Iren SpA (IRE) Earnings Call Transcript & Summary

Good day and thank you for standing by. Welcome to the -- Iren's Full Year 2020 Results Presentation Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Massimiliano Bianco, CEO. Please go ahead.

Good afternoon, everyone, and thank you for joining Iren's conference call on '20 full year results that were better than expected despite the pandemic situation. It has been possible, thanks to very -- every single person working in extreme conditions and lots of difficulties due to the health emergency. Before we explain the main results of '20, I would like to expose you the main results achieved in the last 6 years as the graphical showing Slide 2, which are the basis of future growth. Concerning the EBITDA increased by EUR 287 million, all the strategic pillars contributed to the goal. Consolidation reported the main value, thanks to the transaction carried out in the last year. They continue to be an important growth driver also in 2020 when we concluded I.Blu and Unieco [ biz ]. The incessant increase of investment, plus 160% compared with '14 based on the continuous positive cash flow generation, allowed us to develop our asset ways, favoring the positive organic growth trend. Finally, the important result in synergies have been reached through a specific project of workforce improvement, company's integration and cost reduction supported by the digital transformation. In the EBITDA bridge, we stripped out the effects of the energy scenario in the last 6 years, demonstrating that the company managed volumes and prices in order to reduce the volatility and that, in the medium term, the energy scenario has not a remarkable effect. The net financial position to EBITDA ratio stands at 3.2x effect the relevant investment and the cash-out for the acquisition of companies, enabling to maintain investment-grade and the financial flexibility to further go. The positive trend experienced in EBITDA can also be seen in terms of group's net profit. The bottom line has increased from EUR 69 million in '14 to EUR 235 million in 2020, more than 3x higher than 6 years ago, thanks also to the continuous reduction in cost of debt. The sound cash flow generation and the safe liquidity profile allow for keeping commitment on DPS grow as the proposal for 2020 stands at EUR 0.095 per share with a 2.7% increase compared to previous year and in line with the dividend policy shown in the last -- in the latest business release. On Page 3, you can find our sustainability path to 2020. Thanks to the important investment carried out in sustainability equals to EUR 377 million, out of which more than 90% related to the multi-circle economy, many indicators have achieved important improvement. Instead, a few have suffered some strategic choices taken. The multi-circle economy decline in plant development, rational use of resources and the reduction of our environmental impact. From its development, further construction and the acquisition of assets allowed the group to increase the waste volume recovered in our plants over 38%. This goal was possible thanks to the development of organic waste treatment plants and through the consolidation of I.Blu and the achievement of the rule of primary operator in the plastic supply chain in Italy. In order to feed our plants with high-quality waste, we further extended door-to-door collection system, obtaining 69.3% of sorted waste collection. Increased wastewater plant capacity of 3%, as we said last year, since 2020 is visible, the first milestone of the investment targeted to increase the efficiency of our wastewater treatment plant and to develop 5 wastewater treatment plants, mainly in the Liguria region. Increased district heating volumes of 1.9%, this technology is one of the most effective to improve the air quality in our territories and to reduce the gas and electricity consumption. Concerning rational use of resources, the activity of district position of water networks for a more effective management has continued with a very intense flow rate, reaching about 56% of the network. The direct [ access ] of a reduction of the water network leaks and, at the same time, a decrease of water we draw from the environment. In order to cut the impact of our activities, we rise to 19% the ECO vehicles in our fleet, in line with our business plan assumption, which only reaching the percentage of 35% of ECO vehicles in the total fleet, which will be possible through the purchase of approximately 1,000 electric cars and light vehicles by 2025 in addition to substantial investment in the gradual replacement of vehicle for waste collection and transfer. As I mentioned before, this year was a real challenge for our employees. And in order to show company's closeness and still improving people competencies, we increased of 35% training hours per capita, exceeding the 2025 target. On the negative side, effect of the strategic choice of shifting from '20 to '21, roughly 90 gigawatt hours of either production, and the increase in thermoelectric production lead to a carbon intensity worsening of around 400 grams CO2 per kilowatt hour. Moving to the results of the period. As you can see at Page 4, the reduction in commodity price, the lower power volumes sold and the COVID effect led to a 13% decrease in revenue, which is not reflected in the marginality because we posted an EBITDA of EUR 927 million, up by 1% compared to last year. Excluding the nonrecurring items affecting '19/'20, operating margins grew by almost 6% as some results considered the difficulties of the year and the negative impact of COVID for EUR 15 million at EBITDA level. The outcome shown the validity and resilience of Iren's multibusiness model leveraging on the integration between each business unit with the unique industrial and ESG strategy based on a multi-circle economy and on a 71% of EBITDA coming from regulated and semi-regulated activities. Analyzing the achievement of the year, it's important to explain the contribution of each strategic pillar and of the other factor. The organic growth contributed for about EUR 40 million affecting the business unit in different ways. In network, the increase in [indiscernible] revenue has been partially offset by the regulation, which recognize lower OpEx in [indiscernible] in gas and water sectors and which led to a decrease of EUR 10 million. In waste, we reported a positive contribution due to the -- to a normalization of margins in collection and higher prices in the waste intermediation activities. In energy, we expanded district heating network in order to saturate the production of it. Furthermore, we reported a positive contribution of the energy efficiency project, facing the path for the future growth. Finally, the increasing customer base now at 1,877,000 clients and the better performance of our value-added service line of business driven the increase of market. Synergies were EUR 13 million, affected mainly the network business because of our cost of capitalization and a reduction of operating expenses