Iren SpA (IRE) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Iren Full Year 2019 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Massimiliano Bianco, CEO of Iren. Please go ahead, sir.

Thank you. Good afternoon, everybody, and thank you for attending Iren's conference call of our '19 full year results. Starting from Page 2, I would like to show the main topics of this presentation, which is different from the previous one due to the actual difficult situation. As you can see in the slide, the presentation is composed by 2 different parts: An analysis of the '19 full year results; and insight into the current scenario and future expectation in this unexploited situation. We also had to adjust the Q&A section methodology, taking into consideration the difficulties of coordination with the colleagues. Each one is remotely connected from different location. As anticipated by the Investor Relations team, the Q&A session will not be in a live mode, but we have already received the questions from investors and analysts, and I'm going to answer them after the slide presentation. Like every time and even more today, after the conference call, our Investor Relations team will be available to answer to your follow-up questions. After the short introduction, we can move to the presentation of the group's economic and financial results achieved in '19 with a detailed focus on sustainability activities. Starting from Page 3, you can find a graphical summary of the main result achieved in the last 5 years. Concerning the EBITDA increased by EUR 277 million, all the strategic pillars contributed to the growth. Consolidation reported the main value, thanks to over 20 transactions carried out during this year. The important result in synergies have been reached to specific projects of workforce improvement and cost reductions supported by the digital infrastructure. Finally, the continuous increasing of investment allowed stimulating the organic growth. I would like to spend just a few words on the achievement of the financial flexibility that characterized the strategic part of the past year. In '19, the group reached net debt-to-EBITDA ratio of 3x, moving from 3.6 in 2014. Such remarkable goal -- results have been supported by significant increase in cash flow generation, leading to the improvement of all the key economic indicators, and it was obtained despite an increasing dividend policy. Thanks to OLT participation disposal and its [ cash-in ] reported at the beginning of 2020, the absence of [indiscernible] maturity in the short-term and the sound liquidity profile, we can confirm the strength of our financial structure. This very positive trend can also be seen in terms of net profit. The bottom line has increased from EUR 69 million in '14 to EUR 237 million in '19, now more than 3x higher than 5 years ago. Sound cash flow generation and the safe liquidity profile allows for keeping committing on DPS growth as the proposal funding fee stands at EUR 0.0925 per share with a 10.1% increase compared to previous year. On Page 4, you can find our sustainability advantage to '19. We have included at this stage to bring our sustainability path to your knowledge. So I would like to reiterate the primary action taken in '18 that allowed us to achieve these important results. Going deeply in each area, we can start with water sources. The activity of division of networks into small and equal areas for a more effective management have continued with a very intense growth rate reaching about 50% of the network. The direct result are a reduction of a water network leak and at the same time, a decrease of water [indiscernible] from the environment. Furthermore, as announced in September, we are working to develop 5 water treatment plants, mainly in the [indiscernible] region, to increase our capacity of 16%. The activities continued on schedule and the first significant milestone of increasing the wastewater treatment capacity will be seen already in 2020. Concerning the Circular Economy project, mainly related to the investment for acquisition and construction on new recovery plant, we have showed the first result on the consolidation of Ferrania and CMT. These companies that work in sortied waste item, in particular, paper, plastic, organic [indiscernible] allowed us to increase the volumes of waste recovered in our plant. Moreover, the extension of door-to-door collection system allowed us to reach the target set for 2024 of sorted waste collected per inhabitant, obtaining an overall level of sorted collection equal to 67.3%. The multiple projects under capitalization committed to the increase in thermal and electricity storage to improve the flexibility, efficient and availability of our plants [indiscernible] to reduce the energy consumption-related emission, along with our production mix, focused on highly efficiency plants allowed us to reduce the environmental impact of our activities. In particular, '19 records a reduction of 1.7% of our carbon intensity and an increase of the energy saving of 8%. Example of what we are doing to support the transition of our cities to resilient cities are district heating and eco-mobility. The increase in district heating volumes, which exceed 95 million of cubic meters at the end of '19 allowed us to improve the air quality in our territories and to reduce the gas and electricity consumption. Moreover, 16 of our fleet is now -- 16% is now composed by eco vehicles, in line with our business plan assumption. Regarding eco-mobility, we also continue to increase the offer to our customers. On top of this, it's important to highlight that the people evolution is a necessary condition to carry out the paradigm shift shown in our business plan. The activities to enhancing competencies through training and reskilling program has been started. The first effect is the increase in the annual training hours per capita plus 4% compared to '18. There are 4 skills development benefits proposed from targeted recruitment for gas and expert. In '19, our employment growth is 3% compared to '18, excluding M&A transaction. Moving to next slide, on Page 5. It is important to highlight the positive contribution of all the business units, which, excluding the nonrecurring element of the previous year, led to a remarkable growth at the EBITDA level. Before analyzing the strategic pillar and the characteristical, I would like to remind that the nonrecurring elements reported in '18 and showing the bridge. EUR 101 million of one-off are made by the White Certificates contribution of EUR 60 million and the acquisition of EUR 41 million related to the revision of the estimate of credits for invoices to be issued affecting the market decision. The 5.9% increase in recurrent operating margins have been supported by the positive results of all the strategic pillars. Positive energy scenario and have been partially offset by a negative climatic effects. The main contributor to the EBITDA growth has been the energy scenario with a result of EUR 44 million affecting 3 business [indiscernible]. More in detail, higher thermal [indiscernible] volume associated with higher margins in consideration has been partially offset by a lower electricity. In addition, the recovery in electricity and gas margins has contributed to the increase of the market business unit. On the negative side, the lower fuel price has reduced the profit coming from the sale of electricity produced by hydroelectric and waste energy plant. The second part that has solid margins has been the organic growth. The contribution of EUR 36 million has affected all the business units. Starting with networks, the investment made in recent years to build new infrastructure has increased the allowed revenues. Concerning waste, the grow in waste volume collected and the situation of REI landfills have positively contributed. The energy business unit has been affected by an increase in the strategic volume, thanks to the management of SEI branch, a network of 5 million cubic meter. Furthermore, the investment in the plant flexibilization and the energy efficiency project managed by Iren Smart Solution had positively contributed. Finally, in the organic growth, you can find the volume of electricity sold to new clients and contributional value of the service and products sold. The consolidation process contribution is related to ACAM, which is accounted only for the first quarter. San Germano, Spezia Energy Trading and FG Ferrania Ecologia with an overall contribution of EUR 11 million. I want to spend few words about the assets of the new consolidated company on our EBITDA and net financial position. The transactions carried out in '18 have been San Germano, Ferrania, and Territorio E Risors and clients of Sanremoluce. The cash out for the acquisition has had a negative impact on our debt of EUR 89 million. Meanwhile, the contribution of the operating margin has been EUR 2 million, mainly due to the integration cost. Thanks to the investments planned, our forecast for 2020 results -- is a result of approximately EUR 12 million, which result to EUR 19 million in 2021, when we expect the full contribution. As far as the synergies are concerned, the contribution of EUR 10 million has been mainly achieved in the networks and a small part in managed market business unit. It's important to highlight that the synergy reached could be higher, approximately EUR 20 million, but they have been partially offset by the emerging costs like the investment in IT infrastructure, cloud data and higher tax cost concerning mainly the acquisition of new skilled people. The current market effect reported a negative result for EUR 19 million, of which EUR 16 million in energy and the other end markets. The shortage of [indiscernible] and rain in '19 compared to the extraordinary '18 has led to a strong reduction in hydroelectric volumes. The warm temperature reported in '18, one of the hottest year ever, has decreased the volume of distribution and of gas sold to retail clients. It's important to report that in '18, EUR 32 million of green certificates that are affected by the direct result [indiscernible]. Below the EBITDA, we reported an increase in depreciation, mainly due to the consolidation process and CapEx-intensive investments. The reduction in group net profit is a concern of the lower EBITDA, but on this topic, CFO will explain that later. Finally, I would like to highlight the huge increase in investments made this year equal to EUR 524 million, plus 17% compared to last year. This constant upward trend has been enabled by our sound cash generation and our financial flexibility. Now we can move on to the analysis for each business unit. Let's start the business unit section, as usual, with networks, Page 6. That reported a growth in EBITDA of 9%, supported by all strategic pillars. First of all, the organic growth of EUR 12 million, thanks to the increasing RAB, plus 4%, compared to full year '18, being supported by the important investments made in previous year, that they allowed the company to increase the regulated revenues. Secondly, the world sector has benefited from significant synergies of EUR 7 million, thanks to the implementation further performance improvement initiatives. More than 2/3 of the synergy of the group comes from this business unit. On top of this, the consolidation of ACAM resulted EUR 5 million related to [indiscernible] of the company in the first quarter '18. This impact is in line with the yearly contribution of around EUR 25 million in the water cycle. The water sector also is being a bit affected by a recognition of balance that equal to EUR 14 million and by the absence of positive elements reported in '18, which compose almost all the value of the category under elements. The positive investment trend continued plus 8% and are aimed at improving the efficiency and quality of service for [indiscernible] a client, especially in the water sector. Using the sustainability principles defined in our business plan, such as the reduction