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Edited Transcript of A2A.MI earnings conference call or presentation 2-Aug-19 11:30am GMT

Half Year 2019 A2A SpA Earnings Call

Milan Aug 8, 2019 (Thomson StreetEvents) -- Edited Transcript of A2A SpA earnings conference call or presentation Friday, August 2, 2019 at 11:30:00am 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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* Antonella Bianchessi

Citigroup Inc, Research Division - Director and Head of European Utilities Equity Research

* 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

* 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 First Half 2019 Results Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Ms. Renata Bonfiglio, IR Manager of A2A. Please go ahead, Madam.

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

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Good afternoon and welcome. A2A CEO, Valerio Camerano; and CFO, Andrea Crenna, will present H1 results based on the materials which we have sent to you and is available on the company website.

I now hand you over 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. Thank you, everybody. Thanks for joining our conference call.

So I guess you are now accessed to our presentation, and so I will go right away to Page 3 where we present the highlights of the first half. Firstly -- first of all, let me comment on the second quarter itself. And we had a rather strong quarter. The second quarter was even better than the second quarter 2018 by EUR 23 million. So that helped to overcome a little bit the situation of the first quarter.

If we go and see more in detail the main factors affecting the first half, I would rather go to the first line, energy retail margin and B2B volumes. We will be presenting to you a very satisfactory trend in our division markets. We have positive news, a number of clients. So we have a number of clients in the free market as we have a larger customer base on the large clients. We have also additional margins specifically on the B2B clients. By the way, we're reaching 50% of customer base in the free market now with this first half.

On waste treatment, we have a general trend of increasing waste treatment prices, roughly up 8%. Of course, we also have facility costs increasing especially on the management of the WTE. Globally, the treatment prices and treatment margin is up.

On the solar plant, we're now integrating -- we have integrated the impacts in Talesun acquisitions. So we have a contribution -- additional contribution of solar plants, plus EUR 6 million compared to the same period of 2008 (sic) [2018]. We're consolidating ACSM-AGAM, as that gives an impact of plus EUR 27 million versus 2018.

CapEx increased. So we will continue now for the fifth year in a row gradual increase of CapEx mostly linked to the development. Some of them are also related to maintenance and obligations.

On the negatives. Environmental markets, this is expected with WTE planned maintenance was expected. So we have -- on environmental market side with minus EUR 94 million coming from the decreased portfolio, green certificates and feed-in tariffs.

Same thing I would say for WTE planned maintenance, we're expecting that. So we had something like 70 days more of stop in our plant, which were already planned. So if you wish, the only surprise on the negative side in terms of magnets will be the landfill of Grottaglie, which was stopped in the second quarter. That accounts for roughly something around EUR 3 million in the first half. So that's pretty much about the plus and minus.

We can go please to Page 4. We have revenues up by 20%. This is mostly related to the same phenomenon I alluded to before, which is the enlargement to our sales to the free market both in electricity and gas and in the retail market and in B2B market.

On EBITDA, we got the vast majority of this. Minus EUR 75 million is linked to the early -- when I said earlier in terms of certificates -- green certificates, minus EUR 94 million. If you take this EUR 94 million out of the EBITDA, you will get -- we'll come with an organic growth plus 4%.

In the ordinary EBITDA, we have just netted that the year-on-year EBITDA of the non-recurring white certificates we got in 2018. So that goes to group net income, it's EUR 166 million. The ordinary net income is adjusted for EUR 10 million, which is an item related to the Montenegro EPCG matters of last year.

On net financial position, if you should take the IFRS 16 and change in perimeter effects, net of these 2 effects, we come out with a net financial position which is rather stable.

Let's go to Page 6. So we have the -- now the full pictures of the various divisions in the group. So if you net the EBITDA of the 6 months by EUR 26 million which are one-offs, you will find the generation, which is minus EUR 104 million. You may remember this was EUR 115 million in the first quarter. So the second quarter decreased the order of magnitude of the negative variance in the generation. Minus EUR 104 million is related more or less the same reasons that we presented to you in the first quarter, which basically gained green certificates and feed-in tariffs. And also a fairly disappointing in the first quarter, very disappointing MSD. Now you will see soon that the MSD in the second quarter was interesting, better than the MSD last year in the same quarter. We have also a positive recovery from the portfolio -- gas portfolio for EUR 30 million, which contribute to decrease the order of magnitude of certificates -- green certificates impact. So globally, the generation has slightly recovered versus first quarter, and we have a positive trend in the portfolio gas and the MSD market.

