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

Ladies and gentlemen, good morning. Thank you for joining A2A Presentation of the Results of the First 9 Months. [Operator Instructions] Mr. Renata has the floor.

Thank you and welcome. The results are going to be outlined and described by the CEO, Mr. Mazzoncini; and the CFO, Mr. Moroni. The presentation has been sent to you and is available on our website. Mr. Mazzoncini has the floor.

Good morning, ladies and gentlemen. I would like to thank you all for joining this conference call during which we shall present the results as at the 30th of September 2022 of our Group A2A. Now I'm referring to the presentation that you have and I will point when I turn the slides. Let's start from the highlight, Slide #3 of the presentation. Let me underline that during the third quarter, we have achieved big achievements that were envisaged by our industrial plan and in particular you find the usual 2 pillars, that is energy transition and circular economy. As to the energy transition, we have completed the upgrade of the APG of the Chivasso plant with a contract 15 years of capacity market, 59 megawatts and therefore we're very happy. And over and above this, we have acquired 94,000 customers through the digital channel. For us, this is very important the acquisition of digital customers. We would like to get to 30% within 2030. And we completed then the project related to 1,000 new recharging stations for our own fleet. We have 1 of the biggest corporate fleet in the country. Now as to the connection to the circular economy, we have completed the acquisition of SEA Energia, which is a company that was owned by SEA and which provided power and heat to the airports of Linate and Malpensa of Milano. The Linate plant is very important also for our district heating for the east area of Milan. For this reason, we decided that to make this acquisition. Top right of the slide, you will find the main indicators relating to the long-term strategy. As you can see, these indicators are all growing. I'd like to dwell on the wind and photovoltaic production. As you can see, it is at 475 gigawatt hour. This is growing quite considerably as you can see, up 81%. This is one of the element which is central to our growth strategy in generation. The green energy sold is equal to 5.3 terawatt hour growing by 33%. Moreover, we're increasingly committing to sustainable finance and thanks to the operations made on the capital market, the ESG sustainable debt out of the total debt is now at 60%. So very important factor. Let's now move on to Slide #4 of the presentation. Here you can see the highlights of the period. Now as you can see, the MSD market is growing. The MSD margin in the 9 months has reached 91 – EUR 140 million and this is mainly due to the very poor hydroelectric power production in the country. We had 40% less of such production that led to the unbalance versus thermoelectric power plants that an exceptional production and then MSD margins are for this reason the effect of this phenomenon. Then we have an increase of EUR 92 million of capacity market following the auctions that we won that we were awarded last year. And then a positive scenario both for power and heat. You can see that as far as we have plus EUR 142 million of scenario generation. EUR 77 million waste WTE and energy sold through WTE for EUR 46 million. And 3 biomass plants recorded a very good result with EUR 8 million more versus last year. Now the same applies to the management of district heating, EUR 13 million more related to the Waste BU. The trading portfolio also gave very important results; last year EUR 9 million, this year EUR 68 million. This is because of volatility. Our trading structure -- our Trading business unit has been able to capture positively such a volatility. And then we have the increase of EUR 23 million of wind and photovoltaic plants, which are within our scope of consolidation also following the recent acquisitions of the 3 new funds made with Ardian this year. Over and above this, we have some asset disposals. We have cash from disposal of properties at EUR 221 million of cash in and EUR 227 million of disposal of nonstrategic ATEM. And we had bonds on RAB and this generates capital gains that we will find in the net income. Negative elements were energy and gas retail margins, which worsened by EUR 72 million. As you probably have seen, but we shall we comment later on, there is a strong recovery during the previous quarters and this trend is continuing. The hydroelectric production has certainly decreased, but once again this is something I made comments on in previous occasions. Our company has a very good mix between hydroelectric, thermoelectric, wind and photovoltaic production is capable to make up for the margins of generation. The margin generations are very similar in Italy. Thermoelectric and hydroelectric compensate each other. In this case this is positive, the low margins of hydro is more than offset by thermoelectric production. And then we had also effects that we shall see later on related to constraints and WACC regulated gas distribution. Of course there is a negative effect. For all of the industry we see a temporary expansion of the net working capital, which is related to the scenario and the revenue increase. We haven't made comments in the press release about revenues because we know that it is not meaningful. But we closed the 9 months with EUR 17 billion of overall revenues. Shows also or explains the increase of the net working capital. This is a temporary effect and we hope this will deflate as soon when prices become more normal. If we go to Page #5 of the presentation, you will find a summary of all our indicators. Revenues, EUR 16.8 billion. EBITDA growing by 16% ordinary and nonordinary EBITDA with a very important value, EUR 48 million of EBITDA. And the ordinary net income is growing by 25% with a net financial position, which is growing by 19%. Well, I cannot but say that I am particularly satisfied by these figures. I will turn the floor to the CFO, Mr. Moroni, who will give you greater details of the performance of different business units.

