government aims of starting a tender process in 2022. If you can comment on this. And if you think that the timing is realistic because actually, it's very short. And what you think that could be an impact on your SPI concessions. And the last one is related to . There being several evolution in the legal actions. I wonder if you expect any impact on the consolidation of the assets, or how you expect the legal development for the next month?

Enrico, I will pick up the first questions on the gas margin. We're now fully hedged on the volumes that we have contractualized on the gas. We have closed all the position last month. So I would answer that the residual risk left, considering also that we are basically in mid-November is minimal, and it relates only to the possibility that we will be going for high quantities that we have already planned and hedged, okay. But the new contractualization is basically over. We are at the end of the year for delivery in December. So all the risk is associated to the possibility that our already contractualized customers for a very, very cold winter will call for more gas than we have planned basically. So -- and we have 1 to 1.5 months to go. As of today, the risk is 0 on top of what we have already planned. On 2022, we're still budgeting, we have some open position. So the performance is -- it's -- I don't think would be positive. But if we have to comment on the size, let us give you the full month when we will disclose the guidance on the full year. It's -- one variable comment is always unfair.

Well, talking about hydro concession, let's say that rather, it's true that in the competition over is also the hydro concessions, plus there are some medians. The first is that the competition law has a long process, probably no less than 1 year to become effective. The second, very important for us is that a tender can be also a tender on a project finance presented by someone. So this hypothesis is very interesting for us but can be, of course, one of the way to maintain the concession. The third, let me say, is because in our country, the tender for the concession, and it's typically a lot of years to be celebrated and finally closed and so on. So in this moment, we expected to have little or no impact on our position for other concessions. And talking about legal action, , I imagine you are talking about all IB, all the companies because , as you know, is only the company that leverage on the market. Any impact on the consolidation of the assets, simply because there is no legal action against all the civil acts that we have done for the constitution of the NewCo. So all the legal action are against the municipality of Sereno, so let's say, is a political war inside the Municipality of Sereno. But no one has done any action against IB. So absolutely, no impact. We have a lot of opinion by different very important legal about this. So we are completely confident that there is no -- absolutely no impact.

Sorry, if I can may -- if I may have a quick follow-up on the first one on the comment from Andrea. Actually, considering the, let's say, the hedge volumes for gas for 2022, it is fair to assume that considering the negative impact that you had in '21, the comparison would be positive next year?

We still have to close the budget, Enrico. I appreciate that you're trying to assess what the 2022 looks like. And we can certainly comment generally on our expectations for 2022 on an overall basis. So I would tend to avoid answering a single questions, which then doesn't take into considerations the positive and the negatives, which we might have another part of -- not of the company as a whole, but even in generation, okay? So yes, the gas scenario is still very, very strong, okay? I can tell you that it is still very strong. We are still in the marketing campaign, especially for the winter season of 2022. No, we haven't contractualized all the volumes. We tend to hedge as soon as possible. But the problem is not the level of the gas prices, but the time frame in which we have open positions. We cannot basically secure immediately one contract with the market. Maybe we take today. Today is the volatility in that period is very high. We run the risk to take a negative hit, which we're clearly trying to minimize. So in order for me to tell you exactly, look, it's going to be better, worse of this amount. And this amount, you have to add up to this and that and the other amount and give you a fair view on what 2002 (sic) [ 2022 ] looks like, today, I really can't. But it's not that I don't want. I really cannot. I really not able to -- if we have to finish today.

The next question is from Stefano Gamberini of Equita.

