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Edited Transcript of A2A.MI earnings conference call or presentation 3-Apr-19 1:00pm GMT

Full Year 2018 A2A SpA Earnings Call

Milan Apr 18, 2019 (Thomson StreetEvents) -- Edited Transcript of A2A SpA earnings conference call or presentation Wednesday, April 3, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrea Crenna

A2a - CFO

* Luca Valerio Camerano

A2A S.p.A. - CEO, GM & Director

* Renata Bonfiglio

A2A S.p.A. - IR Manager

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Conference Call Participants

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* Emanuele Oggioni

Banca Akros S.p.A., Research Division - Analyst

* Enrico Bartoli

MainFirst Bank AG, Research Division - MD

* Javier Suarez Hernandez

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

* José Javier Ruiz Fernandez

Macquarie Research - Analyst

* Stefano Gamberini

Equita SIM S.p.A., Research Division - Analyst

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Presentation

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Operator [1]

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Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the A2A Full Year 2018 Results and 2019-2023 Strategic Plan Update Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Ms. Renata Bonfiglio, IR Manager. Please go ahead, madam.

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Renata Bonfiglio, A2A S.p.A. - IR Manager [2]

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Thank you. Good afternoon to you all. Welcome to the annual presentation of A2A on financial year 2018 results and strategic updates by Mr. Valerio Camerano, CEO; and Andrea Crenna, CFO. The 2 presentations are available on the company website and on the webcast. The Q&A session will be available on both for phone call and via web.

Now I leave the floor to Valerio Camerano.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [3]

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Thank you, Renata. Good afternoon, everybody. Thanks for joining our conference call. So usually, we start from the 2018 numbers. And I would like, first of all, to propose to you to go very briefly on the 2018 numbers in order to have more time to go through the presentation of the 5-years plan. Of course, we'll be available again to the conference call for Q&A. And of course, the IR team will be also available after the conference call for all the needed information and clarifications of 2018 numbers.

But before we go to the business plan, I would like to emphasize a few different points on 2018. First of all, we've been already sharing with you the key numbers in the preliminary results we provided to you in February. But let me underline the numbers of different issues, facts underlined in '19 -- the 2019 numbers.

First of all, we have reported EBITDA of EUR 1.231 billion, which is basically the record year for the company, matching exactly roughly 2016 numbers, which was again a record year. And it's a year characterized by positive growth rate in each of our businesses. The reported net income is EUR 344 million, which is also a record result, which is above the best result so far recorded in the group, which was 2008.

Also from the CapEx point of view, we are reaching the highest level ever, EUR 0.5 billion in 2018. And finally, net debt/EBITDA coverage of 2.45 is also an extremely good number given all the investments we did in the year.

We know that the expectations on the net income from some of you were higher, but we want to stress the fact that 100% of the difference is explained by our impairment test, mostly related to our plant -- coal plant, Monfalcone, which is, by the way, as you know, a noncash effect. So in consideration of this truly positive performance, we have decided to propose to the board, which has just approved it just an hour ago, a dividend per share higher than what we planned last year, basically 7% per share. That's a 21% increase year-on-year versus the last year results.

This order of magnitude of dividend is exactly the dividends -- it's a year before, higher ahead of our plan which was presented in 2015. So we believe this is a remarkable effect -- a remarkable point in our growth in our strategy. So again, we will be happy to answer more into details later on in the Q&A. If you want, again, the IR team will be also available afterward, after this presentation to go more in details. But I would like to, after all this -- after this number of key observations, I would like to go directly to the business plan, which also you have on your website.

So moving to the presentation of the business plan. Just a second, we are...

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Renata Bonfiglio, A2A S.p.A. - IR Manager [4]

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Uploading.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [5]

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Uploading in the website the presentation. Okay, it should be on the web at the moment. So if we go to the first page, we want to remark the key point of the strategic plan. First of all, we are presenting a plan which is in line with the previous year framework, which was the TEC framework. So there's continuity. There's a strong continuity compared -- versus last year.

Second, we are -- if you go through the page, we will go that in a minute, we have a lower-risk profile in this business plan. If you look at the percentage of regulated and non or quasi-regulated assets in our company, you can see -- you can spot that we go from 49% to 73% at the end of the plan, which is basically a remarkable increase in the regulated and quasi-regulated composition of our asset base, which was -- which underlines a lower-risk profile going forward.

Third, we have enhanced our targets, in particular the EBITDA target and the CapEx program. We have a higher focus on sustainable businesses, especially in the BU environment. And we have also improved the existing dividend policy, which is a reliable dividend policy, as we have demonstrated in the last years, as we have demonstrated in 2018 presentation of numbers, as I commented a few minutes ago.

Page 4. I'm not going to be long time on this page, just to remind you that we have factored in, in our strategy and our plan what we believe are the main trends characterizing our business, in particular in the circular economy, energy transition and smart solutions. And I will only focus your attention, drive your attention on the last bullet point for each of these categories. Look at the, for example, in circular economy, the 10% limit to landfill by 2030, which calls for extreme need of additional infrastructure to be built in this country in the next years; the phaseout of the coal plant in 2025 as it is reported in the energy plan; and 32% of improvement in energy efficiency by 2030, which is the European target. So all these trends would be trends strongly rooted in our -- the rationale of our business plan.

Page 5 simply reminds the framework of our industrial model.

I will go to Page 6. I want to highlight the key elements of the business plan for each of our business plan -- each of our, sorry, BU. For the generation, there's a couple of elements we want to stress, the further growth in renewable, which is associated with the stronger step towards our role as a provider of flexibility in the gas business.

On market, on the division market, we stress a slightly increased ambition in the mass market, the free mass market, energy market when we increase to 2.7 million of our target of customers in the free market. And also the step-in in the mobility, electrical mobility by enlarging and strengthening our efforts in the charging stations in the key locations of our cities.

On waste, we want to -- we confer a trial of investments in the circular economy. But the big news on this front is that we are adding a new WTE, our plan which is called the authorization a week ago. So we have one more plan compared with a year ago, 2 more plans if we look at the plan -- the other plan 2 years ago. So we confirm that we strengthened our efforts in the circular economy, again, a market dominated by a strong deficit infrastructure.

On the networks, we will continue to invest to strengthen the electrical power networks, mostly Milan and Brescia, and we'll continue our investment profile on the smart meters. There's a big increase in smart meters in electricity and gas. The rest of the slide simply shows you what are the key elements of our excellence and community plan. We'll go over these points in the presentations -- in the presentation.

So Page 7, key targets on each single BU. So you'll see the EBITDA target for each single BU and the associated cumulated CapEx. So clearly, this CapEx includes also the consolidation of ACSM-AGAM, which is the company we are now consolidating. Don't forget, of course, that we only have 40% of this company. So we hope we consolidate 100% of the CapEx, but we only consolidate 40% of the net income. So we'll go through these numbers at more detail in a minute.

So Page 9. As we did last year, we are devoting -- we are proposing 3 slides per each BU to go through the key actions and the key trends of the BUs. In generation, there's a couple of key points regarding our strategy, a greener portfolio going forward and a stronger presence of A2A as a key flexibility provider to the system. So going forward, our generation mix will be much more in line with the Italian and European plan. Of course, we are also developing our strategy.

Finally, I should say, I'm pleased in a scenario where capacity market plan was finally notified to the European Union, so we expect that to be in place in the second half of the year. You will see in the details we are providing you, I'm referring mostly on the plants contribution margin on the right -- bottom right part of the slide, we highlight a gradual switch of our generation mix towards gas and renewables.

On Page 10, we provide you a few more insights on 3 key points. I mean, RES renewable growth, so we have enhanced our target on photovoltaic and solar. And correspondingly, we have also reduced, in line with the reducing LCOE, the cost to realize those plans. So you have an increased appetite in our plant but a decreased CapEx associated with that portion of solar plants. So we're actually planning to develop 150 -- additional 150 megawatts, roughly 50 coming from M&A, 50 coming from greenfield plants.

On acceleration, the flexibility solutions, I'm not sure all of you have followed the plant upgrade in Brindisi. We have gone through an auction organized by Terna last month, in February. So we have been awarded the construction of a grid voltage services in Brindisi from 2020 for the next 10 years, so that will continue for 10 years. It's an important response, the reconversion plant, we have designed in this group. So we are providing -- we have now a solution exactly for the main line. Since we have now a solution for the continuity and the upgrading of Brindisi plant, so we are working on the conversion plan also in Monfalcone.

