Hera S.p.A. (HER) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call operator, and welcome to the business plan to 2023 presentation for Hera Group. [Operator Instructions] And now I'd like to give the floor to Mr. Tomaso Tommasi di Vignano, Executive Chairman of Hera Group. You have the floor.

Good afternoon. Here we are following our Board meeting to give you an explanation of the document we're presenting. I'm sure you've already released it -- received a press release regarding our new business plan to 2023. Within which, we will be giving you a few elements regarding the more recent period regarding 2019 with a specific focus regarding our preview once we formalize the closing of the figures for 2019. The elements we'd like to focus on are 2 specific items and 1 more general comment on the year. The specific items refer to the fact that, as you know, at the end of 2019, we finalized the signing of the agreement with Ascopiave regarding the asset swap that we had negotiated in the previous months, which means that we now have a further 700,000 energy customers with an excellent profile, with an excellent customer base, which is entirely focused in the northeastern part of the country. And therefore, through the company, we've set up in that part of the country, we reached our target of achieving 1 million customers. This underscores our interest in that area and our commitment towards that part of the country, which includes Veneto and Friuli Venezia Giulia. This also allows us to achieve another important target, which you can see on the slide, which is that of being able to achieve, ahead of the schedule, the target we had given ourselves with the previous business plan, namely that of increasing our number of energy customers. Although we have 3.3 million in general, this was something that we had hoped to achieve by 2022, the final year of the previous business plan, and therefore, we are very much ahead of schedule. And this also allows us to consolidate our position in the ranking in that area. We are now the third largest national player right after Eni and Enel. So this transaction has already started to offer its results as of the beginning of 2020, and we're working on making sure it's as profitable as possible. And we'll be continuing to work in the upcoming months. The second topic we had already announced and already discussed during our previous quarter presentations is focused on our operational and financial commitment in terms of strengthening the capacity available in our landfills. Now due to a number of previous reasons, we had a few shortcomings, and therefore, we devoted all of our energy to strengthening our position as far as landfills are concerned and we now have added 2.5 million tons in terms of capacity compared to what we had in the past. This also includes the start-up of the major biomethane plant. And we have also activated 2 landfills and the acquisition of a major landfill we made in Tuscany. So all of these components in terms of strengthening our plant capacity are all very much up and running, and therefore, we are not expecting any surprises from the authorization standpoint. And even here, we are ahead of schedule because if we add these figures to what we already had in our portfolio, our presence in the landfill sector is in line with our leadership in the waste sector. Now having underlined these 2 items, which are very important given the consequences that they will have in the upcoming months, let's move on to the more global figures regarding 2019. And as you can see at the center of the slide, we will be formally achieving EUR 1.081 billion, which is our forecast for 2019. Now how were we able to achieve this target? This was possible thanks to a sizable amount of organic growth because that alone, in the period between 2018 and 2019, brought about a EUR 90 million growth to which we also have to add EUR 7 million, which were brought about through M&A operations, which can be added to the organic growth. And then, of course, for transparency sake, we also have to note that in the recent period, we had some negatives stemming from lower margins in the Salvaguardia market with margins which were lower compared to the previous years during which we had obtained a large number of customers with different traits compared to the ones we have this year. So if we subtract this negative, which also includes some EUR 11 million stemming from expired incentives we had in the waste sector, for a grand total of EUR 47 million. You'll see that our grand total is EUR 1.081 billion with a EUR 50 million growth even in the second year for 2019 plus EUR 50 million we posted in 2018. And this is already an excellent target because it goes to show that the progress we've made in the 2 areas we've been most focused on, namely increasing our customer base and waste, is continuing very well. The consequence of these targets have a consequence of the soundness of our track record. And this is what I'd like to most focus on, namely the continuity with which we achieve our targets either ahead of schedule or sometimes even exceeding the targets we've given ourselves. And I think it's worth mentioning that the soundness can lead to some other targets in the future. We have increased our target, so we've also increased the speed with which these targets have been achieved. I think we have the possibility to increase our cash generation in line with the targets we've given ourselves in the previous business plan. And it's worth mentioning that even following the transaction such as the one we had with Ascopiave, the size of which is unprecedented, there will be no negative impacts on the golden rule we've given ourselves, which is that of keeping our net debt-to-EBITDA ratio within the 3x threshold, which is important because the Ascopiave transaction was so big that some did not believe we could complete that transaction so swiftly. The truth is that we will be in line with the 3x net debt-to-EBITDA ratio for the entire period included in the business plan, and we'll be able to absorb all the financial implications of the Ascopiave transaction, which means that as of next year, we will once again have the necessary flexibility that we have always had in terms of looking for any further opportunities, which still aren't included in our business plan. Again, always within the threshold of 3x net debt-to-EBITDA ratio. Now if we look to the events which happened over the past year and our forecast to 2023, you'll see that the scenario we're looking at is very interested and varied. It's an interesting scenario because we now have greater visibility on a number of items, starting with the regulation of the sectors we operate in. And thanks to financial authorities' actions, we now have better visibility for the future, which is something important. And this is something we'd like to mention because we have always believed that having an authority, a national authority that can regulate these 4 sectors we operate in would have been a very important solution for all multi-utility companies. Also because it does give us a national visibility and no longer with the local rules to abide by. And therefore, we believe that ARERA's rule, in general, besides the opinions we may have on any single regulation, we feel is very consistent and very satisfactory. The second element I'd like to mention, which isn't anything new for the multi-utility sector, is the level of fragmentation which exists on the market, which also leads to the higher degree of competitivity -- competitiveness, excuse me, in the sector, not just because of tenders but also because M&A is always an opportunity for all operators. And currently, the fragmentation we have on the market is so high that we still see a number of very positive opportunities in terms of working on the consolidation of the sector. And we will continue to work on transactions in the future. Of course, not necessarily as big as the Ascopiave deal, but of course, we'll be looking at opportunities which can allow us to further expand. A third remark, a third general remark, refers to the gas distribution sector. And we have all seen how the whole tender process for the new concessions has been slower and tougher than what we had expected regardless of whose fault it may be. We still have the targets that you are familiar with. But of course, in the new business plan we're presenting, we have a new solution which doesn't include all of the tenders you're aware of within the period from now to 2023. Although we would be ready to participate to make a bid in all of the tenders from here in 2023, were there to be an opportunity. But in any case, in the 11 areas that we are the incumbent in. We expect to have tenders in half of those areas, which means that we expect to conclude 5 tenders in the years included between 2020 and 2023. The rest, beyond that. But were there to be more tenders by 2023, we won't have any problems in making a bid given our financial situation and also because we have all of the leverage that can allow us to compete in all the tenders in all of the various areas. And therefore, we won't be reducing our overall target. And finally, as far as the energy sector is concerned, we