A few questions also from my side. The first, regarding a general view you have in the current scenario of high energy prices, you see the risk that the government could accelerate the reform of the electricity market toward the biggest season. So reducing the profitability of hydroelectric plants? And the second one on the waste business, the simplification decree is not the significant improvement of the authorization for treatment plants and you have done waste, what do you expect on this topic from the government, I hope, shortly. And the other 2 questions are, first of all, regarding the hedging, if I understood correctly, that you have 55% of hydro production for 2022 at EUR 71 per megawatt hour or if I'm wrong? And just to understand why you do not go to 100% considering that the floor price are very high. And the second still regarding the 2022, you have -- you spent the guidance at the beginning of this year of EUR 135 million to EUR 139 million EBITDA. If I'm not wrong, the consensus is already ahead of this level. Could you elaborate a little bit about this topic and in particular, regarding what are the main variables that could improve your results in '22 towards '21, in particular, I referred to district heating, what is the upside that you see in [indiscernible] as well as in waste on top clearly of the hydrogen production -- hydroelectric production. And the second thing on '22, if you confirm a target of CapEx and M&A in the region of EUR 1.8 billion, that if I am not wrong, was the guidance that you spent 1 year ago -- in January this year.

I start with the 2 questions. Well, talking about the scenario, high energy prices and the risk about the government decided, for example, to reduce the marginality of the hydro plants. In my opinion, there is not so risk talking about hydro plants, in particular, because you know that there is, let's say, regional power on the hydro plants. The region wants to have an increasing on the concession fees. And this is the deal between the marginality and the honor of these plans. We are working for the new market design because it's clear that we have to -- we need the new market design because we're completely changing on the mix of generation from the historical hydro [indiscernible] through the renewable energy needs to define a new market design. And there is a work also at levels in with the government and so on. And it's not easy because the position from -- not only from the production and the demand are completely different, of course, but also inside the production because, for example, companies like A2A, it is on [indiscernible], that have also customer base has a different position compared with companies that are pure producers. And so I think that we'll arrive to a new market design, but it would be a market design, able to push the investments in renewables, that is exactly what we want inside our industrial plan. So I am confident that we'll arrive to a market design that will work well. And absolutely, I consider impossible that through a law from the government, there is a risk on the marginality of the hydro plants. Talking about treatment waste, we are surely waiting for simplification law because there is a clear needs of new plants for waste-to-energy, 6, 7 in Italy and plants for wet waste, so for production of biomass and so on, probably 30, 40 plants. We did in September, as you probably know, a position paper with [indiscernible] to open the discussion about this. And let's say, I think that the sensibility about these topics is growing a lot. And I'm confident also through a lot of discussion with different levels -- at the government level, but will arrive to simplification law to obtain certain time in the authorization of these plants. The landfill in Italy has a life of 2 or 3 years, no more. And so the only alternative are or to build new landfill or to build new plants for waste-to-energy -- for waste retreatment. So I think that surely we go in the second way. Andrea, if you want to.