in waste collection due to cost efficiency. The synergies were almost completely offset by the structural emerging costs in the market. The consolidation of I.Blu company from August and Unieco from November allowed us to increase the result of waste sector for EUR 11 million. As far as the energy scenario is concerned, we reported an overall negative impact of EUR 7 million. On one hand, the drop of PUN prices affected the electricity production of hydroelectric plants and [indiscernible] energy along with lower hydroelectric volumes reported due to an opportunistic choice. In addition, we reported a reduction in heat [ path ] spread compared to last year. On the other hand, the outcome of the electricity production from gas fuel plant was positive thanks mainly to the higher [ MS&B ]. The energy scenario positively impacted the market business because the drop of commodity prices led to an extraordinary margin. Thanks to our management strategy and commercial policy, we can exploit and [indiscernible] contribution of our customers' portfolio for around EUR 40 million. Overall, despite this downturned energy scenario, the energy value chain reported a positive result underlining the effectiveness of our management approach. The climatic effect has had a negative impact for EUR 11 million affecting heat distributed in our district heating networks and gas volumes sold to end client because of the mild temperatures recorded during the year. Finally, a few words on investment. Now at EUR 685 million, which recorded a significant increase of 31%. The main differences with last year are explained by the new gas combined [indiscernible] Turbigo thermoelectric plant by the expansion of our district heating network and by the project related to the construction and revamping of waste treatment plant. Let's start the business unit section, as usual, with the network sector on Page 5, which during '20 reported an EBITDA growth of 4%, excluding the nonrecurring elements, mainly related to the water balance that reported EUR 14 million in '18 and EUR 5 million in 2020. The 2020 Water balance impact has been partially offset by a contingent liability in the gas sector. If we look at the growth, it's important to underline that it was achieved despite a negative impact of regulation of EUR 10 million, and it could be explained in the following way. Firstly, the water sector that contributed for EUR 12 million. On the positive side, the organic growth of EUR 12 million is based on the increasing RAB plus 4% compared to full year '19, supported by the important investment made in previous year. In addition to that, the continuing implementation of the performance improvement initiatives allowed us to achieve synergies for EUR 8 million. On the negative side, we reported the impact of the regulation for EUR 5 million and the lower efficiency and emerging costs necessary to guarantee the essential services during the COVID emergency for EUR 3 million. The lesser of traffic during the COVID lockdown enabled a strong acceleration in the districtization activities, reaching 56% of the network. A direct impact of the network districtization is the reduction in water leaks, which stands at 33.3% with very little lower water we draw from environment of around minus 3%. Secondly, the electricity sector investor reported a positive outcome of EUR 4 million due to the increase in allotted revenues and the positive impact of synergies achieved in the first quarter. Finally, gas sector reported a decrease result of EUR 2 million compared to last year because of the lower cost [indiscernible] tariff by the regulator for EUR 4 million, completely offset the positive contribution of organic growth and synergy. On top of that, the investments are in line with previous year. The investment, according to our strategy, are allocated for the resilience improvement of the energy infrastructure for the leakage reduction and for the districtization of water system, which allowed for a more effective management. In addition, projects are underway regarding the construction of [indiscernible] on the revamp or the revamping of existing one, which will contribute to increase the percentage of purified wastewater as highlight in the last business plan in which we committed ourself to reach a target of about 20% by 2025. Moving on the waste sector, Page 6. The 10% increase of EBITDA was generated mainly by organic growth on both collection and treatment and disposal activities and the consolidation of acquired companies. Consolidation of I.Blu from [indiscernible] and Unieco from November allowed us to increase the waste volume margin of 9% compared to last year. Going deeper in each activity, the increase in collection activities of EUR 13 million were mainly related to margin stabilization, supported by a favorable validation of the materials coming from sorted waste collection and through higher efficiencies, mainly thanks to San Germano consolidation. The activities to increase the sorted waste have been continuing, reaching a percentage of 69.3%, up over 2 basis points compared to full year '19. The increase of treatment and disposal activities of EUR 2 million depends on the positive contribution of I.Blu for EUR 4 million and Unieco for EUR 7 million. Unieco performance is higher than expected as a result of acceleration in the use of landfill. On top of that, we reported a positive result of the intermediation activities supported by higher prices for EUR 7 million. This positive results are partially compensated by the decline in special waste volume generated by COVID emergency that conduct us to reorganize the special waste flows between landfill and waste-to-energy. In order to saturate the waste-to-energy capacity and maintain the availability of a landfill for 2021 when the prices of special waste will be higher. Because of the strategic choice, along with the other minor solid facility, we reported a decrease of EUR 7 million. In 2020, 68% of the total waste management has been [ lessened ] to our plants compared to around 60% in '19, a percentage that's to increase over the course of the plan, thanks to the construction of new treatment plants. Furthermore, the decrease in comprised that affected the waste-to-energy we introduced has a negative impact for EUR 6 million. In 2020, thanks to waste recovery in our plant, we avoided more than 1 million tonnes of CO2. Despite the investment plan suffered a slight delay caused by COVID lockdown, the investment made EUR 116 million were 52% higher compared to '19. CapEx are devoted to improving collection activities, plants, cost action and the revamping of 2 existing plants that later will start fully operating by the end of this year. Analyzing the energy business unit at Page 7, it's worth to highlight the factors leading to a negative result for EUR 46 million mainly due to the reduction of PUN price and clean spark spread, the lower contribution of heat business and the negative delta between '19 and noncurrent elements in '21 of. The result has been harder