of the water network leaks that reached 33.4% at the end of '19, compared to national average of 41.4%. In the energy networks, the commitment is aimed to improve the resilience to avoid service interruption through remote control and the development of new infrastructure. We confirm network as the business unit leading the growth for the group in the next 5 years. Concerning the water business, the tariff method for period 2023, recently approved by the regulator, offers high stability in cash flow, confirming all the main principle of previous methodology and [indiscernible] for the operator. For the first time since the '12 on approach for sharing efficiency and operating expenditure is in place, but the impact for the group is expected to be negligible. The second business unit to examine is waste, Page 7, where we highlight 1.8% increase in EBITDA. This growth is related firstly to a better disposal plant saturation, including the full contribution of the disposal. And secondly, to the increase in collection margins related to door-to-door expansion. For these reasons, the organic growth reported at the end of '19 is equal to EUR 5 million. Regarding the consolidation process, the positive contribution of San Germano and ACAM is about EUR 3 million. On the other hand, the last transaction carried out in July, Ferrania has had a negligible impact in terms of EBITDA. The impact is instead significant on net financial position due to the financial cash flow for acquisition of approximately EUR 7 million debt consolidation and future investment on treatment plants, leading to an increase in margin since 2021. These positive results have been partially counterbalanced by lower pricing, affecting the electricity produced by our waste-to-energy plant. It is important to point out that according to our business plan assumptions, we are carrying out the activities and the authorization process for construction of new plants that will start contributing from 2021 onwards. Because of that, the '19 investment reached EUR 151 million, of which EUR 72 million, more than double compared to '18, are organic development CapEx, and the remaining EUR 79 million are allocated for M&A transactions such as the San Germano, Ferrania and Territorio E Risors. The impact on EBITDA of this new company will be EUR 11 million in 2020 and EUR 18 million in 2021. The investment plan at the treatment chain, as highlighted in our business plan, are confirmed in terms of both plant construction and the capacity expansion of the organic treatment plants of Territorio E Risors and Ferrania Ecologia. A special mention is necessary for the last transaction carried out regarding I.Blu company. The operation enables Iren to become the leader among Italian operators in the selection of COREPLA plastics and in the treatment of plasmix, accelerating the development of Iren Ambiente's plant. The acquisition allow us to increase the volumes of waste [indiscernible] and margin sourcing, expanding to fiber activity along with the value chain. We plan to exploit the [indiscernible] through the construction of 100,000 tons in the northwest and one 60,000 tons plus mix treatment plant, so as to create a player with approximately 300,000 tons of collection capacity and approximately 200,000 tons of plasmix treatment capacity when fully implemented. Moreover, nowadays, thanks to the extension of both your system, the percentage of sorted waste collection will improve by 3 basis points compared to '18, reaching 67.3% higher than the national average of 58.1%. Moving to Page 8, I want to analyze the factor that affected the energy in 2018. It's important to highlight that taking out the extraordinary recognition of white certificates reported in '18 equal to EUR 60 million, the business unit achieved an increase in operating margin despite the expiry of EUR 32 million of green certificates. During the '19, the business unit has been affected positively by the energy scenario, the organic growth, synergy consolidation and other elements, and at the same time, have been affected negatively by the climatic effect. As far as the hydroelectric sector is concerned, the lower PUN price, which reported a remarkable minus 15% compared to last year and the lower volumes of electrical usage compared to the last year because of the extraordinary drought season reported in '18 has a equal weight in the decrease of EUR 22 million. The electricity generation composed by our thermoelectric and cogeneration plants reported a growth equal to EUR 36 million, mainly thanks to a recovery in [indiscernible] compared to last year in the region of EUR 2 million per megawatt hour and higher volumes, mostly thermoelectric. In details, our [indiscernible] plant worked mainly in the market and, consequently, in the ancillary service market has been weaker compared to last year and equal to EUR 71 million, down of EUR 11 million. Overall, the contribution of the energy scenario has been EUR 27 million. The other positive factor has been the organic growth sustained by investments made in our plants. In '19, we received a balance worth EUR 5 million from the regulator in order to remunerate the capacity of our plant, which is effective [indiscernible] until the start of the capacity market. Concerning the heat generation, the positive heat spark spread to the decrease in gas cost has been partially offset by lower volumes distributed because of the mild temperature recorded at the beginning and at the end of the year. The sector positively benefited of the inclusion of the business branch rental of SEI Energia for 5 million cubic meter that we expect to consolidate this year. All the factors mentioned contributed for EUR 9 million, which might be [indiscernible] EUR 7 million related to a contingency report in '18. The energy efficiency sector reported a positive contribution of EUR 5 million, mainly related to organic growth. I want to give you some numbers in order to underline the positive performance of the new branch called