Yes, Stefano. First question is why -- you got it right about the hedging levels and presses. You got the number right. Why we don't hedge more, 2, 3 reasons. One, and you basically, even if the market is good, not necessarily, you find the liquidity of the market to hedge such a big exposure as we have. So in any case, we have to do it bit by bit, okay, not all in one shot. Secondly, because if we hedge 100%, and we have the risk of the imbalancing as we have learned this September. So we'll probably be a bit more prudent. And then as I was saying, the commercial campaign is still over. So part of this capacity might be hedged by incremental volumes contractualized by the Ardian Energia and the other retail company of -- companies of the group. 2022, I could answer basically the same answer I gave to Enrico, we can't give numbers. Conceptually, if you allow me, I will try to give you a hint. In generation, we are optimistic. Pool prices are -- as you know, the scenario, generally speaking, is positive. We hedged part of it. But you can easily run the numbers on what is still unhedged. The pool prices are very good. And on the other side, the spreads are a bit thinner. So on the negative side, we have the profitability on the CCGTs versus this year. MSD, it's always the same story. We will end up 2021 with very solid result. This is already in the numbers at the end of the quarter. Question is whether these numbers are replicable in 2022. Very difficultly, the capacity market will kick in. We have a cap on the prices of the ancillary services. So even assuming we will dispatch the same quantities on the MSD, prices will be capped. So we have to take assumptions on what is the rational assumptions on the ancillary services, knowing that the kick in of the capacity market would most likely and most reasonably call for lower margins. Then we have the capacity market. We all know you all know what is the amount because we already disclosed. But overall, generation seems okay. On the market, in terms of customer base, we're doing nicely in terms of unit margins as for the balance sheet, we just comment we're doing equally nicely. We still have to evaluate what to do in terms of renewal of the contracts of our expiring customer base. Conceptually, you have to take into -- we will elaborate more when we would be presenting the numbers. As I said, I cannot disclose numbers, which we haven't finished yet and even less so, which have been approved by the board, of course, because we haven't done it yet. But conceptually, if we have a contract which has expired -- 2 years' contract, we could renew 2 years. And then you can easily imagine that the fixed-price contract with a 2-year tenor, it's an average of the 2 years prices we find on the platforms, so '22 and '23. You don't do a contract with different prices. You do a contract with one single price. And if you take the average, then you are, one, you are out of the money, and you have, two, you are in the money, basically for arithmetic reasons. So we have to assess what to do commercially first and that -- which would be the impact. Clearly, the profitability of the contract is secure, the way it splits into the 2 years can variate. On the waste business, we're positive. It will grow basically, excluding the M&A, which we might do, might not do depending when we do it. It's going nicely. Here, we have the question mark of the paper prices, which in 2021 have been very, very strong, very strong. So we have to make assumptions on whether these prices are sustainable or will be further increased or with cut or decrease, we will make our hypothesis. On the networks, you all know, guys, you know that the regulator is upcoming by the end of the year with the news. Everybody is thinking about a decrease in the remuneration, we don't comment on the size of the step that the authority will take, but anyway, we all are waiting for a lower remuneration than we have today. And then we are left with the corporate, where we clearly, as a staff, are going after the growth of the company. And so we probably have reason to assume that all these projects to assist the BUs will go for a bit higher costs. Is it the guidance on the market? Can we confirm? Can't we confirm? I can't comment. I think that these are the numbers we gave last year, and we tend to meet our commitments. This is what I can tell you. Whether there are possibilities to have stronger numbers, once again, we will disclose beginning of next year. I hope I have answered all your questions.

Yes. Just a quick follow-up regarding in the network business, could you remind us what is the sensitivity of District Heating to a scenario like this? What I mean is, if I'm not wrong, part of the heat is supplied by gas plants and other parts from WTE. So am I wrong when I expect that an increase of energy prices could improve the margins also and defected substantially?

No, you are right. All the rest being equal at 50% because the heat price is indexed, 50% of the pool prices and 50% of the gas prices. So if you assume all the rest being equal and pool goes up, we will have a benefit of the variations in the pool versus the previous year for 50%. Not equal mix of the sourcing, of course. If we have stronger volumes, we will generate more from gas and less in percentage, I mean, because total capacity out of heat generated by WTE is given. And it depends on the capacity of the WTE. So all are a certain threshold, we had to generate heat from gas, and this calls from a lower percentage margin. In absolute terms, clearly, it's always good news. It's a positive volume effect, but the marginal volume exceeding the capacity that we can satisfy with the WTE comes from a lower margin. It's a bit complicated on an external side to assess the impact of this business. But anyway, to oversimplify, if pool prices goes up, it's good news, all the rest being equal. If cash prices goes up neutral, unless we're generating noise neutral on profitability in percentage terms. In absolute terms, clearly, we do some margins. And the colder, the better.

[Operator Instructions] Ms. Bonfiglio, there are no more questions registered at this time. Back to you for any closing remarks you may have.

Okay. Thank you very much. Therefore, the call is over now. Our Investor Relations is available for follow-ups. Thank you for your time and attention, and goodbye.

Okay. Goodbye to everyone. Thank you. Bye.

Thank you very much. Bye.

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