On the Market division. As I said earlier, we were increasing our client in the free market. We increased the numbers of clients in the free market by 104,000 clients more versus the beginning of the year. And then we have 3 main effects. We have the enlargement of the customer base both in electricity and gas with the associated margin. We have an enlargement of our customer base in the B2B, the large accounts clients -- markets with associated -- an increase in margins. This is a market which offering now slightly more opportunities than in the past in light of some critical situations of existing traders that exited the market in the last months. And then, of course, we have the consolidation of ACSM-AGAM. It accounts for EUR 30 million. So globally, the division is characterized by a continued growth in terms of the numbers of clients, the market shares in the large accounts and the facility margins.

On the Waste. On the Waste, we have an increase by EUR 1 million. That is the combined effect of a slight increase in the waste collection. We have a good performance on the industrial treatment plants, in particular, more quantities and more -- and increasing prices in the plants of Corteolona and other plants treating industrial waste. And then we have a negative effect coming from the landfill of Grottaglie and a couple of other small landfills that were active in 2018 and then later on were closed, as we were expecting. So globally, the Waste looks comforting in terms of waste treatment, in terms of waste collection.

On the Networks, we're up 16%, which is EUR 30 million. Roughly EUR 15 million, EUR 16 million are coming from ACSM. The rest is coming from an improvement in tariffs of water, a slightly improved gas -- allowed the revenues on gas, and we have a fairly positive trend in district heating both in terms of better scenario versus 2018 and some initiatives we have taken in terms of repricing of existing contracts on district heating. So that brings us to EUR 575 million. And if you take again out the effects of green certificates in 2018, we'll be basically up plus 4% in terms of organic growth.

So on the analysis of first quarter and second quarter, I would ask Andrea to comment. Maybe you want to add something more on this.

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Andrea Crenna, A2a - CFO [4]

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Thank you, Valerio. Good afternoon. We just introduced this slide to mark the difference between the 2 quarters. I will enter with some brief comments business unit by business unit. Here is just to say that basically the growth year-on-year on the second quarter on the ordinary EBITDA was quite strong at 10%.

If you move to the following page, to the Generation. On top of what Valerio said, basically, as you see in the previous page, the Q2 was very positive after, as you certainly recall, a weaker Q1 with results in both quarters actually influenced by the green certificates portfolio of last year. If we exclude the green certificate or feed-in effects, Q1 was down EUR 42 million, reducing EUR 42 million year-on-year, and Q2 was up EUR 32 million year-on-year. The volatility in both quarters is basically due to the MSD market, the ancillary services. In Q1, the MSD was basically negative for EUR 57 million out of the 42%, so more than 100%. And in Q2 was positive 25% over 32%, always compared with same quarter last year. So in one case, it explains more than 100% of the negative variance and in the Q2 explains most of the positive variance.

Overall, as we will have surely chances to discuss later on, the MSD plus capacity in H1 was EUR 86 million versus 100 -- been more than EUR 100 million last year. And we expect on the full year something which is very close to what we've put in the plan, a number we disclosed several times.

We have got in H1, especially in Q2, a positive margin on the gas portfolio, which compares favorably to last year. It was EUR 14 million, 1-4, on H1. These results, for some industrial reasons and market scenario we can discuss later on, are not expected to be duplicated in H2. Okay.

If you turn to Page 9. After a strong Q1, we have delivered an equally strong Q2, once again, better than we were expecting. I would start with the only negative variance, which relates to the Energy Solution. It's a EUR 10 million negative variance year-on-year. This is 100% due to the activity on the portfolio or the portfolio optimization on the white certificates. Last year, the market was "free". This year, the price has been capped at EUR 260. So the opportunities to optimize the portfolio by basically trading is basically gone. This explained the reason why -- and this is the reason why we haven't recorded such a big result on top of not having the EUR 18 million of portfolio, which we accounted last year on the nonrecurring items on the EBITDA.