Iren Smart Solutions. In '19, we reported approximately 120 projects affected by clients, mainly for building, revamping and heat management. Furthermore, we presented more than 200 offers that our potential clients are still evaluating. Similarly, we were out of 11 of other elements reported concerning the heat sector, all the other elements are spread around their other sectors. The total CapEx of the business unit has been EUR 70 million, mainly related to development of district heating networks and improve our cogeneration plants. All the activities developed in the last few years in order to improve the flexibility, efficiency and availability of our plants allowed us to reduce the energy consumption of roughly 700,000 [indiscernible]. The construction of 2 gigawatts new combined cycle started. I would like to give you an update on 2-giga plants, where we invest roughly EUR 160 million to increase the plants' capacity by around 400 megawatts with a new combined cycle. Regarding the capacity market auction, 93 megawatts of new capacity connected with the new 2-giga plants assigned with a cap size of EUR 75,000, 4 megawatts, for an annual amount of EUR 7 million with a term of 15 years, and 180 megawatts of capacity are signed as the existing capacity at a cap price of 33,000 megawatts for an annual amount of EUR 6 million in '22 and '23. On top of this, the new generation line will contribute in the day-ahead market and in the ancillary service market. As explained in our business plan, the development of our district heating network will -- with the aim of saturated production of our cogeneration plants will be the main driver of the business unit growth. We confirm also our investment to improve the flexibility of our plants and push on the energy efficiency projects. Concerning the market sector, the results shown in Page 9 confirm our expectation stated in July for a recovery margin starting from the second part of the year. To show the current EBITDA goal, it's important to exclude from previous year EBITDA, EUR 41 million of the addition of the estimate of credit for invoices to be issued. If we take into account only the recurrent elements, the goal reported is 12.9%. As far as the electricity sector is concerned, the profitability increase has been underpinned by the client growth combined with the repricing policy and the recovery of negative impact from previous hedging policy implemented this year. In addition, it's important to highlight the positive contribution for EUR 2 million of Spezia Energy Trading, mainly focused on the sale energy to small and medium enterprises. Overall, these elements have contributed for EUR 27 million, partially offset by the absence of balances and other negative elements reported in '18 for overall EUR 11 million. The volume of electricity sold has been affected by 3 different strategic choices: The consolidation of energy -- Spezia Energy Trading, which positively contributed to the volumes growth of small businesses clients; the lower volumes awarded in concert with an overall portfolio repositioning in the business segment due to the low margins; the confirmed retail portfolio growth, where, let me remember you, the further inorganic acquisition of 22,000 power clients also [indiscernible] since the beginning of this year, from which we expect a positive contribution for about EUR 1 million. As [indiscernible] gas sector, operating results decreased slightly due to the lower volume sold to end customers, due to the mild temperature on the first and the fourth quarters, partially offset by the recovery in margins. The worsening in the result is mainly due to the absence of positive balances reported in '18 and the effect of the resolution 77 that overall contributed negatively for EUR 6 million. Finally, in my opinion, it's important to show you the positive result of [indiscernible] in line with business plan that -- and [indiscernible] must remember, with the business that sell value-added products and services. The positive result reported this year equal to EUR 3 million is related to the organic growth with an overall 10% penetration rate in our customer base, thanks to the investment made in the past year to improve our commercial policy. On top of this, we are developing our e-mobility projects, with the aim of spread use of electrical vehicles in order to improve the air quality, in our retail, thanks to -- also to 890 ecological vehicles in our fleet, 16% of total vehicles or sharing e-mobility in general with e-scooters, thanks to partnership with [indiscernible]. We are continuing to increase our customer base 1.815 million of gas and power electricity clients at the end of '19, a goal of 33,000 of clients comparable to last year. The result has been achieved. Thanks to the push on our omni comprehensive approach exploiting commercial and marketing activities, with an important increase in work sales, 25% of gross total acquisition, more than double than the average in the sector. We are confident to set up a national strategy to increase our retail customer base, reaching a target of 2.25 million of retail clients outlined in the business plan. We are working on a fully digital strategy, which will also include the digital payment system, thanks to the opportunities offered by the TSC to be active. They are proud to announce that the final authorization from Banco Italia gained this week, both for payment and aggregator institute, is [indiscernible]. If you look at the EBITDA of the entire energy value chain, putting out the nonrecurring element, it's possible to highlight that margins reported an increase of about EUR 50 million compared to '18. It is a good result reached. Thanks to the enacted portfolio management of sources and news, and thanks to integrated industrial and commercial policies between energy and market business unit, confirming once again the solidity of our business model. Now I hand over to Massimo Levrino, the CFO, for comments on financial performance of the company.