have to keep in mind the events unfolding in the Maggior Tutela market. We now have more information regarding the time line and we now know that the start of the process has not been defined, and we'll be seeing if besides the date we will have information as to the rules with which the process will be happening. And of course, this is a process we're interested in because we do have a number of Maggior Tutela clients. And therefore, we are interested in seeing how we can increase our customer base through the liberalization of the market. And let me now give you some figures regarding these scenarios. The first figure pertains to what we expect to achieve through M&A. We decided to stand on the safe side to be cautious. In the new business plan, we expect to have some EUR 20 million stemming from M&A, EBITDA. This is in line with our track record. And of course, this doesn't exclude any possible opportunities. But as I showed you a few minutes ago, the flexibility we have can allow us to look at any possible opportunity. But as you can see, the figure we decided to include in the business plan refers to some EUR 20 million per year stemming from M&A. The second topic, as I mentioned earlier, refers to tenders. Tenders which, by the way, we're already involved in because besides of tenders that we have already been awarded in recent years for Salvaguardia, we also have the tenders pertaining to street sweeping, which we already concluded in the Ravenna Cesena area. And besides that, we will be looking at bidding in other tenders for concessions throughout the Emilia-Romagna region. This refers to the Waste business, of course. Then as far as the gas tenders are concerned, and of course, the gas tenders are the more complex ones, they're the ones which have been delayed the most. As I mentioned earlier, we start from a very good position. We have over EUR 1.5 million -- 1.5 million points of delivery. And then, once we will be awarded the tenders, we will be working on making the investments required to be able to cover those portions of territory which still aren't a part of our portfolio. And therefore, once we cover all of the 11 areas that we expect to bid for, we'll be able to have a larger RAB compared to the one we currently have, but not so big that they may end up representing a problem for us. As far as the Maggior Tutela market is concerned, we still don't have a clear idea as to the rules with which the market will be liberalized. We still don't know the way in which the tenders will be organized. Of course, we do know that the national incumbent will have to release a large number of clients. And of course, there will also be a good number of other companies which will be trying to conquer a chunk of this market share and that includes us, of course, because as you can see from the graph, we rank amongst the top of high-end electricity players. And therefore, following the liberalization of the market, we do expect to have an increase, which should be at least the same size of the share we already have. So this is the interpretation that we have given to the scenario we'll be looking at in the next few years. Now moving on to the business plan figures. We have a forecast regarding the investments we'll be making. And as you can see, it's a sizable figure. It's close to of EUR 3 billion, EUR 2.86 million -- or billion, to be specific. And therefore, we are in line with the effort we had envisaged with the previous business plan. This is the overall investment figure. And EUR 2 billion worth of CapEx in this case will be destined to further strengthening our plants, our assets, the maintenance of which will be supported by these investments. Of course, we have to focus on development CapEx, but then we also have focus on maintenance CapEx as a way of taking care of the assets we already have. And besides the EUR 1.9 billion devoted to maintenance CapEx, let me now give you the breakdown of the remaining items. EUR 540 million will be devoted to organic development with a number of initiatives and the new technologies that we will be implementing throughout the business plan years. Then we have roughly EUR 170 million, which will be devoted to the companies we'll be taking over through M&A and tenders. And then we have the EUR 190 million, which are what we expect to invest following the gas tenders. In other words, the money we'll have to invest to take over the territories we don't currently operate in. And this CapEx forecast doesn't have an impact on the soundness of our company. It is consistent with the approach we had had with the previous business plan. It is capable of adapting to the regulatory news and to the timing that we have been describing. And therefore, I think it's a pretty good effort. And of course, the regulated part of our networks is the part of our business that we will be devoting most of our CapEx to. It's only logical, in fact, given the characteristics of the networks and given the impact they have on our results. And finally, moving on to Page 6. We can give you an update on our EBITDA development targets. Over the 5-year period, we will be growing roughly EUR 220 million, which are roughly 4% CAGR. These are distributed to -- in organic growth and M&A, EUR 190 million and EUR 107 million, respectively. These are the positive elements. And then, of course, we also have to take into account the negatives. And given the lower profitability in the Maggior Tutela market, this gives us a grand total of minus EUR 76 million, EUR 40 million of which, of course, were already included in the 2019 preview, which means that only EUR 30 million remain roughly. Now in terms of how we'll be dealing with these targets, according to our tradition, we'll also be explaining how we expect to reap the benefits of our commitment. And of course, we'll be looking to increasing efficiency on the one hand, which is a target we've been working on for quite some time in a very accurate way. And we think that EUR 75 million are what we can expect to obtain in terms of cost efficiencies. And of course, we also have the synergies we expect to obtain from the company integrations I mentioned earlier, and that will be worth roughly EUR 30 million. That gives you an idea of the internal contribution to the targets we've given ourselves. I also wish to remind you of another part of our planning. And I'm referring to CSV, shared value, which is something that we've been working on for the past 3 business plans now. And as you could see, even for this installment of the business plan, we have been focusing on a number of elements, of course, inspired by the UN sustainable development goals. And as you can see, the growth of shared value in this business plan, there's a sizable increase, which is on top of the achievements we've had in recent years. And that once again goes to show how committed we are in terms of sustainability. And I think this is a good summary of the work we've been doing for this business plan. I still have one last thing to mention and of course, I'm referring to our dividend policy. You may remember that 3 or 4 years ago, we decided to focus on growth and transparency and on guaranteeing full transparency as far as what we intend to do to reward our shareholders. Now this year's news is that we have amended 2 things, which are quite significant, and they're very much consistent with the approach we've had in recent years. We previously said that we would have increased our dividends every 2 years. But given the certainties we now have, which are more compared to 6 years ago, we now feel that we can increase the dividend every year and not every 2 years. And over the 5-year period included in the business plan, we will be increasing the dividend by EUR 0.05 every year up to 2023. So that by 2023, our dividend will be equal to EUR 0.12 per share. So again, we'll be increasing the dividend by EUR 0.05 per share each year, leading to 20% increase in dividend compared to 2018. And this is a commitment that we have for the upcoming years. Now let me conclude by saying that we feel that we're working on a very sound and strong situation. We have never ventured into anything that couldn't be supported by the company, and therefore, our goal is to guarantee to all stakeholders that the conditions that we have set up can allow us to continue growing very safely. And given the general information we have regarding the scenario, we now have some improvements compared to a few years ago. We have more visibility and clearer rules and then, of course, I think that the attention that we continue giving to our shareholders is something positive. And this will lead to very practical and tangible results. And again, I think it goes to show how much attention we pay to our shareholders. And of course, we have to keep in mind that we have a core group of shareholders that have been with us for years, who can appreciate the consistent approach we've always had and the attention we paid to all of our 9,000 employees. And of course, we always try to be very positive and very timely, and we always also want to be very much focused on transparency. And having said that, let me give the floor to our CEO. Thank you very much for your kind attention.