Second point, gas peakers, you will see that there is a symbol here, which is our pot. Basically, we have not included -- this means basically we have not included this point in our business plan, but as part of the additional projects, you will find details in one of the last slides of the presentation. So we have closed today 5 different projects that we like and we will be probably developing under the new capacity market. I'm talking about here the capacity market for future capacity, storage and pumping investments to increase our flexibility capacity in the market. So beyond -- I mean, previously, it's part of the solution, but also gas peakers and storage facilities will strengthen our ability to provide flexibility to the Italian market.

Then a third point is plant reconversion. I commented a little bit on that. We will all go -- so we hope to close also the questions regarding Monfalcone soon.

On Page 10 -- sorry, Page 11, we provide you key numbers regarding the generation. Clearly, we have, compared to 2018 numbers, some decrease in the green certificates, especially all the green certificates -- we sold the green certificates stock we had. We then on the -- we're able to compensate over the planned portion of this drop basically by increasing our renewable component, which is basically new deals and new -- developing new green grid disparity investments.

On capacity market, we have, for 2019, we have only a small portion, of course, that we forecast for the rest of the year. But we believe the development is now finally initiated and will be completed quite reasonably soon. And so we insist on the capacity market for down the plants. And then we have also a market effect. So we have the combined effect of a decrease of fixed cost. We have included in this portion, also in this item, we also included what we foresee would be the increased costs connected with the regularization of the hydroelectric plants in the other regions where we are present. So we have already prudently included the effects of the hydro business in this portion of it, in this item.

On the CapEx, you see CapEx will be absorbed by minor portion on hydro and coal and CCGT. The biggest chunk will be absorbed by the renewables and also on CCGT for the maintenance of the existing plants.

We had also included in this slide the EBITDA conversion. It's an important element for the rise of this BU. It's very substantial. I mean, you normalize -- if you take out the effects linked to the M&A and the renewables, we go beyond 70% of EBITDA cash generation in this unit.

Page 12, we move to the market view. So we will strengthen our ambition on the free market customers. And again, we've been -- we kept selling -- saying this in the last presentations, this is in line with our ability to deliver. So it's now we're already done and shown to be able to do in the last years. So it takes into consideration our ability to switch clients from the regulated to the free market and also with the ability to conquer our customers in the areas we are not present at the moment.

Then we will provide you also KPI regarding the public lighting, where we have a company dedicated to that, which is A2A Energy Solutions. So this is the lighting points that we believe that we are able to deliver over the plant.

A2A Energy Solutions is also engaged in a number of new projects regarding energy efficiency, regarding energy and mobility. Maybe we can go on this point and more in the case afterwards.

On -- again, on markets, Page 13, we give you some more details regarding our strategy. So we think we can enlarge slightly our market share of large clients. This is a result of also the weakening of other players in the market, so we want to take this opportunity. As I said before, this is a new element in the business plan. Energy efficiency is a strong boost on EPC projects that we do foresee going forward. We have inserted this in the plan.

On the safeguard, which is the previous box, we have already inserted in our plan the result of the recently done tender, where we have, for the first time, stepped in the safeguard market with an excellent result. We think we can have further opportunities on this front, but we have not included that in our business plan.

Mobility, I think I commented already on that. I think we can move forward to Page 14. We can comment on the numbers. So the biggest element of the source of growth will be coming from EUR 130 million coming from the growth in retail margin -- retail, sorry, energy retail, gas and power. And also, we have already included also the growth, which we believe that can be realized by ACSM-AGAM. So we have consolidated the global growth of the group in the power and gas.

We have also the new energy solutions. So EUR 41 million will be coming from the growth, not only from ACSM-AGAM, but also from Smart City, which, for simplicity purposes, we have included in this BU and the energy efficiency business going forward in the company. So the entire block, EUR 41 million takes into consideration ACSM, Smart City, public lighting and energy efficiency and, to a limited -- to a more limited extent, the value-added services that we have in our plan.

So as a reflection on that in cumulated CapEx, we will be deploying the CapEx that you see. So a big portion will be in energy solution and public lighting. And also, I think it's worth underlining the cash conversion EBITDA of this division, which is again very, very high; it has been above 50%.

On waste, Page 15. We -- again, we are in continuity with the past, but with the only exception that we are now presenting a further growth in our WTE capacity as a result of the recently approved -- approval we got from the authority for the construction of a new plant. Again, this is a remarkable result for the company, especially, again, in a market characterized by extremely short situations. So that's the result in terms of capacity, WTE capacity. So we'll reach a total capacity in excess of 6.4 million tons, which will give us certainly a stronger leadership in this market. We'll grow -- continue to grow on the collection. Again, the collection business, as you may remember, it's crucial to lock in the entire profit along the value chain, and we will continue to grow. We will reach a number of 4 million inhabitants at the end of the plan.

Page 16. So 3 main blocks. Accelerate. So on this plan, we accelerate on what we call the -- we have called the circular divide reduction. We'll participate in this country effort. So new plants development. Something which is not included in the business plan, we are studying a potential development of our business outside our historical areas. So we can provide you more details afterwards. But in the plan, mostly we have the existing 10 different plants. As you may appreciate, the last plan, which is new WGE, and the previous one, WGE extension, which was already approved last year. So we have 2 approvals already in place for WTEs, with then 4 organic plants, you may remember going forward, and 2 plastic treatment plants. We also have a couple of plants in the waste, again, in Lombardy and Piedmont.

Accelerate, we have -- we are accelerating our presence in nonhazardous special waste, so mostly boosting innovation technology using artificial intelligence for robotic picking. So we are already in our existing assets, Filago, Corteolona, [Chivasso], we are increasing on investments with the scope to more than double our capacity.

We also are close to announce in the market, it can be a matter of weeks, a stronger partnership with a European player in the hazardous waste, which can mark our step. More than a step, I think it's a big strengthening in our presence in the hazardous waste, which relatively speaking was less present in our offer so far.

The third block, comments, it's new, something new. So we are considering, though not included in the plan, as you may see through the symbol, more strengthening in our vertical integration downstream, especially in the secondary raw materials, with a special focus on plastic and paper. It's something that we are envisaging to do. We might come up with, very soon, with some initiatives. And that's again a step with the aim to strengthen our vertical integration, a further move towards vertical integration towards final market in plastic and paper. So strong growth of the waste.

On the numbers, Page 17. Most of the growth will be coming from new plants, so EUR 107 million. Just to give you a number, now roughly above EUR 60 million out of this EUR 107 million come from already approved and authorized plants. So it's something which, from our perspective, is almost locked in. And of course, you will see that also in the CapEx. If you look at the cash conversion for this BU, clearly it's lower. We're investing -- heavily investing in this unit. We believe in this business unit in terms of IRR, in terms of interest, economic interest, the industrial interest of the company. But if you normalize it, so if you take the average along the plan, you take out the last investments in the plant, you get anything around 40%, which is still an interesting cash conversion.

Page 18. On network, we continue to -- our effort to regain momentum on our RAB, regulated asset base, on electricity and gas. So we strengthened our efforts on the electricity CapEx mostly. So we will -- on that front, we will continue the strengthening of the 2 major networks we're own, so Brescia and Milan, with the purpose to develop and further strengthen those markets, be prepared for the further development of potential DERTs, distributed energy resources technologies, that will need a more smarter grid to be developed.

Page 19, numbers -- sorry, our key transformation issues. Again, the first trend, decarbonization. So we have taken the decision to fully decarbonize the Lamarmora coal plant; boosting of smart meters, which is an acceleration versus last year; and also accelerate on electrification. As I said before, these are mostly primary stations investments in Brescia and Milan.

Numbers, Page 20. There's a growth to -- in EBITDA in the region of EUR 180 million. Mostly this growth is coming from not only consolidation of ACSM but also already investments in gas. So these are basically the result also of existing tender, Milan, that we have won. Our water cycle, the result of the increase already locked in and negotiated tariffs. And on district heating, this is the result of the development we have, commercial development that we are envisaging in our plant on the basis of existing investment -- existing enlargement of the networks that we are going forward.