reduced due to an opportunistic choice of shifting from '20 to '21 roughly 90 gigawatt hours of incentivized hydro production in which in '21 will benefit from an expected higher PUN and higher prices of green certificates. This choice led to a negative outcome of EUR 15 million in '20 and an expected positive result of EUR 18 million this year. In a negative energy scenario with a 3% reduction of electricity volumes per user, the achieved energy selling price was about EUR 44 per megawatt hour, higher than EUR 39 megawatt hour at the national level but 22% less than last year. Excluding opportunistic management on hydroelectric plants, we would have had a contribution in terms of EBITDA from electricity generation in line with last year despite the downtrend scenario. In 2020, 73% of the energy production was from renewable and high-efficiency sources. Most of our thermoelectric profitability comes from the MSD market, where we obtained EUR 81 million, plus EUR 10 million compared to '19. The MSD last quarter contribution was flat compared to Q4 '19. Excluding nonrecurring element, the main management factor reported in each sector are the following: in the hydroelectric and renewable generation, the reduction of 20 million -- EUR 21 million was mainly due to the lower volume of electricity produced and the lower green certificates due to the decision of shifting the production during this year. The business was also affected by the expiration of grain certificates for EUR 3 million. The remaining part of the reduction is explained by the lower selling price. The electricity production by fuel gas -- gas fuel cogeneration and thermoelectric plants reported a positive result of EUR 4 million, made it on the good performance on the MSD market that we carried from previous quarter in combination with lower margins in the [ deregulated ] market. The aggregate production volumes reported a 3% reduction compared to last year. The clean spark spread achieved in the last -- in the [ deregulated ] market at an average of thermoelectric and cogeneration technology was EUR 1.4 per megawatt lower than EUR 1.7 per megawatt reported in '19. The heat sector reported a negative result of EUR 15 million, marginally better compared to 9 months because the negative climatic effect of the first quarter and, for September, they are gone and have been only partially offset by the higher volumes in the fourth quarter. On the other hand, the reduction in heat distributor was partially compensated by the expansion of our network that now stands at 96.7 million cubic meter, plus 1.7 million cubic meters compared to last year. The 88% reduction in the heat spark spread were below EUR 50 per megawatt hour, led to lower margin for roughly EUR 10 million. This negative trend is due to a temporary mismatch between the fixed selling price and the procurement cost. Iren smart solution, the energy efficiency line of business, reported a positive result of EUR 5 million thanks to rebuilding activities plus public lighting efficiency and service to municipalities. The business contracted more than 600 projects related to Superbonus and [indiscernible] bonds. The 19 nonrecurring elements, EUR 32 million were related to capacity payments, green certificate, energy certificates, heat balance and other mainly small balances we've had previous year. The bulk of elements were related to cogeneration and thermoelectric line of business, while 2020 one-offs were the recognition of green certificates related to previous years in the hydro sector for EUR 5 million and some other minor elements paid in each line of business. Finally, the construction of the new line of electricity production into a big thermoelectric plant, which will run from the first half of '22, and the extension of the district heating network led the CapEx of the business unit at EUR 172 million. The last business unit to analyze is market at Page 6 (sic) [ Page 8 ], which reported a considerable growth of 33% favored by the portfolio margin normalization and the customer base increase, partially offset by structural emerging cost to the digital transformation and marketing activities and the extra cost related to COVID. Excluding the nonrecurring elements in both years, the growth would have been of 47%. In '19, we reported an accrual in electricity segment for EUR 7 million and a positive element in gas sector for EUR 5 million. On the other side, in '20, we had a recognition of a gas balance. The customer base value normalization, which is structural, and it is worth about EUR 40 million is composed by EUR 25 million as a recovery from '19 and further other scenario affecting the retail and business segment to back-to-back hedging activities and EUR 15 million of higher structural marginality. In addition to this, the extraordinary drop of commodity prices allowed it to achieve an extra marginality on volumes not rates for EUR 14 million, equally split over the 2 line of business. The continuous growth of our customer base allowed it to reach 1,877,000 clients, plus 61,000 of clients compared to '19 year-end. Concerning the electricity clients, 78% are in the free market, and the bulk of the new acquisition are in this segment. 45% of new clients have been acquired via teleselling and 39% thanks to web sales, a channel that we will -- that will be used more and more in coming years and thanks to which it will be possible to reach a target of customer international level and [indiscernible]. Now national clients are 23,000. In terms of volumes sold, the electricity segment reported a 22% reduction mainly to the business and the small business volumes due to the COVID emergency and the [ constant ] volume loss due to a strategic choice. While gas volumes are in line with last year, the higher volumes sold in trading activities were offset by the lower volumes for internal use and to find a client due to the mild temperature of the year. We reported a structural emerging cost of EUR 10 million linked to the digital transformation based on our new CRM system that integrates the management of the group entire customer base and higher costs due to marketing and commercial activities. Investment in information system will guarantee a better experience for our customer needs, further increasing the percentage of digital and self-care operations now equal to 52% and 34%, respectively, a sharp increase compared to last year. [indiscernible] reported a further increase compared to previous year mainly thanks to sale of household services and the green line product with a penetration rate on our customer base of 14.6%. These products, along with the 326 gigawatt hours of premium electricity sold, allowed us to save 61,700 Tep. Since 2020, we have started a commercial campaign focused on green electricity in order to incentivize the sustainable consume and reduce the environmental impact of our clients. We expect to see the first result of this strategy in the short time. Now I hand over to Massimo Levrino, CFO, to explain the elements below the EBITDA line.