Thank you very much, Renato, and good morning to you on my behalf as well. Page 6 of the presentation, let's now look at the group results of the first 9 months. As we heard, the EBITDA is growing by EUR 193 million reported, EUR 189 million ordinary EBITDA. And leaving aside oneoffs both of the previous year EUR 13 million and of this year EUR 17 million. This EUR 17 million of oneoffs for this year are related to the water cycle conversations related to previous years. Now the growth of EUR 189 million is guided by the good performance of the generation business, which as we said, has the capability to compensate to offset inside its business unit the lower production versus other opportunities of production, other sources of production. In particular we witnessed a reduction of production through hydroelectric power plants. Such reduction was made up for so to say with hydroelectric power plant production, but we shall see the details later on. Moreover, the waste business went quite well, EUR 44 million more and the sum of generation trading and waste offset the lower margins made by the market business unit. In Q3 we should see that the latter has recovered as promised and indicated after the presentation of June. The Smart Infrastructure business show a little low net result driven by 2 main factors. The revision of WACC, which started at the beginning of this year and also the increase of the costs of electricity or energy, which impacted on the business. Moreover, we have a number of corporate costs related to digitalization and transformation. If we go to Page 7 of the presentation, we get into the details of the performance of the generation business. Particularly, let me remind you that Q3 was a very important quarter for the Generation business unit. Now in July the result was EUR 85 million. We added to this another EUR 164 million of EBITDA. This EUR 164 million of EBITDA are broken down in the following manner. EUR 100 million the industrial portfolio. EUR 30 million related to the contribution of the capacity market, which was awarded to us thanks to the auctions of 2020 and which is now giving the effects all over the year, as I said, some EUR 30 million per quarter. Then we have the consolidation of the wind and photovoltaic portfolios of the 3 and 4 new companies for an overall amount of EUR 20 million. We also have a good performance of the Monfalcone plant of EUR 50 million. Moreover, as we heard, lower hydroelectric power production was offset by the greater production of combined cycle power plants. And then EUR 56 million is the contribution of the gas portfolio. There we see the possibility to optimize our operations thanks to the milder temperatures in October and we should see that when we speak about the market as well. And shorter positions gave generation the possibility to acquire what was purchased on the market at lower prices with a good price difference. And then EUR 15 million on trading for the quarter, which relate to opportunities that we managed to grasp thanks to the volatility of the summer months. In the 9 months so looking at the results of the 9 months, I'll go back to what has already been said. The positive trend of MSD ancillary services, EUR 139 million. This is a mainly due to exceptional situation related to the [ north ] area and lower imports the capacity market, EUR 30 million per quarter. Over the 9 months, this will give us a performance of EUR 92 million. And then trading in the first 9 months of the year contributes EUR 59 million. Now the lower hydroelectric production amounted to 39% as we heard and this is the data which also reflects or corresponds to the national data. Lower production by 1.3 terawatt per hour. And for this, we have an assumption of yearly production of 2.7 terawatt per hour. As to the hedge ratio, October, December we are hedged on fixed rate production 100%, also considering the government support measure, [indiscernible]. And then we're hedged 70% on thermoelectric production. Let me now move on to Slide #8 and see the performance of the Market business unit. Here we recorded a reduction of margins versus the previous year by EUR 91 million. In June we had a reduction of EUR 113 million and therefore in the quarter we had a positive recovery of EUR 22 million of EBITDA. The positive trend of the third quarter is mainly attributable to the commercial action, the sales actions, better dynamics of the unbalancing that we mentioned before and also a lower churn rate, which led to us having a better customer base versus the previous year. We now are beyond 3 million customers. These customers are within the free market. Now overall we can say that the first 9 months of the year gave us a possibility to recover the results of the Market business unit, which makes us very hopeful about the results of the other months of the year. Slide #9 we have the Waste business unit, which is growing by EUR 44 million without considering oneoffs. Now the most important items of this EUR 44 million are related to the WTE plants, which benefit from the energy scenario and also of the increase of disposed off waste, EUR 37 million. And then we have other contributions from disposal of urban waste, agri, industrial waste; which is growing by EUR 3 million. And then we have good results related to collection -- actually negative results of collection EUR 6 million less -- minus EUR 6 million related to higher costs and the loss of the urban waste license of Varese. Slide 10, the Smart Infrastructure BU. Here we mentioned the reduction of margins of gas and water networks. Now electricity network, there the reduction of WACC was partly offset by investments made in the year whereas we also had the payment of fees following the concession of the award of the tender in Milan for the hydrated water cycle. We had also the increased cost following the expiry of fixed rate contract, which expired at the end of H1. Now all of this was made up for the good management of district heating with a contribution of EUR 26 million and by public lighting EUR 5 million.