Thank you, Massimiliano. Good afternoon, everybody. Going to Page 10, the chart shows the full year results from EBITDA to net profit. Starting from EBITDA, it was EUR 452 million, and this showed a decrease of EUR 78.3 million. It is the consequence of the reduction of EBITDA and of the growth of depreciation. But excluding the nonrecurrent effects of EUR 100 million, it was already mentioned by the CEO, instead of a decrease, EBITDA would have increased by EUR 23 million. I outlined that depreciation in our provision rose by EUR 34 million, in particular, depreciation was EUR 403 million, that increased by EUR 48 million due to the 3 reasons: First of all, the growth of fixed asset; second, to the application of fixed IFRS 16; and third, the extension in the scope of consolidation, particularly to the major company, San Germano and ACAM. The other provision was EUR 25 million, EUR 4 million less than in 2018 and include the write-down of the goodwill of about EUR 10 million related to a treatment plant in a U.S. basis. The provision to bad debt stands at EUR 37 million, decreased by EUR 15 million. But we have to consider that in 2018, there -- the provision -- extraordinary provision of EUR 9 million related to the financial receivable of OLT. Therefore, the reduction is EUR 6 million. GDP stands at EUR 377 million, which showed a decrease of EUR 12 million. But excluding the net current effects mentioned before, EBITDA would have increased by EUR 89 million. In the full year '19, we had the positive contribution of the financial charges for loans and bonds that stands at EUR 61.9 million and that decreased by EUR 70.6 million. This decrease was due to lower cost of the financial debt from 2.7% to 2.4%, 11% roughly. The other provision and financial charges are a reduction of EUR 18.6 million. This trend is due in particular to lower costs related to the activity of liability management did in 2019. The net profit of the company consolidated using the equity method had an increase of EUR 3.7 million that is due to the improvement in the net income in 2019 of some small subsidiaries. The participation adjustment stands at 0.5. In 2018, it was 35.6 negative. And the improvement is due to the fact that [indiscernible] there was the write-down of the OLT equity book value for EUR 28 million and is due also to the adjustment of 2 other participation, mainly [indiscernible], for a total amount of EUR 7 million. Going to net profit, it stands at EUR 236.6 million, a decrease of EUR 5.5 million. But excluding the nonrecurrent effect mentioned before, net of taxes, and in addition, excluding the trade-down in paper retail of the equity book value of oil, the write-down -- the net profit would have increased by EUR 39 million. The tax rate was about 29.6%, a bit lower than in 2018 that it was 29.9%. Minorities were EUR 29.1 million, a decrease of EUR 2 million. It is due to lower net profit of some small consolidated company. Now we are going to the next page, Page 11. Page 11, you can see the cash flow and the net financial position. The net financial position at the end of December 2019 had a growth of EUR 253 million, that we have to take into consideration closely the effect of the application of IFRS 16 that had a significant impact of EUR 126 million, and secondly, the change in the scope of consolidation for EUR 89 million. Net of these 2 -- the net financial debt would have been EUR 2,490 million, so with the growth restricted to EUR 37 million, only 1%. The third IFRS 16 impact is higher than in previous quarters because we are considering the redemption of properties owned by the real estate fund. About consolidation, the effect of '19 [indiscernible] related to the transaction carried out in '19 that have already been well described by the CEO previously. The slight increase of EUR 33 million in working capital is not due to commercial receivables, but with the growth of VAT receivables and tax repayment. The total investment was EUR 524 million. There were EUR 447 million in '18, EUR 77 million added. The strength is anyway in line with the business plan. The dividend is EUR 150 million compared with EUR 113 million recorded in 2018. The increase of EUR 37 million is due for EUR 18 million put in shareholders. The dividend increased by 20%. And the main increase of EUR 19 million is an extraordinary dividend paid by the subsidiary [indiscernible] to minority shareholders. Derivatives and others had a negative impact of EUR 28 million, mainly due to the commodity derivatives that contributed to higher financial debt for EUR 23 million. Going to next page. In Page 12, you see the interest rate and debt structure. Starting from the first pie chart on the left, you see the breakdown of gross debt. At the end of '19, only 96% is -- only 4% is variable interest rate and 96% is debt at fixed interest rate. So we have a varied stability of cost of debt also in terms of future possible increase of interest rate. The second pie on the chart in the center show the breakdown of the debt structure. The gross debt is fallen by bond for 80%. The debt structure was impacted by the issue in October '19 of the third green bond with a size of EUR 500 million, a term note of 10 years, a gross of 0.94%. Third, thanks to the division, Iren is the only local utility that we should see green bonds for a total amount of EUR 1.5 billion. The other financial services are 20%, of which 15% are EIB -- from EIB and only 5% from banks -- from the banks. The average duration on the long-term debt is 5.8 years. Other than in '18, it was 5.3 years. The cost of debt is 2.4% compared with 2.7% in 2018, same position issue on the bond. And to the liability EBIT in 2019 that we expect also in 2020. In this year, we forecast and continue to revert the cost of debt. About maturities, first of all, I'd like to point out that the cash in February 2020 of EUR 330 million related to the old sale was also the financial strength of Iren, giving a positive impact on ratio considered by the rating agency. We have also to take into consideration the low-funding maturities. As you can see in the bar chart on the right, with a financing need in 2020 of EUR 212 million, and in 2021, EUR 229 million. These needs have been already refinanced totally for 2020 and partially for 2021, thanks to the liquidity available, now around EUR 270 million. And to the availability of committed -- long-term committed lines that we collect in 2020 for an amount of EUR 95 million, of which EUR 75 million will be collected today, on the 27th of March. Moreover, in July '19, we signed with EIB new contracts for a loan of EUR 120 million to support initiative in the hydroelectric production sector and the environment sector. In addition, we have available other EUR 60 million of long-term credit lines. So therefore, the total availability of long-term committed trading facility are EUR 180 million. The majority of them are EIB funds. All this loan has a maturity of 15 years amortizing at a very low cost. And lastly, I remember back at the end of June, Iren subscribed 2 sustainability linked revolving facility completed for a total amount of EUR 150 million that support the rating level and that has a penalty and premium mechanism linked to the achievement of specific environment goals. I finish, and I hand it over to Massimiliano again.