On breakdown, cumulated CapEx breakdown, it's quite balanced between electricity and gas. There's a portion -- there's a substantial portion also in gas tenders. This comes mostly as a result of the consolidation of the ACSM into our numbers. They have an important effort developed along the plan. Cash conversion is, of course, given the high capital intensity of this BU, it's around 30% if you normalize it.

Okay, value creation pillars, Slide 22. I apologize. It's a quite complex slide. But basically, I will go to the essence of the message of this slide, basically to strengthen the reasons and the value behind being a multi-business value creator company. Beyond the CP goal, mostly business benefits, so scale synergies defined in part 1. The vertical integration value chain, we do see strong synergies coming from adjacent businesses.

There's an example we provide you in the slide, which is an example regarding the waste business, which is the green one. You can look at the remarkable numbers of synergies and interactions that we can enjoy on given our multi-business structure. So account goes from dispatching to a non-skilled sort of demolitions and remediation to joint commercial offers to clients and so on.

For the first time, we are trying to identify what is the intrinsic value coming from the intercompany business. And we have identified the number, which is in the region of EUR 50 million, which is a value coming from the multi-business structure of the group. And we expect to increase this from EUR 50 million to EUR 70 million going forward in the plan. And also, another thing which is important to underline is that being a multi-business value creator becomes an important attractive platform for further industrial partnerships. We do see, while talking to the other local aggregators, a lot of local companies that this is an extremely interesting factors to them to talk right away as a local aggregator.

Page 23. Extremely important from our side, 4 key messages we want to stress. First of all, the regional operational excellence plan is working very well. We have announced that 4 years ago, you may remember that the En&A and the Mistral programs, it's up and running. It's going well. It continues to deliver results, to the extent that we have decided to improve in the new plan targets. So you see, for example, the green curve, which is the new plan, so not only we have improved the 2018 numbers, which are EUR 17 million above our target, but we want to improve the targets throughout the plan for an integrated and cumulated savings, additional savings in the 5-years plan in the region of EUR 90 million.

We are also confident that the fourth message, we're confident we can further strike value from this plan for a contribution which is up to EUR 20 million of additional EBITDA. And we believe that this can be, for example, a further contribution to offset the negative numbers, the negative effects coming from the regionalization of the other concessions. So in a natural -- I mean, the operational excellence is an extremely value-generating plan contributor in the company. We continue to grow to generate value. We have modified our plan, and we'll continue to deliver value along this plan.

Page 24. This is the derisking trend of this company. If you look at the quasi-regulated business and the regulated business, the percentage of these businesses will go from 49% to 73% at the end of the plan. So there is an invested capital reshaped during the plan, going forward, going to a lower risk profile, which is also an important message we want to share with our investors.

Page 25. Quickly, you may remember we had EUR 0.5 billion dedicated digital and tech innovation. We have increased this CapEx program to EUR 68 million (sic) [EUR 680 million]. Basically, no -- a number of areas: smart meters, mobility, primary stations, we have -- and also, we include also the contribution of ACSM globally. We continue to purchase a lot in terms of investments, in terms of digital and tech innovation, of course, with the aim to extract further value in our businesses.

Okay, value creation pillars, Page 27. Very, very quick message to say that on the excel and on the E and on the C, we continue to look carefully where the value can be developed and shared with our people. So the welfare side and on the talent retention side and diversity program. This is also an additional element of interest for the group.

Page 28, just for the sake of clarity for you. I mean, we will go through important building optimization the next 5 years. But that, of course, is going to be in our wish, of course, an important simplification of the way we interact within the company. So for example, in Milan, we'll go from 7 corporate buildings to 1.

Maybe an important element, which will be interesting to stress with you, we expect also to cash additional EUR 30 million as a net effect coming from net divestments and in the building -- new building construction. So globally, these deals will increase our ability to work, but at the same time, we will generate additional cash for the company.

Innovation, 29, just to underline the fact that we have the strongest innovation in the group. This provides you the efforts done in 2018. So we have analyzed a margin of 200 startups, and we have now 7 initiatives -- more than 7 initiatives in the company applied. So we are in the process to scale them up. We basically assigned the innovation -- the company is able to capture innovation, where the innovation is translated into complete initiatives in the company.

Sustainability, Page 31. Again, very, very quickly, just to remind you that all the pillars of our strategy can be also seen from a sustainable point of view. You can track that. We have more than 60 KPIs that we go and we control, we march over the plan in order to be sure that our sustainability plan is also accomplished going forward.

Okay. We can move to the financials, which basically means Page 32, sorry, it's just an additional information on sustainability. We can go to 34, which is basically the numbers on the plan. And I will hand over to Andrea to provide you more details on the financial numbers.

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Andrea Crenna, A2a - CFO [6]

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Good afternoon. Page 34 is nothing but the synthesis of what you have already seen. It's quite evident our expected growth comes from 3 BUs split evenly, more or less evenly, I would say. Going case by case, generation. The expectations of the results are the outcome of some very straightforward assumptions basically on the feed-in green certificates you already all know the numbers behind. We have disclosed them several times and they have not changed. Equally, we have not changed the assumptions on the production volumes, on the capacity market, on the MSD, on the ancillary services. They're all the same as we did last year. We can comment more on that later on. The scenario has been provided and the only point, as Valerio commented several times, we have plugged in EUR 20 million, roughly is EUR 20 million impact of the effects of the new law for the regionalizations of the concessions. This is our best estimate on the available information basically that we have today about the application of this decree. So the reduction, if we want to oversimplify, is due to this new law.

If we move to the market, which is the single-largest contributor. Here, the EUR 136 million is actually the outcome of different sources of growth. Let me briefly single them out. In the -- by the way, let me tell you that in the attachments you will find the waterfall for each business unit of the drivers -- of the growth drivers in the same structure that we presented last year. So out of the EUR 136 million, EUR 96 million are from the electricity and gas retail businesses, 2/3 A2A and 1/3 is the commercial effort in the ACSM-AGAM. EUR 27 million is from public illumination and energy efficiency. Then we have smart cities, with EUR 8 million; and EUR 5 million other services. If you want a split between A2A and ACSM-AGAM, we keep on presenting ACSM-AGAM separated from the rest of the company just for clarity and ease of understanding of the numbers, but effectively now clearly consolidated, fully consolidated line by line now.

As far as the assumptions underneath the growth in the retail business, which is the lion's share of the growth, we have actually not changed the assumptions versus last year. So just to freshly remind you, when we already got those assumptions, we were -- by the way, we changed the date of the overcoming of the regulated market to mid-second half 2020, but then we keep on assuming 66% of the switch between regulated and the free market, the recovery of the remaining over the next following years from the market. Total customer base flat, it's not increasing after the liberalization. We keep on projecting the unit margin on the mass market on the energy component reducing 3% per year despite the fact that in 2017 and 2018, as a matter of fact, these assumptions did not materialize, but we keep on thinking this is the most rational assumptions. Likewise, we keep on assuming a cost to acquire which increase 5% year-on-year and a flat cost to serve.

And as Valerio pointed out, the only difference is that with this year, we have plugged in an effort on volumes, especially volumes on B2 business -- the B2B, sorry, on the large customers, which accounts for about EUR 13 million of growth in the period.

If we were to waste EUR 112 million, the contribution of ACSM-AGAM is negligible. It's EUR 8 million. So for the sake of clarity, allow me now to comment on the EUR 8 million of ACSM-AGAM. I think Valerio mentioned that EUR 80 million comes from the -- EUR 80 million of EBITDA comes from treatment plants, which are basically the treatment plants we have commented on Page 16 of the presentation. EUR 64 million out of EUR 80 million are from already authorized plants. So there is no question mark related to whether we or when we get the authorization. The rollout of the EBITDA of the EUR 64 million is back ended. New plants are WTEs or the improvement of capacity in the WTEs. So it's just a question to beef them up, which takes time. So EBITDA will fall in 2020 to 2023. EUR 15 million are from other plants which are not subject to authorization. And then we have an important effect which comes from the assumptions we have done over the price increase, both in the energy generated by the WTE, this is the scenario, as well as we are assuming a 2% increase year-on-year on the prices for waste, which is once again much lower to what we have experienced over the past 2 years, '17, '18. The increased prices on waste was much, much higher. And then we clearly have some negative effect on some landfills getting exhausted over the period. We can then provide you with more details on the EBITDA rollout or any breakdown you might want to have.