Now if we now go to Page 11 of the presentation, we have the net income so we'll walk you through from EBITDA to net income. The EBITDA, which as we said, EUR 1.148 billion. Amortization of EUR 530 million so amortization depreciation growing by EUR 45 million versus the previous year because of especially higher CapEx made in the rolling 12 months and also because of the difference of scope of consolidation for acquisitions made EUR 11 million. And then provisions at EUR 57 million and this is mainly due to the receivable impairment fund, which by applying the same criteria of the previous years considering the increase of revenues so this fund increased correspondingly. Let me also underline that we haven't seen an acceleration of unpaid ratio, which is at 1% as it used to be. And the DSO is similar to what it was last year with the change of 1 day related to install payments through installments that we allowed around EUR 118 million. And then we have financial charges of EUR 57 million. The result before taxes EUR 506 million and the tax rate, which is around 31%, EUR 159 million of taxes. And if you consider to remove the minorities, the ordinary result is EUR 319 million. You need to add to these special items, there is nonrecurrent items so oneoffs EUR 142 million, which are related to the capital gains for the disposal of properties and the disposal of nonstrategic assets net of tax effects. As to CapEx Page 12 of the presentation. We have quite a considerable increase of CapEx by 25%, EUR 800 million in the first 9 months growing also versus 2021 full year, which hadn't seen a major increase versus previous years. Now this was made possible because we have a procurement supply chain is quite efficient broadly in terms of procurement of materials. And therefore, we could manage well the dynamic of price increases. In particular such increase by 25% is mainly related to development CapEx, EUR 525 million are the development CapEx, plus 36% versus the same period of 2021. These are investments that we find mainly in the Smart Infrastructure business unit where obviously we are making major investments to strengthen the electricity power networks and then investments in the Waste business unit with the completion of the WTE plant of Parona, which is almost ready to operate. Last month we opened up inaugurated 2 biogas biomethane plant, 1 in Cavaglia, 1 in Lacchiarella and then we have investments in the field of generation. 70% of such investments are in line with the UN SPGs and the breakdown as envisaged by the plan; 40% circular economy, 60% energy transition. And so we grow our investments and this confirms the direction indicated and taken in our industrial plan. I leave the floor to Luca to speak about the cash flow.