Thank you, Massimo. Now I would like to give you some details regarding Iren's business model and its higher experience against negative shocks. There's some insight that -- and some insight to better understand the impact of COVID-19 outbreak on our numbers. So moving to Page 13, you can see the higher percentage of regulated and quasi-regulated activities of 70% of the '19 EBITDA. The percentage is expected to be stable during all the business plan period, with a goal in regulated activities compared to quasi-regulated activities. Among the first activities, we can find the networks business and urban waste collection and treatment activities. A stable and clear regulatory framework set up by an independent regulator favors the network business in a week. Regulatory period lasts between 4 and 8 years, and every 3 years, WACC update. The main changes could derive from the parameters set up by the regulator. But any case, in the medium term, we don't expect significant changes. About the waste business started from this year, the collection is regulated by a RAB methodology then -- that provides a WACC, allowing for the recovery of both the operating cost and the remuneration of invested capital. We expect that the next year, the independent authority will regulate also the treatment and disposal sectors. The results, volatility are mainly due to the PUN prices that affected the electricity produced by waste-to-energy plant. In the long term, the elements of uncertainty could be the authorization process of the new treatment plants. The uncertainty of duration of the operation sometimes could cause a delay in the construction of the plant. But we are confident that the lack of infrastructure in the Italian system and the need for usage and capacity could help overcome obstacles. The energy business unit shows many opportunities of next years. The capacity market option reported the inadequacy of the Italian generation fleet, highlighted by the maximum prices awarded during the option. The capacity market will contribute starting from 2022, and it has printed as quasi-regulated activities. Energy scenario could affect the margins of hydroelectric plants as well as the climatic effects. The latter could also have an impact on heat volumes distributed. In many case, leading out with exogenous elements, our commitment is to develop the district heating networks in order to saturate our cogeneration plants and manage the volatility of the scenario to an active hedging policy. In a sector increasingly oriented towards renewable sources, make the most of flexibility of our thermoelectric plants to satisfy the peak of electricity demand and guarantee the safety of the system. The last business unit that I want to analyze is market. Two of the main positive drivers is lower churn rate of our customer base compared to our competitors and high percentage of repaid clients, whilst consumption are less volatile than business clients. Some concern could arise from the climatic effects that could affect the gas volume sold and the volatility of the energy scenario. But as I said before, we managed a hedging strategy in order to meet price things. We are confident of reaching the target of new clients outlined in the last business plan, thanks also to a new national strategy. We recognize that competition will increase, particularly in the -- with the hang of the protected market, but we are implementing all the strategies among which line of value that services to maintain our customer base and a second marketing and commercial strategy, mainly in digital channel, highly competitive to attracting clients. Concerning the financial topics, the company has a sound financial structure with a stable net debt-to-EBITDA ratio around 3x that represent our medium-term target. The financial strategy of fixed rate bonds and the long-term maturities led us to limit the volatility of interest rate in a stressed scenario. Furthermore in the extreme eventuality of a weak financial position, the adaptability of the investment plan allow us to shift the CapEx to take advantage of the future financial flexibility foreseen in the business plan. In addition, for important [indiscernible] transaction of strategic investment with high visibility and strong cash flow generation, we have the possibility to go above 3x ratio for short to medium period. Last, but not least, people in our company are well managed and able to work in any condition to ensure the company's vital functions and services. This year, we have planned a main investment in technology in the IT system to favor the agile man working, the safety of our informatic systems. Moving to next Page 14. The COVID-19, this is having a huge impact on financial markets, on the economy and, above all, on the life of people. The situation will have an impact on our numbers that I will explain better, but I would also emphasize that the recovery period could present some opportunities. Among the first action implemented, there were the continuity of operations and provision of all essential service, expecting the safety and the health of our workers. We have increased the numbers of employees working in order to ensure an ordinary management of the company. Thanks to the investment in technology put in place during the past years and the positive experience of my working, we already had the skills to tackle this difficult situation. Despite the extraordinary and unexpected situation, the company is well reacting, and we are delivering all our services in such emergency. We appreciate the behavior of the independent authority area because it has put in place actions to protect the weak section of population, find -- finding a recovery mechanism to reduce the possible impact on operators. We are aware that a recovery of the economy will have to be supported by a huge amount of investment to boost the goal, in particular, in networks and waste, due to the lack of infrastructure. In this sector, our company has a large portfolio of investment. In addition, we expect faster authorization process in order to accelerate the development of new projects to sustain the economy. The expected negative scenario and the economics go down make us aware of reducing our forecast for 2020 EBITDA and introduce some negative elements on net financial position. Let me explain the industrial