Good afternoon, everybody. Going back to what the Chairman was saying and moving on to the dynamics that we expect to achieve. Let me give you a business-by-business breakdown, beginning with Page 7. This, of course, is a brief introduction to the more important elements in our strategic development, beginning with growth, of course, which has fueled the company in the most recent years and we will continue to fuel the company in the future. And then, of course, we are increasingly focused on risk management, not just because of climate change, but also because of all the things that we have to deal with regarding the services we offer. And then, of course, we also focus very much on circularity. As you know, we've been committed to circularity for years now. And not just in the waste sector. Circularity is an approach that fits all the other sectors we operate in perfectly. And we also have to start planning our investments interactions not just with 2023 in mind, which is the final year for our financial and economic forecast, but we also have to look beyond that, to 2030. And as you can see on Page 7, you have a selection of the priorities that we have given ourselves, the targets that we are giving -- we have given ourselves through 2030. And of course, 2023 is an intermediate stage that we'll be explaining later. So let me just talk to you about how we apply these 3 guidelines for the various business areas. And as usual, let me begin by giving you a general overview. The growth equal to EUR 1.25 billion to 2023 is pretty homogenous in all the business areas, and it goes back to the balanced growth that has marked our company's history over the past 15 years. We have always looked to have a constant balance of what we do, and we have always tried to distribute our resources in terms of asset allocation, but also in terms of development in a very homogeneous way. And when it comes to our risk profile, regulated versus liberalized, we've always had a 50-50 mix, as you know. And I think this is also what emerges from the general overview in the business plan to 2023. As you see, the energy sector, despite of the changes in the business, continues to be the largest chunk of our growth, plus EUR 77 million. As you know, EUR 54 million will stem from the Ascopiave integration and the rest from the synergies and the other activities I'll be explaining later. In the network sector, our growth will be equal to EUR 73 million. And the profitability in 2018 was EUR 464 million. This business year will grow by EUR 73 million, equal to 15%. Then we have the waste sector. In 2018, we started with EUR 252 million, and we expect to have a EUR 55 million growth. And then we also have the 2 other businesses which are included in the others column. We've always referred to them as other, although we could start defining them by what they are. Public lighting on the one hand and telecommunications in the other. And they account for EUR 30 million each year and they'll be growing by 50% throughout the business plan years, all the way up to EUR 44 million. As far as the increase in shared value is concerned, the Chairman has said it all. Although the percentage is important, last year, we were targeting 40% to 2022. This year, we're targeting 42% to 2023 with a growth equal to EUR 155 million out of a total of EUR 219 million, which means that this is the largest portion. And this relates to the strategic guidelines, the strategic targets I mentioned earlier. Another way of looking at how we'll be achieving efficiencies and synergies, out of the EUR 5 million I was mentioning, is with the business-by-business breakdown. And on the right-hand side of Page 8, you'll see that we expect EUR 27 million from networks, and EUR 27 million from waste and EUR 40 million from energy. Of course, EUR 40 million in energy also includes synergies and the optimization that we expect to achieve through the integration of Ascopiave. EUR 28 million, which means that EUR 28 million out of total of EUR 40 million will be the driver for growth in this business area. Then we also have a further EUR 11 million, which are difficult to pin point. There are more cross cutting, and therefore, we can measure the benefit by process and not so much by the business area. And these are EUR 11 million that I think can be divided equally within the group, and that leads us to a grand total of EUR 105 million, as the Chairman was mentioning earlier. Of course, these efficiencies and this growth can allow us to continue to focus on increasing our employee efficiency, from EUR 107 million in 2018 to EUR 130 million in 2023. And we expect to achieve this figure with the same number of employees, roughly 9,000, the same we currently have. This of course require an efficiency on the cost of labor, which is equal to some EUR 20 million. Now moving on to the business-by-business breakdown. And this time, I'll be beginning with energy and not with the waste, as we've done in the past. Obviously, the strategic priorities in this sector are extremely clear. Our #1 priority is to extract value from the acquisition of customers in the northeastern part of the country. We want to work on increasing cross-selling to these customers, so that we can be as close as possible to the levels we have in our territory after 10 years. We want to increase spending on value-added services. And of course, we also want to optimize the cost structure in the front and back office. Of course, as far as the risk management is concerned, in a liberalized business, risk is implicit in terms of dealing with that volatility in procurement and volumes. And therefore the target we have is to obviously consolidate the power we have acquired. We want to increase the customer base by 20 -- by 10% all the way to 3.5 million. Of course, this figure doesn't include the possible effect, which may stem from the Maggior Tutela market liberalization. This is on a like-for-like basis. In other words, it is compared to the permit that we currently have, keeping in mind the actions we wish to implement. Let me just mention a few things regarding the Ascopiave deal, although there isn't very much to add compared to what you already know. As you know, the perimeter we'll be consolidating is worth some 700,000 clients, as we were saying earlier. The joint venture that we will be implementing in the northeastern part of the country has been named EstEnergy, and therefore, it will have a little over 1 million customers which, of course, includes Ascopiave's 700,000 and the 300,000 that we already have in that part of the country. Our target -- given the fact that the 700,000 Ascopiave clients are made up of 650,000 gas customers and 50,000 electricity customers, with a 10% to 15% cross-selling, our target for the business plan years is to achieve 30% compared to the 40% that we have achieved within our territory. And then, of course, there are some cost optimization activities. And through this operation, we expect to add EUR 54 million EBITDA more. These are figures pertaining to 2018, keeping in mind that we will also be handing over to them gas distribution. As far as supply, we will have a 54 million perimeter with. EUR 28 million, we expect to extract from synergies and efficiencies that we will be concluding over the next 4 years. Moving on to Page 11. And therefore, globally, as far as supply is concerned, we will be growing from EUR 286 million to EUR 363 million. EUR 54 million will be stemming from the increase in our perimeter, EUR 28 million from synergies. We do have some negatives concerning organic growth because as we've said a number of times, we have had a change in the profitability of the Salvaguardia market. As you may remember in 2018, the EBITDA contribution was equal to EUR 118 million. This year will be EUR 45 million. And since these tenders happen every 2 years, we have made the assumption that there will be a further contraction down to EUR 35 million. Therefore, with a further minus EUR 10 million. And this negative impact will, of course, be offset by the expansion and the development that we expect to obtain in our traditional perimeter, which happens for the most part in Emilia-Romagna along the Adriatic Coast and Tuscany. And we also expect to conclude some other minor acquisitions in the upcoming years, also given the good financial flexibility that we'll be recovering very swiftly, as the Chairman was saying, giving us the resources to look at new opportunities. Also because the benefits of the Ascopiave transaction also have to be considered from the cash generation were some EUR 200 million throughout the business plan years. We expect to invest some EUR 290 million, most of which refers to electricity and industrial cogeneration and in energy services, whereas you have a very clear view in terms of the reduction of our carbon footprint and increasing our energy efficiency. As you can see, the EUR 77 million growth can be broken down into EUR 40 million synergies and efficiency, and the remaining part refers to organic