Iren SpA (IRE) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Iren First Half 2020 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. Thank you for attending the Iren's conference call on 2020 first half results. As usual, I start with a general overview of the company, and then I give you more details for each business unit. After the closing remarks, a Q&A session is scheduled to answer your questions. Moving to the results of the period. The reduction in commodity prices and the lower power volumes sold led to a decrease in revenues equal to 18%, which is not reflected in the marginality. We reported an EBITDA of EUR 473 million, down by 1% compared to last year. This outcome achieved in an extraordinary scenario highlights the resilience of our business model and the value of strategic integration between each business. This fact is also found in the energy, although it reported a negative outcome because it is affected by negative net nonrecurrent element of EUR 20 million. Excluding the latter, the group ordinary EBITDA grew by 4%. The COVID-19 emergency affected mainly the waste business unit because of the reduction in special waste volumes disposed in landfills and the market sector due to the lower power volumes sold. The overall impact for our group were EUR 10 million. Among the actions implemented to face the emergency, there were the continuing of operations and the provisions of all essential services, respecting the safety and the health of our workers. We have increased the numbers of employees who are working in order to ensure an ordinary management of the company. Thanks to the investment in technologies put in place during the past years and the positive experience with my working, we already had the skills to take on this difficult situation. During the lockdown period, we've taken actions to support customers in difficulty and, further, the communities that is in our territories, in line with our reorganization. It's important to show the factors impacting the result of the group during the period. Considering the growth factors, the most important was the unitary margin normalization of our customer base. The organic growth equaled to EUR 11 million, and the EUR 5 million of synergies contributed to improve the outcome. On the negative side, on top of the absence of nonrecurring elements in the energy business, we reported a negative energy scenario for EUR 12 million due to the drop in PUN price and the normalization in the heat spark spread compared to last year, when it was extraordinarily high. The climatic effect negatively affected the EBITDA for EUR 11 million because of the lower heat distributed and gas volumes sold. Moving to the business unit analysis. Networks saw a -- posted a positive result, thanks to the higher allowed revenues and synergy. The results were partially reduced because of the lower operational cost recognized in tariffs by the regulator. The waste business unit reported a negative outcome compared to last year. The higher margins in the business collection and the saturation of capacity in our waste-to-energy plants as well as the reorganization of the urban special waste flows have partially offset the negative impact of the lower electricity price and the lower volumes management. The Energy business unit reported a negative result due to a severe scenario downward trend, leading to an overall reduction in both prices and volumes despite a good profitability on the MSD market and higher volumes in hydroelectric production. The mild temperature recorded in the winter led to lower heat distributed. As far as the Market business unit is concerned, numbers reflected the full contribution of our client portfolio, composed by 1.863 million retail clients. The good result has been achieved, thanks to the effectiveness of our commercial activities based on the fixed sale prices, combined with the back-to-back hedge. The higher margins due to the increase in customer base has been partially offset by the lower gas and electricity volume. Despite the downtrend energy scenario, energy value chain reported a slight negative result, but if we're stripping out the nonrecurring elements, the outcome is positive. The underlying -- these underline the resilience of our business model and the effectiveness of our management's strategic choices. Below the EBITDA, the EBIT and the net profit reported a negative outcome, minus 10% and minus 12%, respectively, due to the higher depreciation and provisions to bad debt, partially counterbalanced by a release of a fund. The net debt is increasing, now over EUR 2.9 billion, but our CFO will explain better later on this topic. Let's start with the business unit section, as usual, with the Networks sector, Page 3, which during the first half of 2020 reported an EBITDA growth of 4%. Excluding the negative impact generated by regulation, close to EUR 5 million, the EBITDA would have been risen by 7%. In particular, the climb reported in the results here is related, firstly, to the water sector that contributed for EUR 6 million. The organic growth of EUR 5 million is based on the increase in RAB, plus 7% compared to full year '19, supported by the important investment made in previous years that allowed the company to increase its regulated revenue. The continuing implementation of the performance improvement initiatives also during the second quarter allowed us to add another EUR 1 million of synergies to the one reached in the first quarter, achieving EUR 2 million in the first half of 2020. Secondly, the electricity sector that reported a positive outcome due to EUR 1 million of synergies achieved in the first quarter also stayed, thanks to the performance improvement initiatives implemented. Finally, the gas sector that reported results in line with last year because the increase in allowed revenues was partially offset by the lower costs recognized in tariffs by the regulator. On top of this, the investments are in line with last year despite the slight delays with the COVID lockdown compared to our business plan assumptions. This slowdown should be recovered by