As Valerio said, the retail business is growing year-on-year at 19%, basically all organically and clearly excluding the contribution of the consolidations perimeter -- the delta in the consolidations perimeter of ACSM-AGAM at all the KPIs, the underlying KPIs, setting a positive trend. Customer base, unit margins, volumes, regulated components, salvaguardia market, everything basically is going up.

On Page 10, the Waste business. First quarter was very strong, it was plus 7%. As we commented, all the negative effects, which we are expecting, Grottaglie and the program maintenance of the WTE, did not occur yet. Both started, fortunately, to deliver their expected performance in Q2, and this basically explains more than 100% of the results. The Grottaglie accounted for minus EUR 5 million, and the stop of one of the 2 WTEs we would like to maintain is EUR 2 million. So both of them is EUR 7 million of negative variance. Apart from that, all the other business drivers, prices, quantities, volumes, 3D productivity, developments of the new plants, they're going nicely, and we can discuss in the Q&A.

On the Network, Page 11. Similarly to Retail, Networks got a strong second quarter. Overall, H1 is up 8%, excluding the contribution of ACSM. Apart from the allowed revenues in electricity, gas, hydro, Q2 was positive also in terms of volumes on the district heating as we've got a "cold May," which partially recovered the weak effect regarding Q1.

On Page 12, just one comment on the net financial expenses. You will see net financial expenses higher than last year. As a matter of fact, our cost of debt is heading down. We currently have something around 2.8% overall clearly. The number in H1 is very much influenced by accountancy issues, so basically the decrease in the interest rates gets the results on the NPV of the provisions for landed -- or landfills and especially from our decisions to buy back earlier so to prepay the bond of Talesun, the acquired portfolio than -- the last acquired portfolio of our renewable. This cost an outstanding bond. We have decided to prepay entirely, and this single item accounted for about EUR 9 million of negative financial expenses all accounted in Q2. And this is clearly a one-off effect.

Our full year forecast on the net financial expenses is now including this effect, of course, at about EUR 120 million. All other drivers, tax rate, CapEx, free cash flows, remains confirmed to what we have already discussed previously.

So for the second time, I would leave Valerio now to give his comments on the guidance.

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

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Thank you, Andrea. So we had a fairly strong second quarter, as I said. I mean the first quarter 2019 is fairly unusual, and mostly because of the -- as we discussed this, of the generation dynamics. So where do we stand now? We expect the second half of 2019 fairly aligned with the second half of 2018 and again aligned with the first half 2019. So we feel comfortable. We now confirm our guidance in light of the second quarter both on EBITDA and net income. And the other items, I think, as we just said, that we're heading towards the upper part of the range you find on this slide. I mean we've not changed the guidance. We feel that we should be heading towards the upper portion, upper part of the range in light of the -- what's happening including the July dynamics.

So I think I'll now leave you the stage for your questions, and so we'll be able to discuss more details on what you think will be interesting.

So Renata?

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Renata Bonfiglio, A2A S.p.A. - IR Manager [6]

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Okay, please go ahead with your question.

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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 Generation business on Slide #8. Obviously, there has been an expansion of the clean spark spread that has been helpful. I would be interested to have details on your forward-selling strategy, where you are on the forward-selling strategy for the Generation.

And second question is again on the MSD market. The number that I have for the first quarter 2019 was EUR 20 million of contribution from the MSD market, the ancillary service market. If you can give us the clean number for the second quarter of contribution from the MSD market and if it's still your guidance of EUR 100 million by the year-end if you can confirm that or not. That is the first question on the generation market.

Then on the supply activity on Slide #9, the growth is quite impressive. And I just wanted to understand and to have more details on the underlying reason for the growth on the supply business. On the -- during the first quarter presentation, the idea that I thought is that maybe the growth that you see during the first quarter was not replicable during the second and third quarter, and the growth during the second quarter has been also very strong. If you can just help us to understand the reasons for that.

And then the third question is on the Waste Management business. The question is they're more strategic and more related to the latest consultation document that has been issued by that regulator this week. If you can give us your view on the main things that these documents underpin, and that could be helping the company to grow on the Waste Management business.

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

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So Javier, thank you for your questions. In terms of hedging strategy, for 2019, we have now 65% of our production hedged at an average sale price of EUR 62.3 per megawatt hour. On 2020, for next year, we have at the moment 34% our hedge ratio with a sell price of EUR 62.2, so not far away from what we already fixed in 2019.