growth and M&A, keeping in mind, of course, the contraction of the last incidence market. Moving on to networks. Obviously, the key element here is the consolidation of the concessions we have for services on the one hand, gas and water, of course, the water cycle, also because we have just recently completed the tender in Rimini. And secondly, of course, we have business continuity relating to the resilience of our infrastructure, something that we've already sort of have been working on for the past 2 years, and that we will be continuing to enhance in the upcoming years. And the fact that we started working ahead of schedule with some very clear plans allows us to be in a very good position. Also in terms of benefiting from the more recent water regulations, which will be rewarding performances as far as our resiliency is concerned and in terms of reducing the environmental impact. As far as ARERA's more recent regulations in gas and the water cycle, I'm sure you're all perfectly informed that is something that we have obviously considered within our projections. Moving on to the summary. We expect to post a EUR 73 million growth, EUR 25 million in gas distribution. And of course, we have to remember to subtract EUR 16 million linked to the territory that we have handed over to Ascopiave with the transaction we signed with them. Otherwise, I figure it would have been EUR 16 million more. And of course, the EUR 25 million also include, as I mentioned, the effects of the rules implemented by ARERA on the 27th of December. With a good growth in water. Of course, this includes synergies and organic growth. And we have also reached some very good technical and commercial qualities, which, of course, throughout the business plan years, will lead to further benefits, which we already started seeing last year. In development and improvement with the same CapEx, we've been able to further improve in district heating with new technologies. This business, of course, CapEx is key. They also lead to a good chunk of the organic development or the organic growth we're expecting. This CapEx is worth roughly EUR 1.9 billion, 75% of which is devoted to maintenance and to allowing the existing infrastructure to evolve. In this case, it's lower to previous years, and I'm referring to the gas tenders. This time frame, we're expecting to invest EUR 290 million compared to the EUR 400 million that we had included in the previous business plan. And then on the right-hand side, you have some of the targets we've given ourselves to 2023, as far as our business continuity and circularity are concerned. Moving on to the waste business. There are 2 main items here. The first refers to how we can capitalize on our asset base to benefit the most from the price dynamics we've been seeing over the past few years. And you have a graph here, which shows you price -- the price evolution between 2014 and 2019. As you can see, we've had an increase in the price of special waste equal to 50% over the 5-year period. And the second item, of course, refers to our commitment to continue to manage waste collection services. As the Chairman was mentioning earlier, we have completed and signed the new 15-year concession in the Ravenna and Cesena territory with an average turnover of some EUR 100 million per year. Yesterday, we made our bid for the Modena concession. And this year, we also expect the tender to happen for the Bologna territory. And also as far as the waste sector is concerned, we have to take note of a few incentives which expired for waste energy plants worth minus EUR 11 million spread out over a number of different assets, then we have an increase in organic growth equal to EUR 43 million. Within which, we also have the partial effects of the new ARERA regulations. We now have a better visibility on the impact of street-sweeping tariffs, although we still don't have a clear visibility on the waste disposal tariffs. So for the time being, we're considering EUR 7 million as the benefit we'll be seeing throughout the business plan years stemming from the new regulation, which can be a little bit conservative as we wait for the rules ARERA will be defining for the waste disposal part of the business. We've also seen a good growth from Aliplast. Our strategy for Aliplast, as you've seen on previous pages is to work on that, increasing the volume of recycled plastic significantly throughout the business plan years, this increase will be worth 60%. And by 2030, we'll be up to 150%, a 150% increase. And keep in mind that Aliplast started from 80,000 to 88,000 tons. Now most of this growth will be stemming from low-density polyethylene on the one hand and PET and the other, especially on granulate. We are also working on developing polyethylene or high-density polyethylene on the one hand, and polypropylene on the other. And another crucial element we'll be looking at in terms of increasing efficiency in plastics, we'll also be working on molecular recycling. And we are starting to study a very interesting technology with a view on making an interesting investments with some very interesting developments in the polyester plastics. With the CapEx worth some EUR 600 million for the most part, focused on the maintenance of our asset base and on the organic development of this infrastructure. Something very important since it is very -- it has a very important impact on the business plan is, of course, our cash flow visibility. Besides the strategic point of view, the Ascopiave transaction is important because it can allow us to generate cash besides the P&L, of course. And this is especially obvious if you turn to Page 16. And as you can see, we expect to generate EUR 300 million more, 2/3 of which refer to Ascopiave or the Ascopiave transaction, rather. The remaining EUR 100 million stem from the other businesses but also from the further optimization we've been working on, and that Mr. Moroni has been working on by systematically restructuring our financing so that already in 2020 and for the rest of the business plan years, we will have an average cost of debt equal to 3.2%, which is a major improvement compared to the projections we had last year where we had 3.5% as an average cost of debt. And this, of course, can allow us to free up some cash, and it can also lower the average cost of capital for our company. And then, of course, the second important point refers to taxes already in 2019. We will have a further improvement compared to the 30% we had in 2018, which we expected to maintain for the entire business plan years in the previous business plan, down to 28 -- to 28% to 28.5%, with a further benefit equal to 1% to 1.5%. And that, of course, generates cash throughout the business plan. And as far as the use of the cash is concerned, we expect to have a free cash flow equal to roughly EUR 1 billion throughout the business plan, which is twice what we expected in the previous business plan. And this further EUR 500 million can be broken down in the following rate: plus EUR 300 million with more operating cash flow and minus EUR 200 million in terms of less investments to be made in the gas tenders, since most of the gas tenders won't be happening after 2023 from what we expect. That's why the Chairman and myself asked our Board to review the dividend policy since by having more cash flow, we can increase our dividend for shareholders, as the Chairman was saying. And also, we were able to, once again, achieve the financial flexibility that we had in the previous business plan, in which we've had in the more recent years. And therefore, the Ascopiave transaction will be reabsorbed over the next 12 to 18 months, giving us the flexibility required to -- and look any -- and look at any possible options. When compared to 2018, and we also have the impact of IFRS 16, which we've discussed often in previous conference calls. Then of course, we also have to take into account the put option that our Ascopiave partners have on the -- on their EstEnergy share, equal to EUR 600 million, which refers to both Ascopiave's put option and the sum of all future dividends given to Ascopiave throughout the period, which leads to a variation of our debt compared to the EUR 2.5 billion we had last year. The difference is some EUR 900 million, so that by the end of the business plan years, we will be up to EUR 3.4 billion, which gives us a lever of 2.8x net debt to EBITDA, which is extremely comforting, of course. And as the Chairman was mentioning earlier, it allows us to have the flexibility we require for any possible M&A transactions worth EUR 300 million to EUR 400 million. And I'll conclude by saying that this is all confirmed by value creation, which is a parameter we've been using for the past years, which throughout the business plan years, will lead us to the creation of EUR 800 million in terms of value, going up from EUR 140 million in 2018 to roughly EUR 160 million in 2023. That's all as far as I'm concerned. And therefore, I will open the floor for any questions you may have.