Page 13 of the presentation, here you see the cash flow. Our net financial position has grown by EUR 798 million and for the following reason. Difference in the scope of consolidation, which is related to the acquisitions made EUR 472 million. Our cash flow starts from an EBITDA of EUR 1.148 billion and to this you need to detract or take away the absorption of working capital EUR 486 million. We have an increase of receivables and of the inventory value because of the purchase of commodities and then we have an item related to the mark-to-market fair value that we can consider as other receivables that will be cashed in the next few months. Moreover, we have the tax and financial charge item, EUR 124 million. And for this reason, the operating cash flow is at EUR 538 million. EUR 800 million of investments partly offset by the disposals EUR 220 million, dividends EUR 283 million. And the net free cash flow before the external growth is EUR 326 million before the changes in scope of consolidation. Page 14 of the presentation, we wanted to show you how this EUR 798 million increase of net financial position includes a number of factors that we can consider nonrecurring oneoffs. In particular, the change in the scope of consolidation of EUR 472 million offset by the disposal of EUR 220 million and for this reason, the free cash flow is EUR 547 million. An overall amount of EUR 589 million that can be considered as a temporary effect related to the economic scenario. We can break down this working capital into 2 factors. First, the zeroing out of system charges, government measures which reduced other debts, which have always provided a contribution and partly funded our activities. And over and above this, we allow certain customers to pay by installments. Now as to the EUR 483 million, we have to underline the trend of receivables because of increase of commodity prices and the derivates fair value, which is offset by the debt. Now overall EUR 589 million. So these 2 items, this is what we consider temporary items. If then put together with a negative EUR 547 million because the figures, we would have a positive cash flow of EUR 14 million.

So we can conclude with the guidance and then we'll leave the floor to your questions. We decided to review up our guidance. The EBITDA goes up by EUR 50 million and therefore the guidance of the EBITDA ranges from EUR 1.450 billion to EUR 1.500 billion. Not everything has to be taken as such because we have an increase of government measures and then increase of provisions and then the cost of debt, which is going to increase related to inflation. However, the net ordinary income has grown by EUR 10 million and therefore now the range is from EUR 340 million to EUR 380 million. We therefore conclude our presentation by confirming the future resilience of the group both in cases where the scenario is bullish during the COVID pandemic and also during a bullish scenario like this period, but we can confirm the validity of our industrial plan and the hedging capability of a strong group like ours. At this point, I'd like to hand you over for the questions. So we can now start the Q&A session. Thank you very much.

[Operator Instructions] The first question from the original language question by Javier Suarez with Mediobanca.

I have 3 questions to ask. First of all, the review of the guidance. Now growing the EBITDA by EUR 50 million it appears modest, but can you please help us understand the logic behind this EBITDA review and why the fourth quarter of the year is going to be weaker? And then another question about the working capital. Slide 14, you speak about temporary impact on the working capital. Now what is the timing of recovering of this working capital generation? What is going to be the net debt at the end of the year and what is for you -- for A2A the reasonable level of net debt for the next 2 or 3 years? And are you thinking of restructuring the structure of capital to better manage CapEx in a context of higher rates? Another question. The recovery of the retail margins in Q3, can you give us the reasons or the commercial strategies you put in place a bit more details here and why should this continue over the fourth quarter of the year?

Now as to the first question that you asked, I'll answer in the following manner. Well, undoubtedly if we take this quarter and we go to the end of the year, we will have a greater result than what is included in the guidance. Now the element or the prudence, if you wish, that we adopted is that this very good result has been achieved by an extraordinary margin of the MSD market. Well, this extraordinary result is somewhat naturally in our company. I usually show a chart where you see margins of generation over the past 10 years and you see that in years where hydroelectric is very good and in years when the hydroelectric market is not going very good, MSD is going very well. It's as if Terna cannot offset completely despite of the capacity market doesn't compensate or offset unbalances in production. Now I have to say that we're making forecasts for next year -- lower forecasts for the year because the water basin is somewhat low. So our assumptions are a bit lower than what we used, but it depends on the rainfall that we are going to have in the next few months. These scenarios are hardly forecastable. So we expect a normal forecast in terms of hydroelectric production and therefore a normalized MSD. But if we have a Q4 with low hydroelectric production, we have to expect that MSD continues to remain high and therefore the year-end result will be better. Let me also give you the answer on the retail margin and then Luca will take the working capital question. As to the retail margin, let me underline a very important factor. Now over the past few days you've seen it and you also are witnessing special conditions and also the dialog with the antitrust authorities. If you look on the fore side that margins were recovered thanks to commercial activities. Well, the commercial activities put in place by A2A was absolutely fair versus our customers so that was a must on the part of the group. We did not withdraw internationally from contracts. We had a loss that was generated by short hedging. We had fixed price contracts that consumed more energy versus what we assumed when we took out the hedging. But nonetheless, we decided that complying with the contracts or respective contracts was more important than anything else. It takes years to build your reputation, you can lose it overnight. And this has a very important value that was recognized by the market.