reason behind this decision. We are going to sustain extra costs related to the emergency safety devices, extraordinary environmental sanitation, a spread on smart working station, information and technology investment and the slowdown on efficiency projects. We foresee worsening in our working capital due to a possible extension of payment, and some credit losses affected the market and its unit. The reduction in energy demand will have effect on our generation volume, particularly if the lockdown should be longer. We expect a slight impact on the electricity and gas sales, mainly due to the closure of commercial activities and small business. Finally, our investment plan could suffer a delay due to the stop of external companies and is also due to the difficult condition of the period. So moving to Page 15. As far as the closing remarks are concerned, we confirm our investment plan and our industrial target outlined in the last business plan. [indiscernible] contribute to the growth of the company. Networks will drive the increase in margins, thanks to investment in regulated activity, which led to an increase in allotted revenues. Regarding waste business, we are going to develop 6 new treatment plants, and we are going to increase the capacity by 2 existing plants. All this plan will start contributing by the end of 2021, while we keep improving the quality of waste collection service by pushing more on door-to-door systems. In the energy sector, we confirm our target of this repeating expansion and improvement of the efficiency of our generation plant, to which it has never been neutral [indiscernible], not included in our last business plan. Finally, market division will acquire new retailers, more business clients covered also by a new national strategy. Concerning the energy scenario, the decreasing fuel price that could affect the energy production of hydroelectric and waste-to-energy plants. We don't expect any impact on the spark spreads because of the decrease in the PUN following the lower cost of gas. The recovery of margin in the market will soon continue in 2020. Due to the [indiscernible] we reported until now, we expect lower gas and heat volumes. All these elements, also excluding the impact of COVID-19 outbreak, bring to a full year 2020 guidance of EBITDA in a range of EUR 910 million, EUR 920 million, net financial position to EBITDA ratio of around 3.1x, and expected CapEx in the region EUR 600 million, EUR 630 million. Finally, I would like to show you the coronavirus implication on our numbers in case [indiscernible] situation will last until June, first half 2020. The negative factor explained in the previous slide led to a lower EBITDA in the range of EUR 15 million, EUR 20 million and a net financial position to EBITDA ratio of around 3.3x. Taking into account the working capital, it was and involved EUR 50 million that we expect to recover in future years and credit losses for this year of about EUR 20 million, EUR 25 million. It's important to remark that a small impact of emergent situation on our numbers, mainly because of the following reason: The most important share of our business is regulated. As far as the energy business is concerned, it's important to remember that the most of our margins coming from these repeating [ metros ], which is a [indiscernible] regulated activity. In the waste sector, we have a small exposure to special and industrial waste. Concerning the market division, our customer base is almost composed -- all composed by retail client, particularly domestic clients. The margin deriving from business clients are around 3%, 5% of the market EBITDA. Having said that, we are confident in confirming our medium-term targets. Now we start to answer the questions previously gathered from analysts and investors. So there are some group of question that we could collect. So we collected the questions at different group. I would say that now I'm going to answer to each clusters of insight. In this session, I'm going to cover all topics not treated in the slide explanation. Most question are related to the generation business unit in order to better understand the exposure to energy scenario and our hedging policy. On top of this, the most recurrent question are on capacity market and SMB, the new Turbigo plant and the whole energy value chain. First of all, I would like to introduce our hedging policy that works in the scope of reduced volatility of the prices of the whole energy value chain. In 2020, we hedged more than 90% of supply volumes aimed at fixed price sales, and we hedged more than 50% of generation volumes, with a target of reach 89% of volumes in the next months, with a clean spark spread in line with the '19. The effects of the lower PUN expected this year will be recorded, thanks to higher hydroelectric volumes expected of about 200, 250 gigawatt hours. In terms of sensitivity and considering that the most important scenario exposure that we have is related to the energy produced by hydroelectric plants and waste-to-energy, we can estimate that the reduction of EUR 10 million per megawatt hour translating to a profitability reduction of about EUR 12 million in the long term. It's important to remark that approximately 250, 300 gigawatt hour of hydroelectric production and approximately half of the waste-to-energy production benefited and will continue to benefit of green certificate incentives. So we can reduce the negative impact of a PUN price reduction. We expect an ancillary service market in line with '19 because it should not be commissioned by them. As far as the whole energy value chain is concerned, the lower margin in generation business could be recovered in the market division because sales to finance customers in the free market are mainly at a fixed price. On the other side, we confirm the recovery of margins in the power phase also in the first quarter 2020. Concerning the capacity market and the contribution will be approximately EUR 65 million. And its effect on our business plan numbers are the following: In the assumption of our [indiscernible], we assume an overall contribution [indiscernible] market equal to EUR 60 million, as we expect the lower price option '20 to '23. In addition, we must consider that the investment of EUR 160 million for the power of Turbigo plant, additional 400 megawatts, of