Thank you, Massimiliano. Good afternoon, everybody. We are going to Page 9. The chart shows the full year results on EBITDA to net profit. The EBIT was EUR 415.8 million and showed a decrease of EUR 36.1 million in spite of the increase of EBITDA. This decrease is due to the strong growth of depreciation and to the growth of provision to bad debt. About depreciation that was EUR 440.9 million, an increase of EUR 37.3 million is due to the growth of fixed asset and to the extension in the area of consolidation. About the provision to bad debt that stands at EUR 61.7 million and a growth of EUR 24.5 million due to the adjustment of the provision to the expected losses related to COVID-19 emergency. This impact of EUR 25 million was already accounted in the first half of this year. We, therefore, confirm the assessment did in those period. On the consolidate, the trend of the other provision was positive. They were EUR 8.9 million and recorded a reduction of EUR 15.7 million due in particular to the extraordinary belief of [indiscernible] provision for an amount of EUR 19 million. EBT stands at EUR 365.2 million and showed a decrease of EUR 11.8 million, a decrease lower than the decrease of EBT, thanks to the positive performances of this section of the profit and loss account. If you go -- we are going to detail, you see that the financial charges for loans and bonds that stands at the EUR 68.5 million had a growth of EUR 6.6 million. The lower cost of the financial debt from 2.4%/2.1% is totally -- was totally offset by the growth of the average financial debt and by the lower interest income in 2020 related to the loan provided to [ alt ] until the sale of the stake happened in February 2020. The other financial charges that stand at EUR 13.3 million are positive, and they had an improvement of EUR 31.3 million. This trend is due to -- in particular to lower costs in 2020 related toward the activity of liability management due to 19 and to several items such as increased service income and clients, capital gains from the disposal of a stake, and to the decrease in financial charges for leases, assets and the final office properties were purchased in March 2020. The net profit of the company consolidated using the equity method was stable at EUR 4.6 million. Going to net profit, that was EUR 235.3 million, a slight decrease of only EUR 1.1 million. But excluding the nonrecurring items already mentioned, I'm talking about EBITDA and the other items accounting below EBITDA, the net profit would have increased by 3.7%. The tax rate was about 27.4%, lower by 2.2% compared with '19. The temporary reduction is due to extraordinary factors related to previous years. So far, for the full year '21, we confirm the tax rate of '19 around 30%, a bit low [ that 30% ]. This estimate, of course, doesn't include the effects of the legislative decree that makes possible the realignment of the value of assets accounted for tax portals to the value accounted in the balance sheet [indiscernible] They are higher. Now we are evaluating the effect that we think positive and will be accounted by the end of June 2021. Minorities were EUR 29.8 million, a slight decrease of EUR 0.8 million for a better result of our controller company, [indiscernible]. Now we are moving to Page 10. You can see the cash flow and the net financial position. You can see that the net financial debt at the end of December 2020 showed an increase of EUR 242 million, as a result of high capital expenditure and of the consolidation operation. The sum of these 2 was EUR 883 million, an increase of EUR 270 million compared to '19, more than the growth of the debt. But the financial impact of CapEx and consolidation were not completely offset by the cash flow and by the decrease of net working capital. Going to analyze deeply in the single item, we start from net working capital that dropped by about EUR 124 million thanks to the optimization of the activity and by the extraordinary cashing of VAT credit of about EUR 90 million. The reduction in net working capital was achieved in spite of the COVID effect on trade receivables, but at the end of the year, were about EUR 60 million, lower than the EUR 80 million that we estimate in the previous quarter. About trade receivables, we foresee a slight decrease in 2021 but not a complete recovery. About CapEx, there were EUR 685 million, EUR 150 million higher than in '19, a strong growth of 31%. About consolidation, the impact on the net financial position was EUR 198 million, and it was related to the acquisition of the control of both Unieco and I.Blu and of the company's SEI Energia for EUR 25 million. And lastly to the parts of 2 other minor stake in companies, NOS and [ AEC. ] The dividends paid were EUR 149 million, in line with '19 in spite of the increase of the dividend full year shareholders by 10% because of the payment in the last year of an extraordinary dividend to the minority shareholders. About buyback, the impact in the third 12 months was EUR 26 million considering also the first tranche purchase in last year, the total share repurchase so far are 15.9 million shares, the 1.22% of the total shares at an average price of EUR 2.18. The total cash-out was EUR 34.6 million. The derivatives had a positive impact of EUR 63 million mainly related to the positive fair market value of commodities, EUR 57 million, but also derivatives on interest rate were positive EUR 6 million roughly. Now we are going to Page 11. You see the financial of talking for interest, you can see on the pie chart on the left, only 4% of the total debt is at the variable rate, 84% of fixed rate and 12% is hedged swap. These figures was very stable compared with the previous quarters. The cost of debt was 2.1% compared with 2.4% in '19. This reduction was achieved thanks to new fundraising in 2020 at a very low cost and to the liability management carried out in 2019 that had full effect in 2020. The average ratio on long-term debt was 6.1 years, higher than '19, when it was 5.8 years. The second chart in the center represents a breakdown for the debt structure. The chart shows a well-balanced debt structure, indeed the year-end total gross debt is divided in bond for 84%, of which 45% are green bond and 39% are other bonds. 14% EIB funds that could be considered a sustainable instrument and only 2% loans from other banks. Therefore, we can say that 59% of the year end total debt is composed by green or a simulated instrument. The higher percentage of bond is due to the new issue in 2020, the 1st of July for an amount of EUR 500 million and the second -- on the 10th of December of EUR 300 million. The first bond had a coupon of 1% and a maturity of 10 years. It has a yield of 1.19%. The second was a green bond of EUR 300 million with a coupon of [ 0.25% ] and a maturity of 20 years and a yield of 0.345%. Iren is the only local utility that have issued 4 green bonds for a total size of EUR 1.8 billion. Moving on to maturities. You can see that in the chart the maturity until 2026. But we focus on the first 3 years. We see that the larger maturity will be in 2022 with EUR 422 million. This maturity is mainly linked to a bond issue in '19. About how to finance the maturity, we have to consider that liquidity at the end of December was about EUR 730 million that not only for the [indiscernible] bonds, but also to the cashing of EIB loan and the cashing of EUR 330 million on the [ OT ] sale. Moreover, is even also the availability of EUR 300 million of undocumented long-term fee lines, a maturity of 15 years. So very, very local. In addition also the availability of the sustainable linked [indiscernible] facility for a total amount of EUR 150 million just in case of need can be drawn. Now I hand it over to Mr. Massimiliano.