What was the recovery then?

Well, when contracts expired, by proposing something I would suggest my brother, we suggest to them to move on to variable price contracts. Prices are very high at this moment ideally and customers should have a variable prices contract, which of course will be affected positively when price go down that we expect to have before the end of 2024 if not sooner. This led to a reduction of our risk variable price contract are at 0 risk and this we managed to recover on margins. We were very fast I have to say to understand that the fixed price contracts were no longer the way or the road to go down. The churn rate was strongly decreasing and it was no longer necessary for this reason to continue making commercial activities to acquire customers. Customers were flowing in naturally because of the effect of the churn rate. And therefore, we focused totally on a type of commercial activity close to the needs of our customers waiting for better times that allowed us to recover on margins and also to keep our customers trusting us, which is very important. Margins are also recovering in Q4. Over the past few weeks, we have witnessed that this trend is continuing. This will allow us perhaps not to be able to recover the margins that we lost in the first half of the year, but we probably will be able to close the year much better than we could expect and fear in July. Luca, perhaps you can take the other question.

As to the question about timing, it depends a lot on the scenario. At the moment we are working based on a scenario, which will continue like this at least for the next winter season. Consequently, I don't think that in Q4 of this year nor in Q1 of next year will we be able to see a total reabsorption of the working capital that we are managing however in an active manner. As to the level of debt, we would probably be at a level of 3.2x and we are working, we are assuming that the next few years, this metric -- these indicators will go down trying to remain beyond 3x. It certainly depends on the scenario, but by assuming that we can proceed step-by-step. Well, the overall idea is that of having a reference point in 3x, which is what the whole industry is working on and trying to remain at below 3x. Now as to the level of debt, it very much depends on the scenario. In June, we gave the indication of 4.6% based on the June scenario. Meanwhile, the scenario was very, very volatile, went up and down basically and we are assuming a range between 4.6%, 4.8%, 4.9%. Please Javier, consider that looking forward and looking ahead, I always underline the very strong level of CapEx that we have because this drives growth and the EBITDA of the next few years. When we presented the business plan in 2021, we assumed lot of figures than the ones that we have seen over the past 2 years. So we are above the trajectory that we assumed. Certainly, the driver that we have in terms of the flexibility is represented by CapEx. If the cost of money deteriorated, we certainly can review our investments or remodulate our investments to be able to balance them. So we have drivers that can continue to drive our business growth, but also the possibility to balance our financial position.

Now you mentioned the debt 3.2x or 7.8%, which is driven by the increase of the working capital that you see during the second half of the year.

Now the company is I guess looking at the structure of capital and the level or the driver could be that of expanding the capital. Now please, Javier, consider that we have seen an increase in the first half of the year, which is very much connected to commodities. At the end of August the world went crazy completely and the net working capital went up considerably and now it is going down because it moves in a very consistent manner with the price of commodities. We are not considering absolutely a change in the structure of capital nor are we considering a change in the dividend policy versus the 1 we have announced. Now why? Because in this moment in 2022, we managed to close the year with levels of CapEx, which are going to be quite important, around EUR 1.7 billion. And with an increase of debt which is absolutely manageable because it is at 3.2x. Now as of today, there is almost an automatic reduction of the net financial position related to the trend in commodity prices. I'm simplifying things. If commodity prices go -- skyrocket again in the winter following the news from Russia and the Ukraine, I don't think we can say that. But should that happen, we shall act on developing growth to try and reach a balance. On the contrary if we have a situation that we assume today with prices not going up that much, the net working capital will realign itself and we should continue without major problems.