If we move to the network, EUR 112 million. Here, the contribution of ACSM is relevant. It's EUR 42 million. We can comment in a second. EUR 112 million are from basically 1/3, EUR 34 million from tariff. This is given. EUR 53 million is out of the gas tender. We can clearly make the assumptions on when this will be awarded, but in the plan, we have not changed the assumptions on which items we want to get, which items we want to leave, but we have just postponed the effects of the authorization for this tender. And EUR 26 million is on the district heating. This splits in several components clearly stated in the backup, so I won't spend any time.

If we move one page ahead, we go into Page 35, yes, thank you, Valerio, 35. These are the numbers which have been presented by ACSM-AGAM. These are, in other words, numbers which have been already made public. This is clearly 100% of the result of ACSM-AGAM that at EBITDA level we consolidate integrally. You see, you don't see 2018, and the reason is that it doesn't exist 2018 for ACSM-AGAM with this perimeter because the company was nonexistent. So it’s purposeless to make a pro forma of 2018. 2019 is the base year, EUR 64 million is basically the expectation. And then you see a EUR 59 million growth, which, as I was saying, mostly comes from networks. EUR 23 million out of EUR 30 million is gas tenders. And market is once again mostly customers or I should better say, the conversion of the customer base in ACSM-AGAM from the regulated to the free market, the same assumptions we have used for the A2A case.

If we move very quickly, on Page 36, the waterfall to the net income is plain vanilla. There are no major assumptions. Depreciation is just the effect of the CapEx which had increased. They have gone up for 2 reasons basically. One is the strong CapEx plan. Two is the effect, it's a technical effect of what is called price purchase allocation and basically is the goodwill allocation after the acquisition, in our case, mostly ACSM-AGAM and the other minor acquisitions to the fair value of the assets.

Provision, we are assuming to make provisions for about EUR 45 million per year on average. Tax rate, 31%, no change. Net financial expenses, as you will see in a second, we will basically self-fund. The net financial position is not going to change. It's just the effects of refinancing the maturing debt, assuming credit spreads and the forward levels today implicit in these costs.

If we move to Page 37, you've got the CapEx. We have already commented. There's all the breakdown which we have used to provide. It's very clear in this page the rationale behind the increase from last year plan to this new plan. Basically, from EUR 3.3 billion to EUR 4 billion, it's EUR 700 million. Out of this EUR 700 million, EUR 560 million, EUR 570 million is from ACSM-AGAM. So it's their plan which we are plugging in. And then we have EUR 216 million in renewable, basically photovoltaic. And then we have EUR 360 million from other businesses, out of which the lion's share is just one single investment, which is the additional WTE. So it's a big number with a quite easy explanation underneath.

If we move finally to Page 38, it's the free cash flow. Once again, no particular reason underlying the estimates. We have planned, once again, to self-fund all the organic growth. As you see, the only growth in the net financial position is due to the M&A in the renewable. And then you will see an IFRS with an accountancy reason, which I can comment to whoever is interested.

Page 39 is our best estimate today of the 2019 results, what we used to say our expectation at this point of the year on the full year. 2019, clearly, we are incorporating into this expectation the first 2 months that as everybody knows had been very hot in terms of temperatures with effects on gas and heat sales, but mostly on the generation business. And it's fair to say that they have not been 2 very positive months. March has been somehow different, in line with the expectation.

Plus, we are also including the effects of a dispute we have on Grottaglie. It's one of our landfill in Puglia. This has been blocked by the administrative court and is now pending the outcome of the course we have done to the Consiglio di Stato. Since we don't know the outcome, we are including in this forecast the assumptions that the landfill would not be reopened throughout all the year, which basically means a EUR 20 million negative impact on the EBITDA in 2019.

With these items underneath, you see the EBITDA forecast between the range we are providing. Clearly, it is a negative comparison versus 2018, where we all know there have been items which are not recurring. One, first of all, is the portfolio of the green certificate, EUR 100 million. And somehow, 2019 also sees items which would be reversed on the other sense in 2020. For instance, the capacity market today, in 2019, we are only forecasting one quarter, fourth quarter. We clearly are expecting, especially after the news, we got a full year on 2020. I think we already commented that in 2019 we basically have called the WTEs stopping for extraordinary maintenance. This is true in A2A and as well as in ACSM-AGAM. And clearly Grottaglie, the landfill of Grottaglie, we hope -- we think we have arguments to believe that one day it will be put into operations back once again.

The EBITDA guidance drives the net income expectations quite arithmetically. Let me say the CapEx are going to be very high. EUR 700 million would be significantly higher than the already record year of EUR 500 million. And as a consequence, we are expecting the free cash flow generation to be negative for EUR 200 million. Then in order to estimate the net financial position, it's boring stuff, but let me tell you, there's going to be another EUR 100 million, EUR 120 million from the application of the IFRS 16. It's just for to ledger the possibility to run proper the number on the net financial position. So it's EUR 200 million plus EUR 100 million. EUR 100 million is not a cash effect. It is an accountancy effect.

I will leave Valerio to conclude on our plan and then move into the Q&A. Valerio?

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [7]

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Okay. So thank you, Andrea. So maybe a last comment on 2019. I mean, it's -- from our perspective, it's a transition year, which is characterized by the landfill issue, WTE maintenance and the generation. The first quarter generation was clearly -- it is not positive, certainly. So 2019, it is being affected by these 3 main factors. And of course, WTE maintenance will be realized at the end of the year. Then we'll go back to the original maintenance program.

On the dividends, which is Page 41. So closing remarks, I'm getting to the end of the presentation. Closing remarks, I mean, we have commented already on the EUR 0.07 per share. So we have also revised up consequently. So we are basically anticipating -- in other words, we are anticipating what we had anticipated for 2019. It is already accomplished in 2018 in terms of dividend, which is EUR 0.07. So we have consequently readjusted up our dividend per share in 2019 in '20. So you'll find here the improved dividend policy that we will present. And we have maintained in our commitment to minus -- sorry, plus 5% yield increase from 2021 going forward.

42, before moving on to closing remarks. I mean, what we call the pot. I mean, this is the pot of the additional projects we had. A few important remarks to make. Some of these projects are already going forward. So our ongoing activities, I think about, for example, the new treatment plant or the peak generation developments, but also the acquisition of minority interest in renewables. Local aggregation, you might have seen from our move towards Veneto. So some of these additional projects are quite ahead in terms of ongoing activity. We have estimated that the total effect potentially coming from this pot can be around EUR 200 million or EUR 300 million.

As you may remember, we have already demonstrated in the coming year, in the last years that a lot, roughly 50% -- 40% to 50% of these projects are realized afterwards that we had identified them in this pot. So we continue to nurture these projects with the aim to create an additional source of projects that we can put on the table. From one side, as a protection of the existing business plan. On the other side, they'll be the source of additional growth in terms of EBITDA. And we'll continue to advance that. It's something that we already plan and we'll continue to do that.

So closing remarks. So the strategy of the company continues to be an integrated multi-utility with, as we have presented to you, with a natural risk hedging. We will continue also to maximize, when it's possible, cross-BU synergies. We have, as always, an ambitious but achievable target in terms of economic and financial growth. The third point, we have significant upside coming from additional projects. Again, this can be in the region of EUR 200 million to EUR 300 million of EBITDA. And last comment is that, again, in this plan, we continue to root our business view, our strategy within sustainable business, in particular, of course, an eye towards the environment. So I think we have closed the portion. We will give the stage to Renata for your questions.

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Renata Bonfiglio, A2A S.p.A. - IR Manager [8]

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Yes. Thank you for listening to us. Please go ahead with your questions. I remind you, this could be either through the call or via the chat on the website.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Javier Suarez with Mediobanca.

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Javier Suarez Hernandez, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [2]

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I have 3. The first one is on the net income guidance for the year 2023. The guidance is at EUR 460 million by 2023 while previous guidance for 2022 was EUR 480 million. So I just wanted you to clarify the reason for this decrease from the expected net income in 2022 to the net income in 2023. I think that part of the explanation is the new assumption on the impact of the hydro concession business, but also there is a significant increase on the CapEx that is apparently not providing with any additional net income growth.

That is leading me into the -- and the second question is, on this CapEx increase that is roughly speaking EUR 700 million, why this is not feeding into the net income growth? I can see that most of that CapEx is related to ACSM-AGAM and also -- but there is also significant CapEx on renewables. I note the organic growth on the waste management business. Why that is not feeding into growth? So on my numbers and making the adjustment versus the ordinary net income for 2019, the CAGR of the net income could be just 1%. I just want a clarification if this is correct and the reasons behind.