[Operator Instructions] The first question is from the Italian conference call, Javier Suarez, Mediobanca.

Good afternoon. Happy New Year, everybody. I have 3 or 4 questions for you. On the assumptions you shared with us, some of the various businesses, beginning with the supply business. On Page 9, you mentioned a growth of 300,000 customers. You refer to it as organic growth. Now to understand the rationale on what you're saying, it seems that you're not making any specific assumption compared to the liberalization of the market. And your strategy is to try to complete the dual fuel strategy with this huge new customer base, turning to gas customers and to sell electricity to them, too. Can you confirm that this is a core of your development on the supply business by using the corporate deal you signed with Ascopiave? That was the first question on the supply business. And moving on to Page 11. You referred to minus EUR 11 million -- or minus EUR 19 million. Are you more cautious in terms of the renegotiation of Salvaguardia contracts? Or are there any other factors which can be defined as being -- as having a negative effect on organic growth? Then I have a question on the Networks business, Page 13. You mentioned the plus EUR 25 million in gas distribution. Within that figure, what is the contribution from the new gas tenders? Your vision seems to be a little bit more cautious. And therefore, what is your assumption for gas tenders within the EUR 25 million? And are you seeing any negative figures in terms of lower OpEx allowance, considering the most recent ARERA decision? Then in the water business where there's an important growth, can you give us a breakdown of the EUR 43 million? How much of it stems from premiums, expansion of the network and synergies? Just to give us a clear view as to the EUR 43 million. And then on Page 15, the waste business. You mentioned the -- a EUR 7 million positive impact stemming from the new ARERA regulation. Out of the total EUR 307 million EBITDA, which is your target for 2023, what is the percentage that will be regulated for ARERA? What part -- what percentage will be considered to be regulated? And then 1 final question on other activities. I noticed the major growth, 50% growth in public lighting and telecommunications. Can you give us some further details?