the end of the year, confirming the investment plan. The larger investments are allocated to improve the resilience of the energy infrastructure, to reduce the leakage and increase the efficiency of the water system. During the lockdown period, supported by less vehicular traffic and a decrease in requests for emergency response, we were able to accelerate the activities of division of the Networks into small and equal areas called a district, which allows a more precise monitoring of networks and an increased management efficiency. During COVID-19 emergency, we have been guaranteeing the essential services, keeping our technicians to operate safely and also running the activities in different ways, which is why we recorded lower efficiencies and some emerging costs. As far as the outlook is concerned, the 2020 full year results will be in line with last year. The increase in allowed revenues and the incentives for technical quality will be counterbalanced by absence in 2019 positive extraordinary elements such as water balances and other nonrecurring elements for EUR 18 million; the effect of the new regulation measures negative for around EUR 10 million, mainly in water and gas sectors. Moving on the waste sector, Page 4. The decrease of EBITDA of EUR 4 million was generated by treatment and disposal activities, affected by lower volumes managed and lower prices on waste-to-energy electricity production. Going deeper in each business, the increase in collection activities of EUR 7 million were mainly related to higher margins for EUR 5 million compared to the same period '19 and to higher efficiencies, in particular from San Germano consolidation for EUR 2 million. In the first half of 2020, we reported a slight decrease in urban waste managed, minus 5% caused by COVID emergency. However, the percentage of sorted waste rose to 68.2%, up of -- roughly 1% compared to full year '19. The decrease of treatment and disposal activities of EUR 11 million depends on the reduction of the waste volumes and on the negative energy scenario. The decline with volumes generated by COVID lockdown is evident in the second quarter. Responding to the current situation, we reorganized the special waste flows between landfill and waste-to-energy plants in order to saturate waste-to-energy plant capacity and maintain the availability of REI landfill when the prices of special waste will be higher. Because of this strategic choice, we reported a decrease of EUR 7 million in the first half of 2020, coming from lower use of landfill and other minor storage facilities. On top of this, the decrease in PUN prices achieved affected electricity sold for EUR 3.5 million, but it was partially compensated by higher margins on the green certificate. Despite the investment plan suffered a slight delay caused by COVID lockdown, investments made were 26% higher compared to the first half of '19. The CapEx devoted to improve collection and plant construction will be almost completely recovered by the end of the year. As regards the outlook, we expected a slight increase in the EBITDA compared to last year. We believe that the negative trend experienced, characterized by lower volumes of waste and lower PUN compared to '19, will not be recovered in the second part of the year. On top of this, the efficiency obtained in this half of San Germano will be normalized, excluding further significant progress. The result of the business unit will be supported by the consolidation activity that despite assumption as positive on the M&A transaction closed in '19 compared to the first quarter are sustained by new ones, such as I.Blu from August 2020 and Unieco from November 2020. Moving to Page 5. It's worth to highlight the factors that impacted the Energy business unit leading to a negative result in which the positive outcome coming from the generation activity has been offset by the negative results from the heat business. The electricity generation reported positive numbers despite the negative energy scenario, composed by a weak demand along with a drop in PUN and gas prices, minus 41% and 51%, respectively. These results has been made possible, thanks to the effective management of our fleet, which allowed us to seize the opportunities on the day-ahead market through the hydroelectric plants and on the ancillary service market through the cogeneration and thermoelectric facilities, which are highly efficient and flexible. Most of our profitability is coming from the MSD market, where, in the first half of the year, we obtained EUR 60 million, plus EUR 22 million compared to '19. The main management factors reported in each line of business are the following. In the hydroelectric and renewable generation, the reduction of EUR 7 million was due to the decrease in PUN, with an effect of EUR 11 million, which was partially counterbalanced by the increase in hydroelectric volumes, plus 18%. Despite the PUN downtrend, we achieved a [ 34 ] higher selling price than the market price, thanks to the effectiveness in production planning. During the second quarter, EUR 2 million of waste activities have been expired, adversely affecting the business. The electricity production by gas fuel, so cogeneration and thermoelectric plants, reported a positive result of EUR 11 million, mainly due to the good performance in the MSD market, which offer higher marginality. The decrease in terms of volumes is explained by a general weak demand and the lower production volumes offered in the day-ahead market. The overall clean spark spread achieved in this market as an average of those technologies was slightly negative. The heat sector reported a negative result of EUR 19 million, caused by the hottest winter ever reported, which led to an 8% decrease in volume distributed, along with a lower heat spark spread compared to last year when it was exceptionally high. The net value of nonrecurrent elements of EUR 20 million is related to the capacity market -- capacity payment, green certificates, energy certificates and other many small balance sheet effects the previous year. The investment in the period were EUR 66 