And then the third and final question is on your business plan assumptions on things such as, for example, the contribution from the MSD market during the next few years, capacity market, and also the timing for the gas tenders. You have been changing the contribution from new gas tenders.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [3]

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Okay. So yes, Andrea, yes, please go ahead.

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Andrea Crenna, A2a - CFO [4]

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Okay. Javier, I will try to answer your first and second questions together, if I can. Thank you very much for the question. It allows us to put a spotlight on something which might be not so intuitive. I will try to give you the major guidance -- the major items and then we can clearly reconcile more accurately maybe with Renata later on for the benefit of everybody.

Now if we look at the amount of CapEx overall, clearly, we are taking 100% of ACSM-AGAM, 100% of their CapEx, because we are consolidating line by line. If we compare this number with the net income, we're not taking 100% of the net income of the ACSM-AGAM because at the net income level we clearly take 39%, which is our share. So in order to, let me say, compare properly, if we have to argue which amount of CapEx which amount of net income generates, we have to, I would say, the simpler way to do it is to carve ACSM-AGAM out for one second.

Okay. Now if we do that, we have to carve out [EUR 570 million], which are the ACSM-AGAM CapEx and EUR 15 million, which is the amount of the ACSM-AGAM net income, the A2A share in the numbers. And you come up with a stand-alone A2A, which gets a net income of EUR 445 million and CapEx at EUR 3.4 billion. Okay. Which basically means that in terms of CapEx, allow me to say that we are flat versus last year plan. It's actually EUR 100 million more, but I'm trying to simplify the argument, so we will be flat. But we lose EUR 33 million of net income, okay, from EUR 482 million, EUR 445 million, so same CapEx, lower net income. So the question turns to be, why you -- I guess, why you are losing EUR 33 million.

And the reason why we are losing EUR 33 million is more or less the following. Roughly EUR 15 million is the impact on the net income of the higher concession fee, okay? It's basically EUR 20 million less the tax effect, EUR 15 million, sorry, 1-5. Okay. Then we have 1-5, another EUR 15 million of higher depreciation, which comes from the allocation of the goodwill to the assets of the acquired companies, okay? Once again it's PPA. When you have a goodwill, you have to allocate to the fair value of the assets. We have allocated to some of these assets. And these generate EUR 15 million of higher depreciation. Plus, I think we have to take into consideration that in 2023, we have 100% of the CapEx on the year, but not necessarily 100% of the EBITDA which should be generated by this CapEx, especially the CapEx rollout in 2023. Let me make you a very simple example.

The networks CapEx, they become dropped the following year. So for all the network CapEx that we have in 2023, the associated EBITDA in 2023 is basically 0, because they will start to generate the EBITDA the following year. Then we might have other cases where the 2023 CapEx is not fully accounted for. Only the network accounts for EUR 10 million, EUR 15 million. So please adjust the 2 or 3 items to put the framework correct. And then, clearly, we can reconcile number by number.

And then, clearly, we have to comment on the ACSM-AGAM. This is the part that we carve out. Clearly, ACSM-AGAM have approved a quite substantial CapEx plan. The lion's share is in the networks, EUR 570 million. This actually is the number gross of the proceeds for the items they will not want to gain. They will lose. It's about EUR 50 million. So the net amount is around EUR 500 million. And EUR 500 million to generate about EUR 60 million of incremental EBITDA. So it's a bit less than 10x, which seems very high. But on the other side, as I was saying, this EBITDA is mostly coming from networks, public illumination and district heating, which is a very either regulated or quasi-regulated kind of business. So I know I do not specifically clarify number by number, but I think this is the correct framework to try to answer your question.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [5]

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So basically, Javier, what he's saying, Andrea, is when you compare CapEx and when you compare net income, you need to report to realign apple-to-apple and orange-to-orange. So I think you raised the third question on capacity, contribution capacity. So we're basically taking the view that capacity payment throughout the plan, not commenting on '19, which is a different case, of course, but to comment on '21 on, we have made the hypothesis of a capacity payment in the region of EUR 68 million, EUR 70 million, okay, flat, flat in the program, in the plan. 2019 is a different situation, of course. We are planning that the market may start at the end of this year, so the number is much smaller, something in the region of EUR 30 million in the year to model in the -- 2020.

On the gas tenders, so we have made a hypothesis that we're moving forward a year, a couple of years, depending on which tender we are referring. So between a year and 2 years of postponement of gas tenders in our plan. Globally, globally, the gas tenders account for roughly EUR 35 million of EBITDA at the end of the program, with accumulated CapEx of around EUR 500 million, basically 50-50 between A2A and ACSM-AGAM roughly, roughly speaking this EUR 500 million.

Another point I would like to make, but it's more qualitative. I think we have taken in our consolidation the proposed CapEx scheme from ACSM-AGAM. The company released the plan at the end of the year. So I think we'll go through the plan again going in the next year and try to see whether we can optimize the existing CapEx plan given the fact that we'll be including this CapEx plan within our group CapEx plan. But again, I mean, globally the gas tenders will account for EUR 35 million of EBITDA and EUR 500 million of CapEx. Does it answer your question?

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Javier Suarez Hernandez, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [6]

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Yes. The only one remaining is the contribution from the ancillary service market, the MSD market.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [7]

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Okay. The ancillary service market, it's not far away from the hypothesis we made in the past business plan. So it's around EUR 108 million, EUR 110 million in the plan per year, of course, per year. So in 2020, it's EUR 110 million and so forth. It's going to slightly decrease in our plan. So it will be at the end of the plan, for example, in 2023, EUR 105 million, but that's the order of magnitude. We're talking about something in the region of EUR 100 million for ancillary services.

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Javier Suarez Hernandez, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [8]

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Okay. And this, it shouldn't be an inverse correlation between the implementation of capacity market and then lowering on the ancillary service market contribution?

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [9]

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Yes. Absolutely. In fact, if you look at the 2018 numbers, I mean, we have a combined effect between ancillary services and capacity market in the region of EUR 180 million, EUR 180 million. So going forward, we do see something, if you make your math, I mean, you're going to see that if you add EUR 105 million and EUR 68 million, it comes up something in the region of EUR 170 million, which is the combined effect between ancillary services and capacity. So we do expect an increase in capacity payment in the region of EUR 70 million, but we do expect a structural decrease in ancillary services in the region of EUR 100 million. Today, in 2018, the ancillary services were around above EUR 160 million. So we are expecting a drastic reduction of ancillary services, again, around EUR 100 million. So it is embedded in our recent amount.

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Operator [10]

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Your next question is from Enrico Bartoli with MainFirst.

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Enrico Bartoli, MainFirst Bank AG, Research Division - MD [11]

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A few of them. First of all, I have a general question on the -- if you can give us some flavor on what you expect in terms of evolution of EBITDA between '19 and 2023. And particularly, you mentioned the postponement of gas tenders, the fact that the new waste-to-energy plant will start operation in '22, '23 if I understand well. So just a flavor if the plan, the increase in EBITDA is back-end loaded or you expect a more stable growth starting in 2020?

The second question is regarding the market business. If comparing if I analyze, you had a EUR 250 million target EBITDA from the previous plan for 2022, now we have EUR 320 million. The contribution from ACSM is around EUR 20 million. So I was wondering, the EUR 50 million additional EBITDA that you expect in the new target, where it's coming from? And if you can give us also a flavor of what could be the impact on this kind of guidance should actually the government decided to further postpone the full liberalization of those Italian clients or cancel at all the process.

The third question is related to generation. You mentioned the phaseout of coal. If you can provide us some more details actually of what the impact is expected in the 2023 guidance or even after that, what are the actions that you are taking related to your plants, including also San Filippo del Mela, and the cost that you expect to be related to this process.