Thank you, Massimo. So finally, I am proud to underline that, once again, we delivered more than expected under extraordinary tough circumstances while carrying out the large investment done by our strategy. Considering the sound 2020 performances, we also confirm the dividend proposal of EUR 0.095 per share plus 2.7% versus '19 in line with the business plan commitment. The sound 2020 performance make us very confident looking forward as we are in line with our business plan targets despite the COVID emergency is still in place. Regarding the 2021 outlook, we expect positive contribution from organic growth led by the intense investment, combined with the full contribution from the last consolidated companies, Unieco and I.Blu. As far as the energy value chain is concerned, a more favorable scenario is expected this year along with support of some hydroelectric production shifted from last quarter -- in '21. From the negative, we see a further impact related to higher cost together with lower commercial margins and efficiency worth no more than EUR 10 million, led by the lasting COVID emergency, which come along with a negative impact on net working capital of EUR 40 million and the credit losses up to EUR 10 million. Consider all the previous elements, our guidance on 2021 is EBITDA at EUR 960 million, EUR 970 million. Net debt to EBITDA at about 3.4x, CapEx at EUR 800 million. Finally, I would like to spend a few words about '21 sustainable goals. Our large business plan, which provides an integrated ESG and industrial strategy is well on track. It is still very contemporary as it is based on circular economy, rational use of resources, resiliency and energy transition support. EUR 2.25 billion are designated to sustainable investment, of which 7% are designed for decarbonization project. As we want to take a stronger commitment to reduce CO2 emissions as well, we have started the process of long-term strategic planning behind 2030, and we'll take into consideration a wide range of options for our path to net zero emission. Decarbonization will be a relevant element in our next business plan and will necessarily encompass the positive impact associated with the multi-circle economy and the sector in which we are leaders operators. Now we can start with the Q&A session.