So I confirm your view regarding the clean spark spreads. I mean they are certainly going up. One reason for that is certainly related to the space that it's being left by the coal, but coal decreased in the dispatching offering. So coal is offering other opportunities to strategies and in terms of taking more market opportunities. So we're very well positioned to take that, and we're positive on this opportunity.

On MSD. So MSD, we have -- we made basically EUR 20 million in the first quarter. We made EUR 52 million in the second quarter, which basically makes EUR 72 million of total MSD in the first half. You may remember that last year, we've got something in the region of EUR 100 million. So we're now at EUR 70 million despite a quite very negative first Q1. So our expectation, yes, we can confirm it to you. So we'll go -- we'll do something in the region of EUR 50 million for the rest of the year, which will take us around EUR 120 million, EUR 122 million until EUR 125 million. This is the order of magnitude of the full year MSD we expect in 2019. And this is why, I think Andrea commented before, that if you take this and you add this number to the capacity market, you're getting something around EUR 140 million, EUR 150 million, which is again a number we are always pretty much close to in the last years. So...

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Javier Suarez Hernandez, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [4]

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Excuse me, is that a change in the guidance for the MSD market? It was the previous guidance, EUR 100 million or...

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

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We will certainly have something above EUR 100 million. We're going to have something in the region of EUR 120 million in MSD in 2019 according to our -- today's expectations and numbers. So yes, we expect more. This is due to the fact that we had a fairly strong months especially in June and something also in the month of May.

On the supply, I think we have different components. Both on the power and the gas markets, we have an increase in market shares. So if we look at the effects of the increasing customer base versus last year, we are getting something in the region of EUR 7 million. Additional EUR 7 million is coming only related to the different -- to the higher numbers of clients in the free market. Okay. Then we have a component just linked to the B2B market, something between EUR 5 million and EUR 6 million, close to EUR 6 million are coming from the value volumes effects due to our new positions in the B2B market. As I said earlier, we're taking more and more opportunities generated in the market by the fact that some of the trading numbers are -- or trading companies are exiting the market. And the rest is pretty much something [overcoming] from unitary margins and safeguards. Remember also that we are participating to the safeguard market. That's the reasons why we have this result. So again, the numbers we have presented to you are the result of more customers, more volumes, more margins and safeguards in the months -- the last months. So this is the reason there's no magic behind that. I mean there's a continuous growth in the market shares. If you wish there's only one difference compared to last year, I mean the first block of our growth is organic growth in the retail market. So there's nothing new versus the last 4 years. We've been talking for this now 4 years in a row. The only new from our side is the news -- deposit news coming from the B2B market, which is becoming more and more interesting for us. We'll do that on a selective basis, but we'll occupy market shares if we can in the safeguards because we never participate in the safeguards market before. We did. We have now a portion of the tenders, and so we'll go ahead with that. So that's pretty much what was happening.

On Waste Management, I think I would reserve some time to read a little bit more of the document. What I can tell you is that I was a little bit surprised by the first line with the document where it says efficient costs, but it's not. I mean the document, it's not talking our efficient costs, but it's talking about operational costs. The definition of efficient costs is much more close to -- today, we call it rating costs. So we'll take some time and to come back to you with a more mature view on this document soon.

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Operator [6]

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The next question is from Enrico Bartoli with MainFirst.

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Enrico Bartoli, MainFirst Bank AG, Research Division - MD [7]

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I have some. The first one is related to the guidance. So you confirm that, but actually, from your comments, it comes down to that during the second quarter. There was several positive surprises in the (inaudible) business, in the market business. So I was wondering, compared to the guidance, so what can go wrong in the second half in order to reach it and why the guidance could not be a bit conservative.

And second question is related to the capacity market now, actually, will actually start. It will be interesting in some comments on your side on what you expect for that. If you think that, actually, the actual implementation would be in line what you have in the business plan or you see some differences from your assumptions.

A third one is related to the district heating business. You highlighted that, actually, prices were up and the margins were actually significantly up compared to last year. Could you give us some details on actually what happened in this business and if this trend can be expected also for the next quarters.