So in the order you asked your questions in -- and please, let me know if I'm missing something. Now the development of the further 300,000 customers. Yes, for the most part, you're right, they will be coming from the development of dual fuel offers. But keep in mind that besides our customers in the northeastern part of the country, the ones that we have acquired from Ascopiave, which we'll be surely working on, we have a further 2.5 million customers that we will continue to work on to develop as we've done in previous years with the rate -- an average rate of plus 40,000 customers each year. So out of the 300,000 customers that you see there, half will refer to our traditional perimeter. The other half refers to the EstEnergy territory. And it's pretty easy. We've acquired 600,000 gas clients. If we want to penetrate to them with a further 30%, that's equal to 180,000 or 150,000 customers. It's a perfect match. But as at all, we expect to do in the supply business. The sale of value-added services is something that we're very happy with. We have already signed a few dozen thousand customers. And by the end of 2023, we expect to sign over 100,000 contracts with a very visible marginality because in the years to 2023, we expect to obtain EUR 5 million to EUR 6 million from the value-added services, such as electric mobility, efficient devices, insurances and all of the other activities that I have described a number of times already. Moving on to the second part of your question on organic growth. I'm not sure I understand what you're asking on the Salvaguardia market. Let me just repeat what I said earlier. In the Salvaguardia market, the impact this year shows that the contribution will be moving down from EUR 100 million to EUR 45 million. And since we're looking at 2 other tenders from the present to 2023, we will be losing a further EUR 10 million to the competition. Therefore, a total of EUR 65 million compared to 2018. Within the EUR 65 million we expect to recover EUR 45 million, both through our efficiency activities and by developing the customer base, the 150,000 customers referring to the traditional perimeter and the further optimization we expect to obtain that the business' margins and on the VAS, the value-added services I mentioned earlier. And I hope that answers your question. Can you hear me? Moving on then. Your question on gas distribution, Page 13. You were asking the breakdown of the EUR 25 million referring to gas distribution and what we expect to obtain from the gas tenders. The last thing I heard was gas supply. I'm not sure we heard what you were saying regarding networks. Well, I'll probably just begin talking about networks. So after that question on Salvaguardia, your question on gas distribution was, what we expect to obtain from the gas tenders, which are part of the EUR 25 million we expect to grow in gas distribution. We feel we'll be able to grow by EUR 6 million from the gas tenders. And within the EUR 25 million besides the EUR 6 million from the gas tenders, we also have efficiencies and organic growth plus other components. As far as water is concerned, you wanted the breakdown of the EUR 43 million on the graph. Part of that stems from M&A. The M&A, we expect roughly EUR 15 million. The remaining EUR 28 million refer to organic growth, which, of course, includes the increased profitability, referring to our RAB; and then an increase in efficiencies and premiums on the technical quality and commercial quality, which we expect to obtain a further EUR 10 million from. And then your final question was on the waste sector. As I mentioned, we have considered EUR 7 million, which, for the most part, refer to the waste collection business, which accounts for EUR 70 million out of the EUR 307 million total. So EUR 70 million is the fully regulated part of the waste business, which includes the EUR 7 million or EUR 5 million, rather, because the remaining EUR 2 million refer to waste disposal. And then within the waste disposal business, we do have a part of it, which is regulated. The invested capital we have on the waste energy plants, which will be subject to regulation is worth EUR 400 million. But part referring to urban waste is 70% to 75%, and the remuneration of capital and management there will have an impact -- will be impacted by regulation. And then you had a final question on other services namely public lighting and telecommunications. The EUR 15 million growth refers to IFRS 16, which is worth EUR 5 million, and the rest refers to business development proportionally between TLC and public lighting. And as far as public lighting is concerned, we are the second largest player in Italy with over 500,000 lighting points, which we manage, and we ranked #2 right after Enel. Thank you.