Next question by Stefano Gamberini with Equita.

Now first of all, congratulation for the results of this very strong Q3. Let me try and understand a couple of things, if I may. The first is commercial receivables. What do you expect next year? What do you see there? I read that you have EUR 106 million of impact on the debt because of installment payments, but these are guaranteed? What can happen at the beginning of the year within the worst case scenario? Have you done a scenario about debt and what in your opinion could be the worst case scenario in H1 of next year? Second question about the guidance for the next year. So the guidance of the business plan EUR 1.6 billion. Now this year you gave an indication of EUR 1.5 billion, which appears to be conservative based on what we have seen so far. Now EUR 1.6 billion of the next year, how is it going to be built and in particular can you help us understand the problem of cap EUR 68 per terawatt hour and how can that impact on your guidance? You mentioned the flexibility of CapEx. I'd like to understand which investments, which CapEx cannot be postponed meaning you see immediate returns in terms of revenues, for instance CapEx in the Waste business unit or renewable sources of energy? Now if you were to increase your flexibility, which are the investments that you're going to maintain to preserve for the next year?

Now as to commercial receivables, let me start answering the question and then we'll see whether Luca wants to add something. Now this is not a major concern for us. It is connected to the geography, if you wish, of our customer base. We are seeing no impact on DSO and no impact absolutely on receivables basically. Now installment plants are being coordinated and discussed with customers. They are mainly industrial customers and the decrease of that favorite payment by installment -- now this morning the news announced another extension of the payment by installment for 36 months, but there's no obligation on our part to allow such installment payments. This is part of an agreement with customers and we allow such type of payments with customers that we trust. For these customers, we analyze the financial statements and therefore we apply our own credit policy, which is quite strict. As to the mass market, there is a more automatic mechanism. As of today, the fact that we have a customer base which is spread out in 7,000 municipalities in the country, but we have a big number of customers for instance in Brescia and for this reason we feel reassured. Now in all of our calculations, the issue of commercial receivables, commercial credits is related to the net financial position that is at a major risk. Provisions we are making. Our very, very high policy envisages provisions to move proportionally with revenues. But this year we have monster provisions. This year provisions amount to EUR 100-odd million. So considering this level of provisions, there is honestly only a risk of capital gains rather than of negative upside. As to 2023, well, today we cannot give you any guidance about this as you know quite well. But it is quite clear that we find ourselves in a position whereby we have plants starting operations. I mentioned before that we inaugurated opened up 2 plants of biomethane or bio natural gas plants that occurred in October. These plants were built in 3 months basically, 13 million cubic meters of natural gas from ethane so imagine when they start operating and be up and running. And then for this reason for us, the scenario remains positive. And it's reasonable that we can maintain or keep or improve what we assumed in the industrial plan. We should see that in the next few weeks. Perhaps we'll set up another meeting opportunity to tell you what we have in mind for 2023. Now as to the investments that we cannot cap, the completion of certain plants, the WTE plant of Parona is going to be completed this year to handle 50,000 tonnes. We were awarded the award for the Caivano plant up to 100,000 tonnes. That plant will start operating at [ T0 ]. We have the capacity market investments. We have won the capacity market auction at then Monfalcone at 870 tonnes as well there. And then the issue of power networks. There we have a strong commitment, which is connected to the energy transition. Well, that is what we are proud of and we are committing to. And then we also committed to the resilience of the network. We committed to go below 1 the number of reductions or interruptions per customer. That is our commitment with the industrial plan and we intend to keep to that commitment. And then there are other things that we can certainly manage. Stefano, I do apologize. Let me add something about the commercial credits, commercial receivables. Now to give you the overall picture, let me say that EUR 106 million, out of this EUR 70 million are related to the zeroing out of system charges and only EUR 36 million related to the increase in payments by installments. And then overall, the way we are managing this item of commercial receivables. As you heard, we have a system of monitoring and have policies on credits and on receivables, which are well structured. Over and above this, we always run solvency analysis of the most important of major customers also on small- and medium-sized enterprises, a site analysis is run constantly. We have a system of receivables insurance policy that is attached to more than 100% of the customer base. And then we have guarantees issued by more structured companies for value of 15%. And then there is a part of customers and receivables where we're working for instance and taking out such guarantees or we're working on assumption of guarantees issued by SACE or insurance policies allowing companies to access more easily to credit to be able to deal with and manage the problem of increasing prices of the bills. And this is basically the attempt of moving towards guarantees so the whole system keeps remaining positive and we're working quite hard on this with SACE representative, just to give you an example, which is what you are reading in the press in this moment. So as you can see, the commercial, financial and other functions are very much focused on this. Now as of today, the 10th of November, the level of unpaid remains unchanged and this remains unpaid. From now till the end of the year, I don't think there will be major changes. Of course then we'll have to go through the winter months. But with the implementation of such measures, we should I believe have reached a quite high level of protection. With the evolution of the situation, we will have to see if all of this is to be adjusted.