which 93 megawatts assigned in the capacity option in '22 as a new capacity was not included in the planned numbers. The repowering of Turbigo will have a positive impact of EUR 20 million, EUR 25 million, including the capacity market for EUR 13 million [indiscernible] and operation of [indiscernible]. In conclusion, keeping all the assumption on the energy scenario constant [indiscernible] spark spread, we expect an upside compared to the claims number of around EUR 25 million, EUR 30 million, deriving from the capacity market and could be going that way. After 2023, we foresee that the mechanism will still -- will be still in place, with the prices in line with the last options for at least 4, 5 years in light of the need for adequacy of the system and [ generate efficient ] process. The second group of questions is related to the COVID-19 emergency and its impact on our business. On top of what we have already discussed during the live presentation, we can affirm that the dependent regulatory area is operating to protect the weak level and [indiscernible] and, at the same time, the [ readitivity ] of utilities. At the moment, we have no visibility into whether the government can free electricity, gas and water price. Regarding other specific impact on COVID-19 emergency, we mainly manage urban waste and special waste deriving from the first one. Due to that, we don't expect a significant impact on our volumes. We don't see a lower inflation as a factor that could affect the [ metros ] business. We assume a possible reduction of the volumes of business, and it will be [indiscernible] client close to 10%. As I mentioned before, we assume that the negative situation will last until June. In this scenario, we confirm our business plan assumption regarding, firstly, the investment because we have a stronger performance plan that works in advance. Nevertheless, in the short time, we can suffer a delay mainly in the authorization process, but we are confident to recover it in the medium term. In this sense, the new organic traction treatment plants in Reggio Emilia, Torino, [indiscernible], and the construction will begin next month, along with [indiscernible] plants in which we pick plastic and paper. The ramping of organic traction treatment plant in Savona [indiscernible] as well as the territories of [indiscernible]. Secondly, regarding our financial structure, we have a safe level of liquidity, long debt maturity and almost all the debt at a fixed rate that allow us to face up to a stressed scenario. Finally, we confirm our [ readitivity ] in the medium term and our dividend policy. A lot of questions were devoted to better elaborate on the current regulation in our different activities. Regarding the overall impact from the new measures introduced by the regulator, we expect a negative effect for around EUR 8 million to EUR 10 million divided as follows: supply plus EUR 2 million for updating of sales component, [indiscernible] for electricity and [indiscernible] for gas; waste, the new regulation does not affect our collection margin. We expect that 2020 result in line with '19; networks go to minus EUR 10 million available, around minus EUR 5 million on water and minus EUR 5 million on gas, mainly linked to the lower recognition in tariff of OpEx minus EUR 8.5 million and asset remuneration minus EUR 1.5 million. This negative impact may be partially offset by new mechanism of the remuneration of work in progress, which we can quantify in a few millions euro. Concerning gas options, we don't have any update, and we confirm our business plan assumption. As far as the market legalization is concerned, we confirm the 2021 year as the end of [indiscernible]. But I remember that we don't have any assumption, any contribution because of being in our business plan. Concerning the hydroelectric sector, the Piemonte region has approved the law -- adapt for a law for the autonomous management of the hydroelectric concession. The main takeaways of this draft are the following: does not set the deadline for auction for expired concession; the duration of our awarded concession rights from 20 to 40 years, which can be increased by a maximum of 10 years due to the complexity of the project; concession fees will be set by the region, possible introduction of [indiscernible] fees on the waste asset; the assignment procedure could be an open tender on project or a tender for the shares of a mixer company. Due to the [indiscernible], we expect higher concession fees on expired concession for about EUR 2 million, EUR 3 million and lower margins plus EUR 2 million to provide the electricity. The last topic on which I want to discuss is the current M&A activities and the expected impact of the transactions already finalized. We confirm last business plan assumptions regarding the M&A target, mainly focused on medium and small companies, in particular, in the waste sector. The expected overall contribution on EBITDA will be, and we confirm, EUR 100 million in the medium term. We are now working on I.Blu transaction that we are confident to consolidate from May. The positive 2020 contribution of this deal will be in the region of EUR 5 million. As you already know, we have an open dialogue for the acquisition of Sidigas customers, 55,000 gas retail client in Avellino province. But at the moment, the deal is ongoing, and we expect to conclude the operation in the first half of this year. The acquisition of new customer will allow the group to increase its customer portfolio, strengthening the presence in Campania and enhancing development in South Central Italy. As we previously communicated, we are also looking at a bigger company such as [indiscernible]. Regarding this transaction, it's important to note that the discussion with the division has suffered, stopped due to the postponement because of COVID -- of the election in the region. Now we don't have any visibility on the new time line of election, but we are interested to pay compliment with the region, as we view the tower proposal of a joint venture as a solid strategic and industrial relation [indiscernible]. So I will end here the conference call. I will -- I really thank you, everybody, also because of the methodology of this conference call. I look forward to seeing you soon. Bye.

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