The next question is Enrico Bartoli, MainFirst.

I have a few questions for you. First of all, let me begin with the waste business. In your annexes, I can see that you expect a very strong development volumes for special waste. This is probably due to your new landfills and your new assets. Can you just give us some details as to how you expect to obtain this growth? And can you give us some information on price evolution within the business plan years? And then as far as energy is concerned, what are your assumptions in terms of gas and electricity volumes, the acquisition of new clients? And then the EUR 28 million you expect to extract from synergies with Ascopiave, this is obviously linked to cross-selling to their clients. Are there any other areas in which you expect to obtain synergies? I've got a final question on the 2019 closing. I expect there won't be any capital gain from the sale of the distribution networks to Ascopiave. Can we expect that for 2020, maybe? And then a question on the net debt-to-EBITDA ratio. In the reported debt at the end of 2019, will we still be seeing the EUR 600 million? And what is the rationale behind the inclusion of that figure?

Let's begin with the last question, which is the easiest. As far as the net debt-to-EBITDA ratio is concerned, 2.5 in the note doesn't include the effect will -- as of December 31, which is the consolidation of the EUR 600 million put option that Ascopiave has. Therefore, with the same EBITDA and if we take into account the effects of the EUR 600 million becomes 3.05x net debt to EBITDA, which will go down to 3x at the end of 2020. And then the EUR 1.081 billion, that doesn't include any capital gain on the sale of the gas distribution network, well, we're not including that. That will be included in the special items. As far as the waste sector is concerned, as you can see in the annexes, now this is due to 2 things. First of all, we have increased capacity for waste disposal, as you can see in the very first slide that the Chairman showed us. The landfill we bought in Tuscany alone is the one which represents the backbone for the upcoming years, both in terms of the territory recoveries in terms of further capacity. And then we also have the use of further capacity within the waste energy plants, which are used for urban waste for the most part. We expect to have an increase in the sorted collection and a reduction in the unsorted part of the waste. Sorted collection will be going up to 75%, which means that we have further capacity in the waste energy plants, which can then be used for special waste. And last but not least, we also expect to build a second biomethane plant in Voltana, which will increase the volumes, of course. And we have the 40,000 tons that we will be managing in the Aliplast assets. So as you can see, we do have a number of different items. As far as prices are concerned, we haven't done anything different from what we consolidated at the end of 2019. Basically, we are envisaging a stabilization of prices in the upcoming years as highlighted by the fact that we aren't seeing any major developments throughout the country. And in fact, we're still seeing plenty of waste, which still has to be allocated, which makes us very confident. And also as far as industrial services are concerned with the evolution of the offer, as we've described, plenty of times in the past, we're working on optimizing our portfolio also in terms of our margins. Moving on to gas and electricity margins besides the QVD variations, which refer to ARERA, we haven't been expecting any major changes. There will be a minor contraction for gas, gas margins given what we've been seeing in gas procurement, but nothing too radical. As far as synergies with Ascopiave are concerned, of course, we'll be seeing plenty of synergies on the top line. And as you can imagine, we're working on 15 different projects, some 15 different projects with them. Many of which are focused on optimizing the top line, but others also want to transfer some of our practices and processes, some of our management platforms to them so that we can have an impact on costs. Our ultimate goal, of course, is to improve Ascopiave's cost to serve with the EUR 24 to EUR 25 crude customer, which is the target we have within our company.

Just a short follow-up on the gas margins. In previous business plans, you were expecting a major contraction whereas with this business plan, your outlook seems to be a little bit more positive.

As far as margins are concerned, it's certainly is. We're simply seeing the effects of the changes in regulation in terms of allocating the [ ARERA ] capacity. This may be very technical. But again, this is a regulatory element, which has a negative element of worth some EUR 2 million, and it's something we simply had to implement.

The next question is by Emanuele Oggioni, Banca Akros.

Good afternoon. Happy New Year. I have 3 questions for you. The first is a follow-up question on the supply business. Given the growth you posted in 2019 in terms of customer base, if we look at 2020 onwards, you would only have an increase of 40,000 customers per year, beginning at 2020 and all the way up to 2023, which is below the average you've had in the past. And then I have a second question on water. Even here, your estimated EBITDA growth for 2019 -- of the growth, your estimate is EUR 43 million from 2018 to 2023, which is EUR 20 million lower compared to your potential. So it would be roughly EUR 20 million from 2020 to 2023, which is EUR 6 million per year, which is very low compared to your CapEx to the RAB you're showing and to the allowed WACC, which is in line with my estimates. My third question refers to acquisitions. You mentioned EUR 107 million further EBITDA to 2023. That includes the debt, it will be EUR 500 million, just 5x debt to EBITDA, which seems to be very low.