million, of which EUR 41 million are the repowering of Turbigo power plant. The remaining part is the expansion of the strategic networks and small operation on our cogeneration fleet to improve the efficiency. As far as the outlook is concerned, on top of the negative impact from last year, nonrecurring elements, we positively revised our forecast compared to the first quarter when we assumed a further negative scenario. The underlying drivers are the following. For the hydroelectric sector, the full forward price is expected to increase, particularly in the last 3 months of the year. Volumes are also expected higher when compared to '19 full year. Concerning the electricity production by cogeneration and thermoelectric plants, we expect a strong contribution from the MSD market, around EUR 80 million, a recovery in clean spark spread and a reduction in volume produced compared to last year. At this time, we see a spark spread in the day-ahead market as an average of both technologies higher than EUR 4, EUR 5/megawatt hour in the second half of the year. As far as the heat business is concerned, as explained in the last conference call, we expect a spark spread in line with last year and lower volumes due to the mild temp that we reported in the results. If we exclude the '19 nonrecurring elements, the overall forecast for the business unit is slightly negative compared to last year. Finally, on Page 6, I would like to analyze the growth reported in the Market business unit, followed by our repricing policy, hedging activities and the increase in our customer base. More in detail, we leverage our strategy on a commercial approach, exploiting the full value of our retail client portfolio through a combination of repricing policy and back-to-back hedging activities, aimed at using the margins volatility. This strategic choice made it possible to exploit the full value of our client portfolio, leading to a normalization of the profitability of around EUR 20 million. On top of this, the drop of commodity prices allowed us to achieve an extra marginality equal to EUR 10 million. The emergency related to COVID-19 led to a reduction in volumes sold for around EUR 3 million, which will increase to EUR 5 million during the second half because of a likely further decrease in volumes. It's important to better understand that the increase in our customer base, now at 1.863 million clients, plus 47,000 of clients compared to '19 year-end, 22,000 (sic) [ 21,000 ] clients are customers in the protected market coming from the acquisition of SanremoLuce, while the rest are new clients acquired, thanks to the teleselling and web channels, with a very small portion of physical channel. I would like to underline the effectiveness of our national commercial strategy that reported a great growth in the period, thanks mainly to web sales that contributed to 87% of new customers acquired on a national base. The digitalization of procedures has increased the efficiency of the business unit. In the first half, we recorded over 20% of self-care operations compared to 10% reported last year and an increase of digital operations equal to 20%. On this topic, I would like to describe IrenPay, which is the new digital service provided by Iren, thanks to which, customers using our app can make electronic payments permitted by PSD2 directive. The opportunities introduced is to offer personalized services to customer needs, thanks to the use of artificial intelligence. Now I would like to better explain the sector trends reported in the first half of 2020. In the electricity sector, the reduction in volumes of electricity sold was due to the closure of business and small business clients activities during the lockdown and to the strategic decision of reducing business clients in portfolio, along with the reduction of public administration volumes for less managed regions compared to previous consent tender. Concerning the profitability, in addition to the normalization of margins for roughly EUR 15 million, we reported an extraordinary positive result due to the drop of commodity price and to the increase in new customers, marginal. The gas sector was affected by lower volumes sold to end clients with the mild temperature for EUR 2 million and by lower gas used in the generation activity. EUR 15 million composed by margin normalization and [ extra ] profitability were partially offset by the absence of positive elements reported in '19 and other elements for an overall reduction of EUR 5 million. IrenPlus, the line of business previously called the New Downstream, reported a strong increase compared to previous year, confirming the effectiveness of our commercial strategy, exceeding the 11% of penetration rate of sales on customer base. Confirming the launch plan of new products, we are ready to take all the opportunities offered by the recovery phase, in particular, along with Iren Smart Solutions services, we are already structured to present high-quality products to our clients in terms of energy efficiency, in household products, like smart home devices [indiscernible] plant, boiler and so on. Concerning the outlook of the business unit, we foresee a stabilization of the margin achieved in this half, leading to a higher EBITDA. The future positive contribution related to the expansion of our customer base in our commercial portfolio will be partially offset by the presence of emerging costs driven by digital projects. Despite the absence of positive nonrecurring elements reported in '19 for around EUR 10 million, we expect an EBITDA of approximately EUR 130 million. It's important to highlight that the full year 2020 results will be affected by different, nonrecurrent elements. On the positive side, we will have the extra profitability due to the hedging activities and the lower commodity prices. On the negative side, we will report COVID cost and the adverse climatic effects. Overall, these components will lead to a positive outcome of EUR 5 million. Now I hand over to Massimo Levrino, Iren's CFO, to explain the elements that affected the results below the EBITDA and financials.