Let me ask a follow-up question. EBITDA EUR 1.6 billion, I'm very happy that you said that you can expect to be better next year basis the business plan we have a novelty. EUR 68 per megawatt hour for next year as well, how does this impact? And then CapEx, you haven't mentioned renewables. What is the organic growth of renewables for the next year or can this somehow be postponed in terms of CapEx?

As to the cap is EUR 58 not EUR 68, EUR 58 plus 10% can reach therefore EUR 65. We took this into account and we read out a number of even more conservative assumptions. However, investments are made over the past 2 years and starting producing revenues more than offset this cap. Please remember that since we sold currently below a price of EUR 58. Now if you compare 2021, 2022 and 2023, the fact that we have a cap of EUR 58 does not change the economic data. It can only be a stronger upside if for instance the cap remains until June as the law envisages today because this is a price at which we have always sold hydroelectric power and renewable power or power coming from renewable sources. I think you heard the same statements by Enel and other companies because those who produce hydroelectric power have always sold hydroelectric power at EUR 58 per kilowatt hour. So I see it only as an upside. As to renewals, as you remember, I said we had started with M&As because we need to position in this sector. We were very strong in hydroelectric power, but we had 99 megawatts in the solar production. So we wanted to becoming -- seen as a player on the market and with the acquisition by Ardian, we now have 400 megawatts and we are among the major players of the market. Meanwhile, we launched a pipeline development platform, a giga in the pipeline at different levels of progress and we are also an engineering company and we want to grow in greenfield renewable plants. This of course then generate a level of plateau. Remember the authorization times in Italy are what they are and the pipeline becomes mature in a given period of time, our curve of growth is the following. When we start with the greenfield stage, it continues to grow and shortly we shall -- or let me give you an example. We started growing a wind plant in [ Mataro ] and it's very nice place amid vineyards, 30 megawatts plant with the best turbines of 4 megawatts each. And we acquired a ready-to-build plant in Friuli Santo, Stefano. It is the biggest solar plant in the north of Italy, 60 megawatt that we will continue to build starting next year. However, let me say that the biggest development is going to be starting from 2025 going forward because you see the maturation of the pipeline. Perhaps you see a lot of development in the renewables production simply because the pipeline has to become ready and mature. But whenever something ready, we start operating it immediately.

The next question by Emanuele Oggioni by Kepler Cheuvreux.