[Operator Instructions] Your first question comes from the line of Javier Suarez from Mediobanca.

Thank you for taking my questions. I have 3. The first 1 is on the guidance for the net debt to EBITDA at 3.4x. So assuming the middle of your range at EUR 965 million EBITDA, that should be -- that should correspond to EUR 3.3 billion, roughly speaking, of debt. And that means an increase of EUR 330 million of debt versus 2020. So taking into consideration that your operating cash flow is roughly equal to your CapEx. And therefore, the debt should increase with the dividend payment, that is half of the previous amount. So it is fair to assume that part of the working capital improvement that you have seen and referring to the financial one in 2020 is going to revert in 2021? Or is there any other element that explained and that the debt is higher than the pure mathematical calculation between operating cash flow, CapEx and then dividends? That would be the first question. The second question is on the guidance for the EBITDA. So the guidance is higher than the latest Bloomberg consensus that I see. So the question for you is, is that guidance of EBITDA compatible with net income of, let's say, EUR 250 million. Is something -- is that a number that you feel comfortable with in terms of net income for 2021? And then the third question is on the supply activity. So the company has expanded the client base by 3% in 2020, and that is largely on the electricity in the -- among the electricity clients, while gas clients are flat. So can you help us to understand the commercial dynamics on your supply activities? And what is your expectations for the supply margins evolutions in 2021?

I Apologize, Javier, can you better explain your last question, please?

No. On the supply activities on the -- on your commercial activity and the expansion of your client base, I see on the slide number -- in the slide that you -- the EBITDA bridge to the [indiscernible] Slide #8, the total number of clients is up by 3%, and that -- the increase is mainly among the electricity clients, while the gas clients has been flat. So I wanted to have a little bit more of explanation on the commercial activity that you have followed in 2020 and your expectations for how that commercial activity should continue in 2021 and the effect that this may have that we should expect on the margins. I think that on your latest strategical preference presentation, you were referring to the benefit from the digitalization effort and the fact that your client base is mainly retail [ so provided ] with stability. I was hoping to have some more clarity on the positive effect on the digitalization effort.

Okay. Maybe we can start your first question about net debt to EBITDA ratio. You had to take into account, and then I ask also to CFO to integrate my answer. The net working capital impact that we expect to have also to -- not only for the lasting of COVID emergency but also to support our energy efficiency activities that we expect to increase during this year and to absorb a part of net working capital by the end of the year. So I think that your question about if net working capital at the end of 2020 is -- has to be considered not normalized, I think it's not correct, but you have to consider that during 2021 we will have higher EBITDA than we have in 2020 on energy efficiency projects that will absorb net working capital. So the -- this could worth roughly EUR 50 million, EUR 60 million of working capital related to this. On top of this, we are also to consider our expected CapEx program for 2021 oh roughly EUR 800 million. So on top of this EUR 40 million for -- the last thing not normalize -- not yet normalized working capital for the COVID emergency. I think that these are the 3 main elements to consider for the -- our guidance on the ratio. Massimo, please help me if I miss something.

No, no. It's complete your answer, yes. I agree with you, and the trend in 2020 was exceptional for tax reason, as I mentioned before. So a recovery of net working capital is foreseen in the main way that you mentioned before.

So Massimo, please, can you also answer to the second question about the -- how our guidance on EBITDA EUR 960 million, EUR 970 million can be considered in order to do an analysis on expected net income on 2021.

Yes. I was expecting net income 2021 -- sorry, I didn't catch correctly the question because...