And the last one is related to -- in general, to M&A and particularly to what is happening in the Veneto area, the possible agreement between Verona and Vicenza. It's not a secret that you would like to have a role there. I was wondering if you can give some details if you would be open to take a stake in the capital of the combined entity if you would like to create some synergies in terms of integrating the businesses, what's your idea for expansion outside the Lombardy region.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [8]

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Okay, Enrico. Okay. I mean what is the view we have taken? I mean we have taken the view that -- I mean there's nothing that could be -- that could go wrong, and it won't -- our view is that in the second half, our divisions on the Generation according to our (inaudible), will be lending with an EBITDA, which is not far from last year's EBITDA. Of course, the second half will be better than the first half, but this is what we are expecting.

Same, I should say, for Ambiente, so for the environment. In terms of second half -- first half and second half will be pretty much similar according to our expectation, which is a positive trend from our perspective because you have to take into consideration that the second half for the environment, we would like to take out the old -- the effects linked to the landfill of Grottaglie, which accounts around EUR 18 million. So if you expect the same amount of EBITDA from our perspective, it's positive. Same for Networks. So the only view we'd make likely more in terms of the potential of the results could be market, market. Of course, if we are going to have a normal "winter", it is likely that we will end up in a slightly better result. So there you know we're not conservative by definition, but we're conservative in the sense that I think we will -- at one point, once a day, winter has started. So October, November, we'll have a better view regarding the duration. But again, all the views will be doing in line or slightly better than last year second half, again, with the exception of the market, maybe doing more. So my conclusion is that if -- again, if we're going to have a normal "winter", it is highly probable that we'll come up with a better result.

In terms of capacity market, we always stated that this is good news. We knew at one point that the discussion with the government was mostly focused on the new capacity, so the new plant. And of course, as you know, we have in our strategic plan the desire also to build eventually, if you like, the entire system, additional capacity in gas. But of course, we'd be more careful to look at the developments on the existing capacity. For the time being, the existing capacity will only be starting to be tendered in 2022 to 2023, which we leave 2020, 2021, according to actual rules, without capacity. So if the question is are you happy about this mechanism? Yes, because we've been waiting for that for years, so we have finally a mechanism. We know there will be tenders between now and the end of the year for 2022 to '23. The only question mark is what is going to happen to the existing capacity in 2021, in 2020.

For that existing capacity, we expect, given the fact that, by definition, the existing capacity as needed as a new capacity because I don't think the system wants to find itself in a situation where we have new capacity but you don't have existing capacity, we expect that (inaudible) may look at mechanisms to contractualize capacity for years of 2020 and '21. Or as everything happened so far, the market itself, we had the -- some of MSD and the capacity market for us will be more or less what we have in our plant. So in a nutshell, I mean, yes, I mean the implementation is -- the approval of capacity is a good news. We will participate certainly. For the existing capacity, we will see whether they are going to take any decisions between now and the year-end or we believe that the market will offer opportunities until the year 2022.

On the district heating, we have -- first of all, we have a better gas scenario. You know that the gas is an important component for the pricing mechanisms of the district heating, and so we have the effects of EUR 5 million up versus EUR 20 million. So we have EUR 25 million versus EUR 20 million of last year. We have a repricing effect. So what happened is that we have something in the region of EUR 3 million, EUR 4 million coming from repricing mechanisms, and we have reviewed our system of pricing the district heating to keep it more in line with the cost structure, our cost structure. And by doing that, we have improved our global marginality. So from a volume effect, I mean if you look at the volumes in 2018, were up better than today's volume. We have a negative effect, but it's totally balanced by the efficiency in our district heating entity. So the -- in a nutshell, I mean the effects are coming from better before, so pricing -- setting mechanism for gas in a repricing of the existing contracts. That's the global effects on district heating.

On the M&A side, it's a fairly sensitive topic. I mean it's no mystery that we have -- we seem to look at the developments in the area. We believe that we could offer interesting industrial angles to the forthcoming aggregation of Vicenza and Verona. But I understand that the company, Vicenza and Verona, are -- wants to better understand what will be the facts linked to the merger between the 2 of them. So they've taken some time to better understand the requirements, the implication, the effects of the merge between the 2 of them, and that -- I read it from, I assume, from the papers that will take 3 or 4 weeks more in their judgment. So my expectation is that they took them and will reflect on the various opportunities they have on the table, and they will come up with a recommendation, something in the open market. So between the end of September and beginning of October. So we'll closely follow the development of the area. That's what we will be doing.