I'd like to congratulate you for the results and for the improvement in your guidance. Now the first question is about the outlook for 2023 for the Market business unit. Can you give us an update of the renegotiation of a fixed price contract, which I believe has almost been completed and then you have to wait for the natural expiry of these contracts? So we expect in 2023 to strongly see a stronger recovery of the Market business unit since almost everything or every contract has been turned from fixed price to variable price contract. Can you tell us or give us the improvement of the EBITDA of this business unit versus 2022? To have precise numbers, we will await the update of the Industrial plan. And then within the industrial plan that you mentioned before, 1 of the variable is related to a better clarity or having a better idea on the new price cap or the new regulatory framework that may be introduced in generation by differentiating price caps for different technologies or introducing an apiary tax on utilities. Now do you have any visibility about this versus what we have? And then about this, there is the issue of hedging. Can you update us about the hedgings of hydro and other source of production in terms of volumes and price levels? Now if the proposal of the European Commission is translated into law in this country, well, this should be protected and not affected by a lower price cap versus the hedging and therefore there should be an overall protection. And then a clarification about details on the gross debt. Can you please indicate the part of gross debt, which has a variable rate and the percentage of hedged FX rate debt and also the maturities and how much you expect in terms of increase in the cost of debt in 2023 versus the current values?

Emanuele, the first question you answered yourself. It is quite clear that the market is already benefiting and started to do so in September from the transformation of contracts into variable price contract. In 2023 this will basically affect all of the contracts and this will help us to rebalance the margins. Well, let me say that those that had the idea or the insight that that was the direction to take and that fixed rate contracts are going to die out are the ones who are getting benefits sooner, but everybody is going in that direction. Please remember that our customer base is growing. We expect a major growth also for next year. We are growing more than we expected. With the variable price contract they reset down to 0, margins are improving and we expect a growth by EUR 50 million, EUR 60 million versus 2022. Let me then answer the question about the overall framework. And let me take this opportunity to tell you that we opened an office in Brussels. We are the only 1 among the multi utilities that have the office in Brussels because it is there that you have the generation of the regulatory framework and so it is very important to be there and to be close to that area. Very often I go to Brussels myself to see what happens. Now the decoupling of gas from renewables mini pricing, we're not going to see that. Why? Because it cannot work unless the market paradigm doesn't change. Today, it looks as if on the market you have 1 shop selling all of the different electricity sources at the same time ones they are assembled. If we separate a shop into and keep it one next to the other on the market, well, the renewable shop will look the secondary the price at which fossil fuel energy coming will reposition itself a bit low and nothing will change. So that is how it is going to be the same. So this has been understood by almost everyone. I am part of the technical discussion of the Confindustria, Association of Industrialists, Enel also is part of it and we made sure that this thing was understood. The most important thing to decouple the energy sources is having a TPA platform and being able to change the paradigm. I think that when it comes to renewables, you have to sell them on RAB-based mechanisms and this requires, however, a different market logic. For this reason, we proposed this platform called [indiscernible] in Europe and no proposal of this kind was submitted and the only proposal is the one submitted by Italy. And I see it quite favorably because the fact that you have TPA, which are structural on renewables is very good especially for us that we can hedge our position in renewables thanks to our customer base even better. So then I do not see scenarios of this kind in our assumptions. We tend to say that -- we don't say first of all a European price cap. The caps meeting of the 24th of November to me will not issue anything special. The only decision that I can expect today is a common purchase of gas as something going forward. This would be positive because it would help to keep caps purchase price a bit lower, but we are not seeing any meaningful movement nor at European level nor at Italian level. So in our forecast, mechanisms of local price caps on our renewables perhaps is enhanced a bit more and then we'll have to see. Now once again the EBITDA coming from the mix of our sources reassures us. As to the hedging ratio of 2023, slightly above 70% fixed price production, around 10% hedgings on ECCGT. And then as to debt, 76% is fixed rate, average maturity 6 years. The cost is or should be around 1.5%, 1.7%; next year up slightly above 2% including also the idea of the latest rates scenario that we have seen.

Thank you very much. Ladies and gentlemen, there are no other questions from the conference call.

Well, thank you very much for joining this conference call. The Investor Relations team is also available for further clarification or other follow-up questions. Goodbye. Thank you.

This is the Chorus conference call operator. The conference is now over. You can disconnect your telephones. Thank you. Statements in English on this transcript were spoken by an interpreter present on the live call.