Javier asked if the 250 could be a right assumption he did about our net income considering our guidance.

Okay. But the net profit in 2020 is affected by some elements -- extraordinary elements. And you don't consider the extraordinary elements that affect the results of 2020. In 2019, we have announced an increase of net income by 3.7%, up to EUR 211 million. This is if I catch correctly the question.

So in other words, it's difficult to see our guidance on net income right now. For sure, in doing the guidance, we have to consider the impact that as Massimo said right now, had some extraordinary elements on the net income 2020.

So I guess that my question was along the lines of -- to put this very simple -- very simply, the consensus that I see in Bloomberg is for an EBITDA in 2021 of EUR 950 million, which is lower than your current -- your latest guidance and the latest Bloomberg consensus is EUR 240 million -- north of EUR 240 million. That is why I was asking if you feel comfortable with the net income of [ EUR 150 million ]? Or do you think that, that is an overstatement?

Yes. But so far, it's not easy to give you highlights about net income. So it will be more precise in the first quarter results. Usually, we don't give a guidance on net income in the conference call of full year results.

Fair enough.

About your third question on supply, we can consider EUR 140 million EBITDA as, let's say, guidance for the supply business, considering the path of the nonrecurrent profitability we had this year. In terms of strategy, of course, we are pushing on digital marketing, digital channels, we expect to further increase this kind of client acquisition strategy. Of course, the competition is higher than was in the past. And this means a higher number of clients to get to have a net increase in our customer base. So if I well understood that the guidance is in the area of 140 [indiscernible].

Your next question comes from the line of Enrico Bartoli from Stifel.

I will start with the question regarding the waste business, the EBITDA was particularly strong in the fourth quarter, even stripping out the contribution from the acquisition, it was up by 30%. So I was wondering if there was some, let's say, extraordinary effect that and if the, let's say, that level of margins can be extrapolated for 2021. And if you can guide us through the contribution that you expect from I.Blu and Unieco from -- on the full year of 2021. Second question is related to the energy business. I guess that actually, your updated guidance includes the current outlook for Italian power prices. If you can update us on the hedging policy that you have implemented so far. And what you expect in terms of contribution from the ancillary service market compared to the EUR 81 million that you recorded in 2020? And the last one is an indication for the CFO on the cost of debt we expect in 2021.

Thank you, Enrico. Please, Massimo. Can you start from the last question.

Yes, yes, About the cost of debt in 2021, we forecast [ some ] adoption reduction. And in terms of full year, we forecast a cost of debt of 1.7%, better way than expected in the business [ planner ]. If you remember well, we forecasted cost of debt by 2023 of 1.6%, but we think that we will reach this target a year before. And in 2021, the cost of debt will be 1.7%.

Okay. Thank you. The second question on first path of the hedge, now about 40% of thermoelectric production is already hedged with an average interest rate of 6.6% and about hydroelectric production at less than 800 gigawatt hour, are already hedged on an average price of about EUR 48 per megawatt. In terms of MSD expected for this year, right now, we expect EUR 70 million, so a bit less than what we reported last year. And right now, the first 2 months was quite poor, the MSD. About the waste, you have to consider the normalization of the collection activities in terms of tariff. So the we expect -- we do not expect further increase in collection, and the contribution of I.Blu and Unieco will be in 2021 in area of EUR 25 million on [ year base ]. The fourth quarter 2020 waste was also supported by the contribution of Unieco that, as I said, had an intense use of landfill in that 2 months.

Our next question comes from the line of Emanuele Oggioni from Banca Akros.

I have a few questions. The first one is on the generation business. Could you please give us more flavor on the impact of the higher -- on the higher power prices in your business in the generation also in the waste business. So for the additional EBITDA, you could gain in 2021, also related to the 90-gigawatt hour and the green certificate to shift this year from 2020 to 2021. So this is first question. And the second one is on the market business unit. You recorded some EUR 14 million of extra return due to commodities price volatility in 2020. So I wonder what could be the impact from commodities in 2021?

Starting on your last question, as I said before, our guidance for market division of supply is in area of EUR 140 million. So we do not expect any material impact from commodities in this year. So the goal, not including the EUR 40 million and one-offs will be related to the increase in customer base mainly. About your -- of course, this is because we have -- and we are tightening our hedging policy on portfolio of supply. About your first question, about the impact on price in generation of waste. As I said, for hydroelectric generation, of course, on our total production, we expect better prices for this year, but we shifted roughly 90 million gigawatt hour. That means that we expect, including the green certificates that are related to that production, EUR 18 million compared to EUR 15 million that we shifted in 2020. About waste, we suffered in 2020 of a reduction of roughly EUR 6 million, EUR 7 million because of good prices. So we can expect a recovery on price will last on a better level this year. Considering also going back to either generation, the remaining part of production, so not looking at what we shifted from '20 to '21, we can expect EUR 10 million, EUR 12 million of additional profitability that is related to better prices.