Thank you, Massimiliano. Good afternoon, everybody. We are going to Page 7. The chart shows the results from EBITDA to net profit, group net profit. EBIT stands at EUR 232 million. You can see a decrease of EUR 25.7 million because of the growth of provisions to bad debt that increased from EUR 16.8 million to EUR 42.5 million. They had a growth of EUR 25.7 million due to the adjustment of the provision to the expected losses related to COVID-19 emergency. We confirm that the assessment regarding the impact of COVID-19 on the bad debt provision has been fully accounted in the forecast of the provision for the full year 2020 at about EUR 60 million, including the usual provision estimated about EUR 35 million. Depreciation, amortization and other items decreased by EUR 6 million. But separating depreciation from the other components, we recorded the increase in the depreciation of about EUR 15 million, while the other items recorded a reduction of EUR 19 million due in particular to the extraordinary release of hydroelectric provision funds for an amount of EUR 16 million. The increase of depreciation is linked to the growth of fixed assets and to the extension in the scope of consolidation. EBT stands at EUR 207 million, was EUR 27.8 million lower than in the first half '19. There was a stability of the financial charges for loan and bonds that was EUR 32.4 million because of the lower cost of the financial debt from 2.5% to 2.2%, minus 12%. That was totally offset by the increased average financial debt. The contribution from other financial item was EUR 2 million, lower due to capital losses in 2020 related to the sales of the stake owned by Italy government in OLT. Also the net profit for the company consolidated with the equity method shows a stable result. It was EUR 5 million. Moving to net profit. It was EUR 132.7 million, a decrease of EUR 17.9 million. The tax rate was about 29.5%, slightly lower than in 2019 when it was 29.9%. We confirm the same tax rate for the full year 2020. Minorities were EUR 13 million, a little lower than in '19. Now we are going to next page, Page 8. You can see the cash flow and the net financial position. The net financial position at the end of June 2020 increased by EUR 213 million. In percentage, an increase of 7.9%. The cash flow in the first half, calculated as the sum of net profit, depreciation provision, was EUR 338 million. We had a slight decrease of EUR 25 million compared with the first half '19. The growth of net working capital was EUR 118 million, also caused by a delay in the collected receivables. The effect of COVID-19 was about EUR 50 million in the first half, and we expect the impact will be roughly EUR 80 million by the end of the year. And we forecast a decrease of receivable until a complete recovery by the end of 2021. Therefore, now we are confirming the estimate made in May under the assumption that the emergency will be over by the end of June. The second reason of the growth of net working capital was increased due to COVID that is expected to be fully recovered by the end of 2020. Third reason of the increase of net working capital is a reduction in trade payables. About trade payables, I want to focus on the fact that Iren is working to consolidate the supply chain relationship by offering its many suppliers a renegotiation in the contractual terms that may meet the emergency situation to COVID-19. On the other end, Iren is making easier the access to credit tools such as factoring, giving the possibility for suppliers to receive under favorable conditions the payment of invoices in advance to their contractual payment deadline. Going to investments, they were at EUR 254 million compared to the EUR 197 million recorded in 2019. They increased by EUR 57 million, growth of 29%. The consolidation portion of the net financial position was EUR 25 million (sic) [ EUR 24 million ], and it is related to the purchase of the company branch for energy. The dividends were EUR 145 million, EUR 5 million lower compared with '19 in spite of the increase of the dividend for Iren shareholders by 10% because in '19, during -- after a controlled company, Iren paid an extraordinary dividend to the minority shareholders of [ SEI ] that has a stake of 40% in that company. About buyback, EUR 11 million was the cash out for treasury share purchase in the first half to buy back -- the buyback started on the 14th of May, and Iren repurchased EUR 5 million of share. The mandate was to execute the buyback program for the maximum amount of 26 million of shares, about 2% of the total share capital by the end of February 2021. Now we are going to the next page, Page 9. You see the interest rate and the debt structure. The first pie chart on the left represents the breakdown of the gross debt. Only 4% of the gross debt is a variable rate. The remaining 96% is a fixed rate or hedged with swaps. Moving to maturities on the right. You can see in the bar chart, the funding maturity is that in 2020 are EUR 190 million; in 2021, EUR 229 million; and in 2022, EUR 420 million. This means at the beginning of June, Iren has still a liquidity cover of about EUR 200 million derived from the cash in, in February 20 of EUR 330 million for the OLT sale. The sudden improvement in the market scenario suggested a new bond that was issued on the 23rd of June for a benchmark amount of EUR 500 million. The bond has a coupon of 1% and maturity on the 1st July 2030. The costs, all in, has an interest rate of 1.19%. The first benefit of this issue was an increase of year-end total liquidity that now is EUR 700 million. The second benefit is the lengthened average maturity of the total long-term debt, indeed it increased from 5.4 years (sic) [ 5.3 years ] to 6 years thanks to this issue. The third benefit is to allow the further future reduction of the cost of debt that in the first half was 2.2% from 2.5% in the first half 2019. The reduction of 12% already achieved is thanks to the liability management carried out in '19 that had the whole asset in 2020. And then, therefore, liquidity went to be about EUR 700 million of liquidity and has already a financial maturity of 2020, 2021 and partially of 2022. This forecast doesn't consider the impact on our acquisition of new M&A deals. Moreover, Iren has a total amount of EUR 200 million of undrawn, committed, long-term credit lines, of which EUR 120 million from EIB to support initiatives in the hydroelectric products sector and the environment sector and EUR 80 million from the Council of Europe Development Bank to finance network investment for the period '19, '21. All these loans have a maturity of 15 years, amortizing at a very low cost. In addition, Iren has the availability of sustainable, linked revolving facility for a total amount of EUR 150 million. Going to the second pie chart in the center, that represents the breakdown of the debt structure. You can see that the pie shows that Iren's total gross debt formed by bond for 81%. That will increase to 83% after the recent issue. The other financial forces are well behind for 17% and loan from banks for only 2%. Now I hand it over to Mr. Bianco.