Well, my answer to the supply question is as I mentioned earlier, the growth we expect compared to 2018 is equal to 300,000 customers. As far as 2019 is concerned, due to some rounding up, obviously, this year, we're targeting 50,000 customers. So we're looking at 2.55 million customers. And so for the upcoming 4 years, our expected growth is to be at 200,000 to 250,000 customers. And then there may be some fluctuation on a year-by-year basis with a contraction in less intense market profitability, of course, that means reduced customers which results to a 40,000 to 50,000 customer fluctuation. And the clear figure regarding our customer is this 3,550,000 customers. Moving on to your question on water. You're probably right, but you also have to consider that the water business in recent years posted a major growth. It was able to recover all tariffs as envisaged by regulation, and they will expire between 2018 and 2019, which means that in 2020, we will be in a more normalized situation. And then keep in mind that as of 2020, we also have to record the sharing on the efficiency of OpEx, which is worth EUR 3 million to EUR 5 million, which means we had to recover the EUR 3 million to EUR 5 million on the sharing OpEx. And then remuneration of capital was substantially in line. Although we've moved from a remuneration, which we estimated to be at 5.3% or 5.35% to 5.2% or 5.25%, which means that we have to take into account the minus 0.1%, and that also has an impact. And then one final aspect regarding acquisitions. You're missing a piece of information. One part of that M&A transaction also has a share swap as an underlying element worth 50 million shares, which means that the EV you mentioned also has to take into account another 50 million shares, which we took into account in the share swap, and that refers to the current market value, which is slightly lower to EUR 4. So that's a further EUR 400 million in EV. And then if you want a breakdown of the figures, please get in touch with Hansen and Mr. [indiscernible]. Thank you.

The next question is by Roberto Letizia, Equita SIM.

I have couple of questions, which are similar to Javier's questions. The first question is a trivialization of 1 of your assumptions. But given the margins and given the number of customers, you expect to increase every year, roughly 40,000, it seems to me that you're not assuming that there will be a market liberalization. And were there to be a liberalization, what would that imply for your figures? And what do you think of how the liberalization is expected to happen and the effects it may have for the non-incumbent players? And then my second question refers to the impacts of the new gas regulation and recognized costs. And what did you include in the business plan in terms of worsening of conditions for recognized costs in gas distribution? And then a follow-up on the M&A CapEx. You mentioned a further EUR 500 million, which doesn't mention anything regarding Ascopiave. That's all further M&A, if I understood correctly. And then 1 final question on strategy, and hopefully, you can comment on it. If you consider the efforts you put forth for the Ascopiave joint venture, at this point, isn't Ascopiave the ideal partner for all of your businesses?

Let me begin with your question on liberalization. Yes, we have made the assumption. The majority of say, the business isn't something we've removed from our agenda. It's still present, of course. But we simply chose to refrain from giving you a figure regarding our customers, although it is included in the projection, the economic projections we've made.

The mechanism and the framework that ARERA has proposed, will it have an impact?

We think anything is positive as long as we get things started. As long as the liberalization starts happening, I think the time has finally come to start with the process. Of course, the process will have to be gradual, that's something that we've always believed over time has come to start. And I think that given the fact that ARERA has been focusing on certain parts of customers, I think the liberalization process has to happen. And I do hope that the final problems will be solved. There's no perfect solution but I do think the process has to start, and we will certainly be involved in the whole process. And then the impact of the gas regulation and distribution. For Hera, it's worth EUR 9 million in 2020, and up to EUR 11 million beyond that. Now whether or not this regulation is consistent with the past, I think all players were quite surprised given the size of the figures, which were reported, not just for the adjusting in 2020, but also given the price gap of [ 3 56 ]. So in the business plan, we had to, of course, refer to this regulation. Hopefully, sometime soon, there may be the opportunity to amend this intervention, which we think is a little bit out of proportion. And over the past 10 days, all players have expressed their surprise. We still don't understand what the fundamentals are. And therefore, we do hope that these figures will be reviewed.

Have you already received feedback? It was surprising to us, too. In the discussion you had with the authority, did you receive a feedback?

Well, the provision date is expected December 27. Of course, the association, which represents us, has already gotten in touch with ARERA. And in the next week or 2, I expect there to be a meeting to discuss the item. Although I think it's a little bit too early to understand what the national regulator intends to do. Of course, we, the operators, are a little bit surprised, and then, of course, we will be discussing what initiatives we can take. And we'll be discussing this within our association. As far as M&A is concerned, yes, the M&A is on top. We included the Ascopiave developments in the various business by business breakdown. I hope that was your question.

Well, my last question was on Ascopiave.

Well, this is a question you should really be asking the Ascopiave shareholders. It's a little too early, I think. We've only just begun our partnership, and we'll be seeing what happens in the future. Thank you.

Mr. Tomaso di Vignano, gentlemen, for the time being, there are no further questions.

Well, then, thank you all very much for a very detailed conference call. We will be now going back to work on our business plan, which we'll be presenting to the market on the road in the next few weeks. Thank you very much. All the best. [Statements in English on this transcript were spoken by an interpreter present on the live call.]