Okay. If I catch -- if I understood correctly, the -- is EUR 18 million, the additional -- the benefit of the shifting of 90 gigawatt and related green certificates in 2021

Yes, 18.

Your next question comes from the line of Roberto Letizia from Equita.

If I can stay on the power price scenario, please. And would like you to talk a little bit about 2022 rather than '21. Just saying to me, if current forward curves are actually better then the strategy plan assumptions, which potentially -- if this is implying you probably to start making hedging for the next year at better levels than you were actually expecting some months ago. I would like to clarify if it's possible a few items on the guidance you provided. And you talk -- you recall the 30% tax rate for 2021, but then you talk about the fact that you are still going to get some benefits on the tax asset realignment. I'm not sure I got this completely. So I want to understand if 30% exclude the benefit of the tax asset realignment or not. You registered a significant improvement in the other interest charges. So I wonder if you can say what kind of level do you expect in the other interest charges for this year, if there are any important, relevant moving part here? I would like you to talk to us a little bit about the potential M&A contribution in 2021 and if the new guidance actually still exclude any M&A benefit so [indiscernible], if it includes any M&A or not. And depending on how are you proceeding in negotiation, if you expect actually something that may arrive in the coming month and if you can elaborate a bit about the dimension of what could potentially -- not, of course, the names, but at least the dimension of what you are working on? I'd like to ask you, if possible, what currently is the level of maintenance CapEx that we can compare to the EUR 970 million EBITDA. You're talking EUR 800 million of CapEx this year, but what actually the underlying maintenance CapEx level?

Thank you, Roberto. I start from your last question. Of course, it's not easy to say, but we can say that looking at what we did in the last years, the large part of our increase is related to development CapEx and not a different level of maintenance CapEx. In any case, we can assume, but including also -- and I'm not able right now to say exactly in which percentage, but including also RAB part of this maintenance CapEx, we can say EUR 400 million, EUR 450 million could be a maintenance CapEx level correct us looking at the current size of the group and asset base of the group, including in this, as I said, part of the RAB CapEx. But for me, it's important to point out is that the large part of our goal is devoted to, let's say, development CapEx. Going to M&A, for sure, guidance 2021 does not include at all additional M&A transaction, of course, includes the full contribution of the transactions of already done like I.Blu and Unieco. We are, as usual, working on some deals, but we did not include any of them in our guidance. And as usual, we are confident to continue in the short, medium term to do additional M&A transaction. Right now, there are also some important asset that we expect will be on the market and also in the short term, and we will understand if the -- these kind of assets are interesting for our -- or go part. Massimo, please, if you -- better explain about the interest charges and taxation.

About taxation, yes, I said before, now I [indiscernible] at 30 -- a little bit from 30% is without the impact of the realignment of the assets at the value of the tax asset to the asset in the balance sheet. So we could expect a reduction of tax rate considering this extraordinary opportunity that we will have. Above financial charges, before I say that the cost of debt in 2021 will be roughly 1.7%. So we then consider that EUR 65 million -- roughly EUR 65 million could be the level of the interest charge in 2021.

So that includes the other interest charge? Because my question was on the other interest charge, those that have moved from minus 18 to plus 30.

The other interest charge move a lot of during the year. It depends on some decision that we are to consider probably or not liability that we can do or not in 2021. There are several factors. There is the authorization of the fund. There are also some comparable charge, not without [indiscernible]. So it's quite difficult. Now we are thinking that, this year, is extraordinarily positive. You can forecast less positive contribution [indiscernible] EUR 13.3 million. We can consider that, that roughly quite 0, the contribution of the other financial. But ratio could be high in condition with the decision.

Of course.

About your first question on power prices scenario '22. To be honest, we are not seeing a material difference compared to '21 prices, and right now, we are not hedging -- we did not started yet our hedging.

Just one final question, please, if possible, what kind of provision totally now do you expect for 2021, so in D&A, I mean.

Yes. Okay. Provision in 2021, you are talking about provision to bad debt or the other provision because...

Both, please, if it's possible.

Okay. Okay. Talking about provision to debt, we can consider that, this year, we had EUR 61.7 million, including EUR 25 million of bad debt. We all say that we forecast up to EUR 10 million, more than EUR 10 million additional instead of EUR 25 million. So we can forecast EUR 40 million, EUR 45 million of provision to bad debt. The other provision that this year are affected by the release of fund for EUR 19 million could be higher by EUR 15 million roughly. So we are around EUR 20 million, EUR 25 million -- EUR 25 million better.

[Operator Instructions] There are no further questions. Please go ahead.

Okay. Thank you very much, everybody. Bye.