The last one is on PV capacity. Actually, you reduced very significantly the unit cost in the market. Actually, there is a downward trend in the unit cost of PV modules. If you think that actually this trend would continue and could have a benefit on the returns that they have on these assets and if you can give us details on how many megawatts of the 150 are incentivized and how many are at grid parity? Sorry for many questions.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [12]

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Okay. So on the EBITDA evolution, so there's no -- I mean there's no big increase. I mean we have a quite balanced allocation of EBITDA. So in 2021, there is a more -- a contribution coming from -- bigger contribution coming through the market because we are estimating that in 2021, there will be the effects coming from the Maggior Tutela, from the market's full liberalization. So that's an area of increase. And then another maybe a more significant increase is coming from the waste, especially in 2022 and '23, plus [the way] the WTEs would be fully realized. With those 2 or 3 exceptions, the rest of the growth is pretty balanced in the course of the 5 years. So there's no particular rise in any of the specific years. The CAGR related to the 5 years plan is around 5%. And again, it looks quite distributed, with the exception of the WTEs in the last 2 years of the plan. Jump for a second to the phaseout of coal. We -- perhaps the large -- the biggest impact, of course, it will be the phaseout of our plant in Monfalcone, where most of our capacity is placed. For the time being, we have taken the decision to get out from that -- from the coal in Monfalcone at the end of the plan, so -- which is 2025, according to the energy plan of the country. So you don't see the effects in our plan as our plan stops in 2023. So the biggest impact, in fact, is in Monfalcone. And we might take the decision to anticipate a year or would be another year in Monfalcone on the basis of an ongoing discussion we have today with the regions and with the mayor of Monfalcone. But of course, we need to be interested in the conversion project, so what will be the conversion idea for that plan. And that's something which we -- just in light of this option, in light of the CO2 trends and that spreads, we have also decided in 2019, now prudently, to basically reduce an impairment entirely the value of Monfalcone in our books. A different story is Lamarmora. Lamarmora is, of course, a minor plant in Brescia. We have taken our decision to 2023 basically to close the coal plant and to switch the production of the plant to the existing option, which is gas. So we're making the hypothesis that coal will be shut down, the unit of coal will be shut down, but the existing gas unit will stay, will remain in function. And a portion of the existing need in heat that today is produced by the coal will be actually produce generated by the WTE in Brescia in light of the existing new maintenance program that we have in place, whose numbers are already included, by the way, in our plan. So by doing that, we will get to the final thermoelectric new structure of the plant with only gas in Lamarmora and the additional contribution of the heat production coming from WTEs. So in a nutshell, big effects on the coal is not present yet in our plan because it will be in 2025 for Monfalcone. For Lamarmora, we are assuming to switch to gas and to use it to generate more heat in WTEs. Thanks to the intervention and upgrading of the plant, we already decided to insert in the plant. So on -- maybe there was another question on...

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Renata Bonfiglio, A2A S.p.A. - IR Manager [13]

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Generation.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [14]

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On generation? [What did you say?]

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Renata Bonfiglio, A2A S.p.A. - IR Manager [15]

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Enrico, can you -- we didn't understand very much on your last question on generation. Could you please rephrase it again?

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Enrico Bartoli, MainFirst Bank AG, Research Division - MD [16]

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On the new PV capacity.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [17]

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On PV capacity, yes, also on the generation. Yes, on the PV capacity, yes, we have inserted a decrease in LCOE. This is on the basis of what we are already experimenting basically. So there is -- we are incorporating the decreasing cost for LCOE. That, of course, we have not improved or further increased our appetite on LCOE. So we have basically maintained -- slightly increased it but not radically increase it. We have in the [port] an additional possibility to further increase our RES, our renewables, but we have decided prudently not to include it in the plan. So the ones you have today in the plan are basically -- they're in the plan, basically, what we believe are renewable in the present standards. I think there was another question regarding the Maggior Tutela.

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Andrea Crenna, A2a - CFO [18]

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Yes, it's actually -- yes, the question on the market. Okay. Now let me deviate. The straightforward answer on the effects of further delay is simple. Then on your former answer -- on your former questions, we are reconciliating the number, Enrico, so you have to give me a few minutes, but then I will answer. Now what happens if the liberalization of the market is -- which, by the way, I remind you that it mostly concerned electricity, not gas -- is postponed? If it's postponed 1 year, at the consolidated level, I'm going to give you the numbers on the consolidated levels, because then if we split markets of the generations, the impacts are different. But on a consolidated basis, we estimate 1-year delay, a EUR 9 million EBITDA reduction. If it's delayed 2 years, meaning 2022, 1st July 2022, the negative impact is about EUR 15 million, 1-5. If it's never done, so it won't happen, basically, the impact -- our estimate of the impact, of course, is 0. And the reason is that sooner or later, we will migrate our customer base to the free market anyhow. So in the longer term, we will end up where we plan to be. Okay. These are rough estimates. So the impact is not to be -- this is the way we proceed materially. Now your first question was on the variance between the last year market, EUR 265 million, if I correctly understood, to this year, 2023 expectation, which is EUR 323 million. There's a EUR 60 million, EUR 58 million variance. Now if we carve out ACSM-AGAM, the net impact is EUR 40 million basically, 4-0. Then we remain with a growth of EUR 18 million, which, basically, most of it, the vast majority is from the development of the energy solution business, where we have decided to push significantly, not differently from what other players have been doing in the market. You can name it by associating to this strong effort a sizable amount of investments exceeding EUR 150 million. And we have set up a new company, A2A Energy Solutions, which saw initial activity in 2018, which is fully dedicated to the development of this business, okay? So it's basically EUR 15 million out of the EUR 18 million is our effort out in the energy solution. I don't if know I properly reconciled the numbers.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [19]

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Enrico, did we answer your questions?

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Enrico Bartoli, MainFirst Bank AG, Research Division - MD [20]

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Yes. Just the last is on the EUR 150 million of PV capacity, how much is grid parity, how much is incentivized.

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Andrea Crenna, A2a - CFO [21]

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It would be basically 50-50. So 50 would be the agreed parity, 50 would be incentivized. Just bear in mind that, of course, the more we buy the incentivized PV, the more we -- the less we pay because, of course, we get closer to the expiry of the incentives. So that's why we have also accepted the decreased cost per megawatt in our plan, of course. So that's why we have a combined effect, why we have increased our appetite. At the same time, we were -- we are factoring it in the last years to the expiry in terms -- under incentivation and of course, the decrease in LCOE.

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Operator [22]

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Your next question is from José Ruiz with Macquarie.

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José Javier Ruiz Fernandez, Macquarie Research - Analyst [23]

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Just 2. The first one, following up on Enrico's question. You mentioned that in Talesun, when you acquire the assets, you had 300 megas of potential pipeline. And now you're saying you're significantly investing less than that. I was wondering if you could be more specific on why you have decided to slow down the investments in renewals, specifically on solar PVs. And my second question is just a clarification, just to check that you haven't included Ascopiave assets in your plan.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [24]

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No, José, of course, we have not included Ascopiave plant in our -- sorry, Ascopiave numbers in our plan -- I mean the tenders going forward. So we haven't -- no, we have not decreased our appetite, I mean, on the solar. We have increased. Maybe the understanding comes from the fact that on Talesun, we have 50% of our GV. So when we have announced with Talesun 300 megawatts of potential target of a grid parity, please take into account that we have [exit JV]. So we only can take away the 50%. So -- and also, there is a potential portion of the solar that we have put in our pot, which we need to take into consideration when you think global appetite on the solar from our sites. Okay, so you need to take into consideration these 2 elements. Is it clear?

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Operator [25]

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The next question is from Emanuele Oggioni with Banca Akros.

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [26]

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My first one is on waste. If you can add more color on the WTE and also the new treatment plants in terms of EBITDA contribution. On Slide 17, you mentioned EUR 107 million. If you have more granularity on the timing or the time frame. And the second one, maybe you have already gone through, but I don't think I got it right. Could you give us more details on the new projects on -- that may deliver white certificates?