Thank you, Massimo. Now I want to spend a few words on Unieco Ambiente division deal, Page 10, which will allow us to strengthen our position as a national player in the waste sector, also in treatment, valorization and disposal of special waste. First of all, I want to say that the Waste Management division of Unieco Ambiente is composed by 19 consolidated companies and 12 associated companies. Due to that, the deal evaluation was really challenging. We foresee to close the operation by the end of October once all the authorities have given their positive opinions. Having said that, I would like to highlight some more details. The rationales of the transaction are the widening of areas served in particular to Toscana waste management, the consolidation of our reference area in Emilia-Romagna and Piemonte, the development of special waste business and the acquisition of know-how in other business activities, such as waste brokerage and landfill remediation, the positioning in the waste business in Toscana, with the possibility of dialogue with important players in the area, all thanks to important strategic perspective, including planned development in the region in line with the circular economy approach. The company managed the business of waste brokerage, treatment and disposal of urban and special waste in proprietary plants and thanks to associated companies around the urban waste collection business and waste-to-energy plant. Overall, between consolidated and associated companies, the Waste Management division runs 39 plants, of which 6 mechanical biological treatment, 5 composting plants, 6 recovery plants and 7 landfills. Concerning the economics, the enterprise value of the transaction is EUR 178 million, of which EUR 90 million is the equity value and EUR 88 million is the net financial position adjusted. The equity values include the evaluation of associated company equal to EUR 35 million. Finally, the EBITDA adjusted of the consolidated company is EUR 17 million. It's important to highlight that the net financial position adjusted accounts prospective liabilities, for which we expect a restatement at the time of closing. Taking into account all these details, the enterprise value on EBITDA ratio of the transaction is in the range of 6, 7x, in line with similar operations. We foresee a negative trend in the EBITDA in the next 3 years with the minimum in '22, '23 due to the exertion of the capacity of some landfills and the consequent reduction in intermediate volumes. The recovery of EBITDA will be supported by the planned CapEx. In particular, we are going to build an organic fraction treatment plant, and we are going to extend the available volumes of 2 landfills with a consequent recovery on intermediate volumes. We have a clear investment plan made of the new treatment and disposal plants in line with the circular economy approach in order to counteract the decrease in landfill marginality. We are confident that in the coming years, we could achieve important synergy of around 30% of the current EBITDA, thanks to the rationalization of the company and cost reduction. Further growth opportunities may derive from the consolidation of the associated companies and the related future development plan. Moving to closing remarks. The first half result has been very important to understand the COVID emergency impact on our performances, also regarding our expectations for the second half of the year. As far as the first half is concerned, I'm proud to remark the strong resilience of our business model, with particular reference to the integrated energy value chain that has been able to effectively take a downward scenario. In the Energy business unit, we have strongly performed on the MSD market, while we have managed to counterbalance the drop in the energy prices by an effective hydroelectric plant modulation, leading to selling price far higher than the PUN index. The sound market performance has proven the resilience of our client portfolio, which has recovered the standard value, thanks to the effectiveness of our commercial policy, combined with the hedging activities. All the previous elements led to stable results for the integrated value chain in a very tough scenario, underpinned by the downward trend affecting commodities and volumes. Such negative trend has affected also the waste performance, where a recovery is expected in the second half, thanks to the positive contribution from consolidation activity. When it comes to regulated business, thanks to the organic growth, we managed to overcome both the negative impact from the regulation and the COVID impact, which has been less severe than our previous expectations. As a matter of fact, after having reported EUR 10 million of COVID impact on EBITDA over the first half, the most affected because of the lockdown measures, now we estimate EUR 15 million from COVID for the full year, previous guidance of EUR 25 million, EUR 30 million, while we confirm the further impact, net working capital increase of EUR 80 million due to an extension of payments, provisions to bad debt for EUR 25 million. Taking into account all the previous elements, our new full year 2020 guidance is EBITDA EUR 905 million to EUR 915 million, of which EUR 5 million to EUR 7 million from M&A transactions; net financial position to EBITDA close to 3.5x, of which 0.2x from M&A; CapEx around EUR 650 million. When compared to previous EBITDA guidance, the main improvements overall roughly EUR 20 million come from a less severe impact from COVID and a better energy scenario expectation on the second half, leading to better performances on the energy business unit. Lastly, after confirming investments in line with our strategy, I'd like to recall that we are going to unveil the new business plan by the end of September. We will have a more focalized approach on our strengths, and we are called to play an important role, supporting investment according to the European Union [ brand deal ] in the following areas: new treatment and disposal plants to take over the national shortage in infrastructure, with focus on the recovery of materials and in line with our circular economy approach; distribution network facilities aimed at improving the environmental impact; distributing an energy efficiency project to fulfill the carbonization goal in the cities; digital strategy focused on attracting new clients on a national level; digital technologies devoted to exploit efficiencies and improve the service quality; and finally, we can play a key role in the consolidation process in order to take strategic opportunities. Now we can start the Q&A session.