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [27]

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Okay. On WTE, maybe I take the opportunity to recap a little bit to what are the various projects maybe for you. I'll add that you simply covered the A2A stock. So we have that globally, 14 projects, and our plan is Page 43 in the annex. So maybe, [maybe] you saw, you can go -- we're going maybe in a second on the website on an annex where you will find additional elements. Okay. Anyway, we'll go back to the point and you will find that in the annex. We have 14 new plants, okay, in our agenda for a total amount of CapEx of EUR 565 million. Out of these 14 plants, one is already in operation, I mean, it's the plastic plant; 3 are already authorized; 6 are in a very advanced stage in terms of authorization; 2 -- it's not necessarily authorization. So it will go -- it will go ahead. And 2, other 2 are projects for which the authorization process is just started, okay? So if you look at the EBITDA, the total EBITDA coming from these 14 projects is around EUR 120 million, and the already authorized plant out of this EUR 120 million are close to 65, okay? What are those plants? Basically, the WTEs and the plastic plant, okay? So we can tell -- we can say that above EUR 60 million. It's a matter of how fast we delivered. The plastic, of course, is going to be inaugurated in a couple of months, so it's a matter of months. WTE, as I commented before, will be basically realized would be in the middle and part of the plant. Out of the other EUR 120 million, I mean, again, EUR 120 million, EUR 60 million -- more than EUR 60 million are authorized, above EUR 20 million, EUR 23 million, EUR 24 million are basically linked to organic treatment plants whose processes are in advanced stage, okay? The rest basically is -- the rest of EBITDA is linked to either not yet authorized or plants for which authorization is not required. So that provides you a more, I hope, a clearer view regarding the CapEx and EBITDA associated today with WTE plants. But then your second question was?

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [28]

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Yes, (inaudible)

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Andrea Crenna, A2a - CFO [29]

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(inaudible) the question was on the white certificates, am I right? Not on the green certificates, which...

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [30]

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Yes, white certificates.

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Andrea Crenna, A2a - CFO [31]

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Okay. The white certificates in the plan starting 2018 gets a very minimal contribution. The reason is twofold. One, we got a certain portfolio of green -- of white certificates, which we have sold over the period of 2 years, the past 2 years, accounted in nonrecurring items. That was very valuable, most of -- EUR 30 million. And then the price was very volatile, allowing us to basically optimize the portfolio of the white certificates we had to buy for our distributors. Now the price is capped, so there is a market with, let me say, a fixed price. So the possibility to optimize the portfolio are very thin. So if you want a number, the amount of EBITDA we are expecting to generate out of the white certificate optimization is EUR 5 million in 2019, then basically declining to almost 0.

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [32]

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Actually, my question was related to the -- I know the white certificates will be more roughly 0. But previously, on the last conference call, you mentioned that you are looking for new projects that you may deliver.

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Andrea Crenna, A2a - CFO [33]

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No, certainly, certainly.

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [34]

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,

As you indicated. So my question was an update about these projects.

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Andrea Crenna, A2a - CFO [35]

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Yes. I mean, it's -- well, the (inaudible) project is outside of A2A, [so that has been] going on. As for the (inaudible) project.

(technical difficulty)

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [36]

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Okay. No, the project is basically linked to the constitution of A2A Energy Solutions. Okay. We have created a dedicated company, which is A2A Energy Solutions, which basically provides a full set of services in the energy savings business from checkup to interventions of all sort, I mean, retrofitting of lighting and windows and so forth. Okay. So we have now dedicated [eco], a dedicated team, which basically is going in the market and to sell the energy efficiency end-to-end projects. So those are the sort of projects we provide. Normally, the vast majority of projects are B2B customers. So normally either existing electricity, power or gas customers or new customers, 100% brand-new customers for A2A. Is it okay?

Well, I think we need to -- I'd need to answer to Alberto. So there's a question from Goldman, and Alberto Gandolfi provide us through the website 3 questions. I think -- and I apologize with Alberto or some of you, some of the questions have already been answered, I believe. But the first one was, what risks do you see in acquiring customers and what costs do you ascribe to this? Basically, risks we do see is the typical risks that we tackle when we go beyond our traditional markets, okay, the existing territories. So clearly, we have a churn rate in the new territories, which is somewhere around double than the existing -- more than double sometimes a churn rate that we experiment, we have in our existing markets. So the big risk we do foresee, we understand that pretty well, is to try to lower as much as possible the payback period in order to be sure that you apply the churn rate and the credit risk to the clients we get in the new territories, we generate cash anyway. So we tend to reduce below 2 years. On average, it's around between 1.5 and 2 years, the payback period in the new territories in order to lower the acquisition risks of customers in nontraditional territories. The costs that we have, I mean, we don't provide, I mean, the absolute value of costs for reasons you can imagine. But we have included in our plan a year-on-year increase in cost around 5%, which I think is a quite sound number that should cover the marketing and sales cost and the channel's costs associated with the existing growth. And again, this is very well rooted in our historical numbers, so we're not basing our numbers on a wishful-thinking hypothesis, but it's not a hypothesis that we do experiment every day in the market.

Then there's a second question coming from Alberto. How much of the renewable growth comes from M&A? I think we have answered that. I mean, it's roughly 60% -- I mean, 50-50, so 50 is grid parity M&A. And of course, we tend to be confidential on the multiple and auxiliary for IRR because of -- we continue to get past -- we participate to public tenders, and so we tend to keep this confidential. I think the only one -- the only thing I would like to share with you is that we're targeting always an IRR which is above our regulated returns. So what the return is on gas and electricity, so we normally are 1 or 2 points or more above that return.

I think there's a third question from Alberto again. I think it's, what growth comes from the gas tenders? I think we have already commented on that. I think that's all coming from Alberto, I believe. What are the risks on the ongoing -- okay, this is again -- I think we commented on that as well, Alberto.

Maybe we can enlarge a little bit your question regarding -- I mean, the RES growth, I think we regained and we would -- commented on that. We have an associated EBITDA linked to the RES growth in the region of EUR 25 million of EBITDA for 75 megawatts. Alberto, we came back to you, but of course, if you think you need additional clarification, don't hesitate either to write or contact the IR team afterwards.

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Operator [37]

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Your next question is a follow-up from Emanuele Oggioni with Banca Akros.

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [38]

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Could you give us more details on the water RAB for 2018 and also RAB breakdown for 2023?

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [39]

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Sorry, is your question for power, for gas, for water?

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Renata Bonfiglio, A2A S.p.A. - IR Manager [40]

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Water.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [41]

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For water?

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [42]

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For last year on water.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [43]

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Last year on water. Okay. Just a second. We'll come back to you. Maybe we can take an additional question, come back to you on that, okay?

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Operator [44]

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(Operator Instructions) The next question is a follow-up from Enrico Bartoli with MainFirst.

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Enrico Bartoli, MainFirst Bank AG, Research Division - MD [45]

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I take the chance for a couple more questions. One is related to the new regulatory regime on hydro concession. So I guess that you are assuming EUR 20 million impact from higher concession fees. Can you share about your feelings about the, let's say, the kind of companies that you expect the region to consider for this new regulation? I guess that probably you are assuming no change. But according to the new rules, there is a possibility to have also a different kind of company. Just some thoughts about what could be the outlook by this point of view. And second one is regarding the peak capacity. You mentioned opportunities regarding pump storage, the batteries. I guess, this is something that is going to materialize more medium term. But just also in this case, if you can share your thoughts, and particularly on the batteries, on the competitivity of investments in this technology at the moment and what can be expected over the next years.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [46]