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

I have 3. The first one is on the guidance improvement, I guess that there are 2 elements here. One is the lower impact from COVID versus previous estimate, and the second one is a better energy scenario. So these are the 2 things that are moving upwards your guidance, if I'm taking this correctly. So can you help us to understand why the company now foresees a significantly lower COVID impact in their numbers? So that is based in any managerial action or is that simply based on the fact that previous estimate was maybe too conservative? And the second thing is on the Energy division. I think that the management has mentioned that they see an improved energy scenario during the second half of the year. If you can help us to understand the basis for that, if you can give us some more granularity. That would be the first question. The second question is on the commercial activity. Because obviously, the second quarter has been the toughest in terms of lockdown, and the company has been performing there very well. I guess that there is an element of these lower commodity prices. So I was wondering if there is any managerial action that has to do with digitalization that I think that you mentioned during the speech that has been helping to a very good performance in terms of the commercial activity. And then the third question is much more on the bigger scheme. There has been recent articles and statements by different people on the press talking about the possibility of large-scale consolidation of the sector. I wanted to ask the management of Iren how the management see that as a possibility? And the very final thing is on the simplification decree. Obviously, there are several statements that may be indicating more facility to execute on CapEx. Do you see the simplification at least as a positive thing that should help you to accelerate on CapEx, and this may have some impact on your business plan by September?

Okay. Thank you, Javier. I'll start to answer your last 2 questions. First, about the expected simplification of permitting product that could allow an acceleration in our CapEx plan. For sure, we have this expectation. But right now, it is not a material impact in the short term. So the positive is that there is a strong commitment from the government on this side. The negative is that we are not seeing now enough measures to allow in the short term the companies to have a material impact on the CapEx plan that we have or considering to increase the size of our CapEx plan. We can expect that the process can be improved, can be better measure on this, but it's difficult to think that in 2020, we will see a material impact of this. If the measures from the government will be very, very effective, this could have an impact in the '21, '22. And the more expected outcome of this process that we could have is to allow an easier permitting process, especially where you needed to localize some kind of plans like in a circular economy CapEx that we are -- want to do, and we will more have with the Unieco transaction. Maybe this could really allow us to have a material impact on our CapEx plan. About large-scale consolidation, what I can say for sure is on one hand, that we don't have any discussion with anybody right now. And we don't know any discussion about our controlling shareholder. Of course, this is a path. On the other hand, I expect that the current situation of the country that push for an acceleration in the efficiency and increase the quality of services and on homogeneous level on our country can be supported by a consolidation process. So it makes sense. But for sure, we are not right now involved in any discussion about this. About your first question on guidance improvement, it is correct that the 2 elements are, let's say, a reduction in our expectation in terms of impact on cost. And this is mainly related on the actions that we quickly place for reduce the impact such as agreement in managing the cost of personnel in the -- we are having savings on movement of people in our area. So we did all like what's possible to reduce the impact. We are seeing a supportive approach by the authority, considering on a regulated business on this side, as well we expect for especially waste business support by the government to the municipality in order to, let's say, counterbalance the loss they have in the taxation for the waste management to citizens. So the sum of this as well as I recall very -- I mean demand will allow for right now, I'm more optimistic than if we are considering a reduction [ on amort due ] on the COVID impact by the end of this year. In terms of scenario, energy scenario, we see in the second half of the year a better spark spread that will allow to, let's say, recover a bit the expectation we had 3 months ago. About your second question about commercial activities, we are -- worked a lot in the last few years in order to have a full digitalization of the process. And during 2020, we are completing that project. And so right now, we are ready, and we'll be ready by next autumn with all the process to support a full digitalization of the client management end-to-end. And this, of course, will be very important in terms of cost to sales but also in terms of allowing client acquisition from web that is growing very fast and as well self-care operations are growing so fast. A part of this project is also Iren Pay, so the project about digital payments that we started, and we are very confident that we will benefit from this also and increase our customer base.

The next question is from Enrico Bartoli with MainFirst.

I also have 3. The first one is related to the waste business. You highlighted that in the second quarter, there was a negative impact from lower volumes treated. I also -- if I understood well, maybe there was also some weakness in the treatment prices. I was wondering what you are experiencing and seeing in July, in the past few weeks, in terms of volumes, in terms of pricing. And if you can elaborate a bit more on the outlook that you are expecting for the second half of the year. Second question is related to Unieco. You provided some details. If I understood well, there will be a negative impact on EBITDA over the next few years from the closing of landfills. If you can provide some details on this and elaborate a bit more on the synergies that you think that you could create with the current business structure of Iren. You mentioned 30%, which seems quite a high number. So if you can provide some details on this. And then I have a question on your view on the power prices for 2020. The current forward indicate EUR 48, which -- I'm wondering if you think that this is consistent with the current level of gas prices, which are still at very, very low level or you think that there are some other drivers in terms of recovery in demand that underline this number. I mean, in general, if you think that this number is sustainable or not. And the very -- sorry, the very last one for the CFO, if you can give us some guidance on the D&A because in this -- in the second quarter, there was an impact on this release of provision regarding idle assets. If you can share with us a number for the full year.

Enrico -- Massimo, if you are ready, please, if you can start to answer the fourth question.

Yes. About provision, full year, D&A, we think that full year 2020 will be -- the total amount of the [ provision ] will be roughly [ EUR 400 million and EUR 420 million ]. Your question also about the other provision because there was an extraordinary positive element in this year that will not -- no more happen in the future. In the last year, we had other provision for an amount of EUR 25 million, EUR 30 million. So we think that this is the level of -- usual level of the provision. Of course, this year is a bit unusual due to the release of the fund. About provision to the debt, I already mentioned that we forecast EUR 60 million of total provision included EUR 25 million for the COVID-19 factor. I think that I answer to your question.

So about Unieco, yes, it is correct. In our acquisition business plan, we expect a reduction for the next 3 years of profitability, and the main driver of this is a reduction in the volumes in landfills. To facing this reduction, there are several projects that are very clear in order to have in the medium term more plans and more capacity for the disposal. So the -- let's say, a clear view of this, we will provide along with our business plan presentation at the end of September. Right now, what's important, to say some more details. But it is correct to have a very deep view of that project, and we will be able to provide this at the end of September. As well as synergies, we expect a very significant contribution from synergy because, as I said, that group of company is very complicated with more than 30 legal entities. We have a very clear plan for a very hard reorganization, simplification of the legal entities that it will take 3 years, but could allow us to have that size of synergy, 30% of the current EBITDA. So we are very, very confident on this. About your first question, waste, the current situation. It is -- let's say that we don't see any material change right now. It's too early. But what is the percentage, what we did is to save space in our landfill in order to wait for the higher price that we expect to have in the forthcoming months. And in the meantime, to fulfill our waste-to-energy plants also because the -- we had a slight, let's say, reduction in unsorted urban waste to dispose. So it's too early to have in July the difference between what happened in the lockdown period. On CO2, we had a bit of spike in June. But by now, we are seeing stable prices. In our case, we, let's say, have already all our needs for 2020. So we don't see any further strong increase. But in any case, we don't need to buy CO2 [ sensitivity ] in the second half.

The next question is from Emanuele Oggioni with Banca Akros.

The first one is on the -- on your hedging policy. Could you give us an update on the hedging policy as regards to forward prices, before prices you covered part of the production for the rest of the year and also for 2021? This is the first question. And the second one is on Unieco, on the waste business. You mentioned on the Slide #4, the consolidation activities will offset the COVID impact, also thanks to the acquisitions. So I wonder what's the contribution of Unieco and for the other acquired assets for the remaining part of the year. And also as regards to Unieco, in your deal, there is associate embedded to Unieco deal, related to Unieco, which are quite worth. So the way you -- I wonder what is the value of this participation embedded to the Unieco deal and if there is -- there will be the possibility to close some minority buyout in the future.