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Okay. Enrico, on the hydro concession, I mean, the -- we [said] -- of course, we have a quite clear idea what is the impact on the cost, I mean on the variable fees and charges, on the (inaudible) variable, on the fixed and the existing -- on the other elements. On the basis of that, we have made the hypothesis of quite roughly EUR 20 million. And of course, the talks will be in place with the regions, in particular with Lombardy region, in order to understand more. But we are pretty much sure that our gas will be okay. Now on the firm of the concession tenders, we're also studying that. We have made our several sensitivities. And of course, there are 3 different types, of course. One is basically 100% recovery from the regions of the assets. And then there are 2 different types of debentures, what we call the private-public agreement or a mixed company. Frankly speaking, we have analyzed these 2 different solutions, and we came to the conclusion that the answer is really depending on what will be the final structure of the company, what will be the appetite of the regions, whether or not they will be keen, for example, to take not only the wet -- the ownership of the wet assets but also the dry assets, what will be their embedded interest in taking potentially the [mentioned] risk in the other business. So there's a lot -- a long list of what if, what if, what if. So we are relatively neutral versus the formal debenture. So we'll be more keen to discuss with them exactly what they want to achieve. And on the basis of that, of course, we may apply for a difference, for a preference, if you [pass] me the expression. So I think it's really a matter of how they want to pursue the objective. Now time frame of their discussion, this discussion, I think the leading region, which is Lombardy, has put the discussion in the frame of a year. So the one -- I think their ambition is to come up with a determined solution or determined framework scheme by the end of 2020, which I think leaves the company -- companies, in this case -- with enough time to understand better the rule of the game. Okay. Let me take the opportunity to tell you that we're not scared at all. I mean, we went through a major gas tender in Milan. We know very well the concessions, the hydro concessions. We think we are extremely well placed to do -- to achieve our goal to remain in this -- in the concessions. And I would like to stress the fact that we do see opportunities because there are numbers of concessions expired or expiring that we require strong players. And I think we are very well suited in terms of position to pursue that objective. So I'm not -- I'm convinced that this occasion may open the door for other opportunities for the company. Then on the -- a little bit quickly, more quickly on the other question because I think, unfortunately, in a few minutes, we have also to -- a conference call with journalists. On peak, I think the -- a few recent events on the flexibility market. First of all, there's an increasing need stated by Terna, by the TSO, on flexibility. So I think this is an interesting trend for us because Terna is continuing to raise their needs in terms of flexibility. And the flexibility can be -- can normally be given by other existing gas plants which we do have because CCGT are the simplest and quickest form of flexibility provision to the system, or other technologies. We are looking at all the other technologies. We think that the closest solution will be peakers. That's why we are devoting more time to peakers. First of all, because you can host peakers in your site. So you know that we have a lot of sites. You know also that in some of the existing sites for which the reconversion is in place, is ongoing can be interesting sites also for providing flexibility. So I think we are well placed to do that. We have identified 5 different projects, and we will see whether -- how it goes, the capacity market, going forward. Storage is also a source of growth, a source of provisional flexibility. And I think, again, also on this front, we think we are experimenting a storage experiment on one side. We're also starting to aggregate potentially storage throughout the clients base, so as aggregators of clients. And also, we are making some tests on existing hydro plants for pumping. So that's what we have in place. Some of these issues are, of course, a little bit confidential given the market interest. Once we have more details on this point, we'll be happy to share it with you. And so I'm going back to Emanuele now. So the RAB, including A2A and ASVT, which is our participated part of our participation of an embedded RAB in this case, because there is no so-called RAB for hydro. It's EUR 265 million roughly. This is the implied RAB, which is underlying the existing 2018 targets. So that's how we calculate it.

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Operator [47]

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The next question is from Stefano Gamberini from Equita SIM.

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Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [48]

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A few questions, if I may. First of all, regarding 2019 guidance. The range, 100 and -- [EUR 1,155 million] and EUR 85 million is including this EUR 25 million negative one-off, if I understood correctly. And the second regarding the working capital. Considering the worsening of EUR 200 million in free cash flow, do you expect also a networking capital because if I'm not wrong, you should also have a cash in of -- from EPCG in '19 and so these figures of negative EUR 200 million sounds to me a little bit too high. The second question regarding the 2020 consensus, EBITDA should be up around EUR 100 million compared this level to [EUR 1,280 million]. Is this something that is comfortable for you? Or do you think this is too aggressive? Third quick question...

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [49]

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Stefano, we didn't capture 100% of your -- this question. Can you make it again? The last one.

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Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [50]

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Yes. The last one is the consensus 2020 EBITDA is EUR 1,280 million. It is more or less EUR 100 million compared the guidance you spent on '19. So is this improvement expected by the market something that is really [bold] for you? Or do you think that in this moment, with the visibility you have, it's too aggressive? Another question, if I may, regarding the waste business, so the regulator issued a consultation paper in '18 regarding the possibility to test in a RAB system for the treatment of urban waste? In this case, do you see some risk considering that your capital employed seems quite low compared to the EBITDA from treatment? Or do you think that there's some changes on this consultation paper that could arise? And a very quick question, sorry, if you can spend a few words about M&A. First of all, Sorgenia, what is your view? And second regarding Ascopiave clients, also in this case, what is your view and your approach?

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [51]

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Okay, Stefano. So 2019 guidance, if we correctly got your question, I mean, I think that it was a misunderstanding. I mean, we -- the EUR 25 million is not negative; it's positive. So it is already included. So it's a one-off and it's included. So in the guidance, you find everything. So these are all included, including the one-off, which is EUR 25 million, again. On 2020, yes, absolutely, the question is -- absolutely yes. I think we do believe that this is feasible based on what we have today in the machine, in our operating activity. On waste business, it's a complex story. I mean, I think the authority came up with the consultation document, which goes a little bit beyond the sentiment or the area we actually have. Recently, the Chairman of ARERA came out with a statement by saying that according to their knowledge, the environmental market in the country, in Italy, cannot be seen as pure regulated RAB-based mechanism -- underlying mechanism, because it's very different from -- it comes from a very different framework. If you compare it with gas and electricity framework, it's very, very different. In particular, in Lombardy, which is our market, the treatment market is already -- it was and it is a free market. So in our understanding, in our view, it will remain largely a free market. So of course, we're working with the regulator, which, again, already has stated this view, but we're working with the regulator in order to be sure that the differences in the Italian market will be fully reflected in the new framework of the environment business in the country. On the M&A side, Sorgenia, of course, Sorgenia, from time to time, comes back on the table of the players in the country. We are part of the process mostly to understand whether we can generate further value in the generation in Italy by participating into a consolidation effort. It doesn't mean that we actually do buy the assets, okay? But we do see potentially value coming from industrial value and market value coming from a further consolidation of the market. So we'll take part to it with the intent to understand more the dynamics, the numbers of Sorgenia, et cetera. On the other side, we're also looking at the client of Sorgenia, not a big chunk. I mean, it's quite a small portfolio, but we will take the opportunity to look at the portfolio as well. So that's the source of our interest. On Ascopiave, I think you got the information that we finally found an agreement with Vicenza and Verona for 2 reasons. We bought a lot this deal, first of all, because we believe that taking part to the tender with existing players in the region will be a source of strength. We are not targeting, so under these circumstances, if we go ahead with these 2 partners, we will share the deal, okay? Of course, I cannot comment more on that because that's another -- an ongoing deal. We share the deal with them, which means that it's an alternative to go to Ascopiave and buy 100%, okay, so which was originally our idea. So we will share the deal with the other 2 players. Second topic, the idea behind that -- beyond that is that there are -- there's a space, a strategic space to forge an alliance with Vicenza and Verona which goes beyond the Ascopiave deal itself. And on that basis, we're discussing with those 2 players. Actually, that -- clearly, that is an option, a possibility to enlarge our, going forward, of course, our scope of business towards east, east of Lombardy. Okay. So I think Renata is reminding me that you've mentioned -- or some of you mentioned the EPCG. Of course, we are -- we expect in May and July the last 2 installments for the full repayment of the put option of EPCG. We have recently got the confirmation by the government that, that's going to be -- the government of Montenegro, that, that's going to be the case. So we have inserted -- included in our cash flow -- we saw the proceeds coming from EPCG, which are in the region of EUR 100 million -- EUR 110 million, Andrea has corrected me, EUR 110 million.

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Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [52]

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Yes, on this point of view, I do not understand exactly the guidance, EUR 200 million negative free cash flow '19 on '18.

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Andrea Crenna, A2a - CFO [53]

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Well, the single -- I guess, the single item you are missing is probably the tax outflows that in 2019 are going to be higher 2018 because we got tax credits, which we are now going to have this year. So we are now expecting something about EUR 190 million versus EUR 100 million in 2019. Okay. This is just a question of the mechanism, which, in Italy, is used to pay cash -- to pay taxes, which is a game of anticipation and balance based on the PBT of the previous year, so on and so forth.

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Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [54]

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So if I understood correctly, this is -- the cash taxes will be by far higher than the corporate taxes?

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [55]

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Yes, absolutely. And this year, 2018, they have been lower. They have been -- plus, if you accumulate dividends and CapEx in 2019, we will have EUR 300 million more than 2018 and a lower EBITDA, a slightly lower EBITDA. So all together, basically, drives -- then working capital, today, we are assuming an absorption of cash, but this is just because of volumes, the number of days receivable, days payables, the assumptions we made on the efficiency of collecting and payments is basically remaining stable. So variation in net working capital is just a matter of volumes.

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Operator [56]

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Ms. Bonfiglio, gentlemen, there are no more questions registered at this time.

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Andrea Crenna, A2a - CFO [57]

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Okay. Thank you to everybody for listening to us. Investor Relations is available for any follow-ups on this call, and have a nice evening from us all. Bye.

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Operator [58]

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