Okay. So starting from contribution in 2020 from consolidation. The 2 transactions that will contribute this year would be mainly I.Blu and starting from August, right now, it's expected in the next 10 days, so the closing, and Unieco that we expect to consolidate starting from November. So these are the 2 transactions that will contribute this year. And the Unieco contribution will be in the area of EUR 2 million, EUR 3 million by the end of this year. It's important to underline that, as I said, there are some 19 legal entities that we will consolidate in the Unieco transaction, but there are also 12 associated company that we attributed in the transaction of EUR 35 million of value that could be an interesting upside in the forthcoming year because in that associated company, there is, for example, a large business in the south of Toscana of integrated solid waste. So collection and the concession for also plant for recovery material and plant for disposal. So it could be a very interesting upside, and we will work in this direction to increase our stake in order to consolidate also associated company. Of course, in -- a project that, as I said before, will allow us to strongly simplify the legal entities and the organizational structure of that group. The first question about the hedging policy, let's say that, right now, we, let's say, cover all our portfolio in a back-to-back strategy. Of course, we have a retail portfolio. So it's not -- it is continuous, but let's say that there is a back-to-back strategy for the retail client portfolio and, let's say, all the supply portfolio. For the production, we have right now covered already 70%, 80% of the production.

Is that for this year, 70% to 80% for FY 2020?

Yes, for 2020.

For 2021, could you provide us a guide?

Now we started the percentage of covered for H1 is very small and largest part of this for the first quarter.

The next question is from Roberto Letizia with Equita SIM.

The first one, very quick, if you can also provide the guidance on the net income for this year. You have been very good so far in the M&A deal that will contribute already this year with the retail at the beginning of the year and then with Unieco. We always want more. So can you please tell what are you actually -- not the names, of course, but what you're actually in segment looking at, what kind of dimension can have additional M&A coming in the next 12 months? Not for other players but just wondering what could be the contribution in the next 12, 15 months -- throughout the end of '20 and 2021, what is the size of EBITDA potential additional contribution that may come on new deals from the M&A. And very last comment on the gas distribution. So wondering if you expect from the ongoing discussions on the potential facilitation of the tender procedure, if anything positive may arise in the short term?

Roberto, starting from gas distribution tenders, it is a positive that with the associations and the authority work for trying to have an acceleration in the tenders. To be honest, we do not expect, in the short term, a material impact from this. There are a lot of interesting things. There are also ideas that could allow for interesting perspective like, for example, an increase in the existing lasting of concession and because of this additional CapEx, but I'm not so confident that this will allow for a gas tender in the next future. About our additional M&A strategy, of course, we are continuing to look at several small and medium targets. And we are confident to continue to do this kind of transaction. Right now, we are very focused on the execution of Unieco deal because we expect that starting from that, because of the new areas that we will manage and because of that shortage of companies that are in the space, we will have more opportunities to accelerate some M&A transaction. And the focus is also in waste business, where the high fragmentation of the business and the market and the lack of infrastructure is very evident. As well, we are looking at building energy efficiency activities in supplies, let's say that we are not -- because our focus right now is circular economy, environmental transition market, we are not pushing, let's say, on energy like we were at the end of last year looking at surging. But we remain very focused on the deals already done and the new deals like this, like Unieco can allow to have in the near future. Net income guidance, we can say that we can expect a net profit, but it is not the guidance in the range of EUR 200 million, EUR 220 million.

The next question is from Oriana Bastianelli with Kairos.

I have just one question, which I recognize is early days, but just to ask the view of the management. Looking to 2021, can you provide some qualitative on the business, especially vis-à-vis the several headwinds that you had in 2020. I mean is that correct that the perception that 2021 should be much easier for you vis-à-vis the restated base of 2020, especially in terms of the energy scenario? Is this a right -- a fair assumption for the business looking into 2021?

Of course, it's very difficult to say figures. But for sure, we can say that we can expect the -- looking at each business unit. In the Networks, we will continue to benefit as organic grow in the increase in CapEx and RAB. In the Energy business unit, we will have a -- and we expect to have a better energy scenario as well as a normalization in heat consumption that had significantly negative impact in the first half of this year. In the Market, let's say, that we will stabilize the better profitability that we show this year. And in waste, we will benefit from the full consolidation of the recent transaction. So in all the business, we will -- and we strongly expect that we will not have any more COVID impact. So in this sense, we definitely expect a better year in 2021.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

Well, thank you very much to everybody, and have a nice vacation, I hope for everybody. Bye.

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