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Operator [9]

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The next question is from Stefano Gamberini with Equita.

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Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [10]

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A few questions, if I may. Firstly, regarding the second part of the year for the power gen. If I'm not wrong, third quarter last year was quite weak due to the hedging impact that was more or less than USD 10 below the current one and also from negative gas margin. So why do you expect for the second part figures in line with last year when you still have a good -- you see a good hydro production margin, you've seen CCGT are improving and also the hedging should be at the higher level than last year?

The second question regarding the 2020, if I may. According to (inaudible), the market devaluation should be soft in 2020 and so without any impact. In this scenario, do you feel comfortable with the 2020's consensus EBITDA in the region of EUR 1,270 million? And if you can help us to understand what could be the improvement that we could expect next year from a different division.

And the last question regarding the Q consultation paper in the distribution and the energy market in general where the regulator introduced new rules mainly for the energy market, the negative pricing power generation, some ancillary services that could be collected by the distributors. Do you see some risks from these changes introduced by the regulator or not?

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [11]

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So Stefano, regarding this, what is the vision regarding the next half of 2019. First of all, our view is based on the hydro. Okay, we have 75% of our volumes, which are -- will arrive at the hedging price of the period, okay? And for us, the hydro will be -- arrive at something in the region of EUR 66 per megawatt hour.

CCGTs, so we expect CCGTs volumes, especially on the clean spark spreads, will be -- will have better trends than the first half. And we have now 55% of our CCGTs that are hedged at something in the region of EUR 9 per megawatt hour in terms of CCSS. I'm talking about second half of the year. Again, coal. I mean coal was also 40% hedged. So our view is based on the fact that we have 75% of hydro already hedged, 55% of our CCGTs clean spark spread already hedged, and we have a vision of getting something in the region of EUR 50 million of EBITDA. So if some of this happen and some also you add to the capacity market for the second half, which is in the region of 100 -- or sorry, of EUR 12 million, I mean we come up something which is better than the first half. So first half, we did something in the region of EUR 112 million and we'll be getting something in the region of 140-plus. This is why -- according to our view. So I mean it's a view based on sound -- on some view linked to the existing percentage of the technology already hedged at an interesting prices. So that will take the Generation again in the region of an EBITDA of EUR 256 million -- or EUR 255 million, which is not far away. Again, it's pretty much in line with the first half. So that's where our expectation is based on. So we are fairly convinced about this.

So 2020, so I understand that a decision still has to be taken by the authorities. You know that we have debated this with some of you and some of the investors in the past several times. If you take the worst, worst angle, which is basically 0 movement in the market, I mean the decision of freeing up the market, the global impact for A2A will be EUR 6 million, EUR 6 million. So if you take the view, and I could agree on the view provided by Francesco Sforza, something will be more gradual. So the effect will be lower than that and will be spread in the years. So with something even more negligible, it could be in the region of minus EUR 3 million or something around that.

So as I said several times, the fundamentals of our strategy will not be affected severely. It will not change as a result of the decision of the authorities, delay, postpone or decrease the pace of change in the regulated market. And again, if you want a proof about that, it grows -- continued growth in the market -- in the ordinary market. So we'll follow that closely, but we're not going to change at all our strategy, which continue to do what we've already been doing for the last 3 years.

Now on the DCO energy market, it's fairly positive from our side. First of all, I mean the gas power machine will still continue to be key in the market, which is a good news from our side and will be extremely necessary, absolutely necessary to close the market. There could be less load, less sanctioning hours in the fleet, which mostly will be affecting other players because, as you may remember, we are one of the company with the least or the lowest load factors in the market. So we do -- we might expect some marginal decrease in the working hours. Marginal because we have something in the region of 90% of the functioning hours, so we're pretty much slim compared to others. Of course, there will be an increase in prices. But most importantly, we do see positive effects coming from the anticipated segmentations of the ancillary market services. So we are certainly very well positioned to take advantage about that, take it from that and fleet benefits from the portfolio -- "portfolio management" of our fleet in terms of frequency, tension, primary, secondary ancillary services. So it's good because we will -- given that we have a flexible and reflective fleet, we believe that we'll be more able to take opportunities coming from the segmentation of services in associated prices.

And then the last but not least, the balancing long -- short-term signals would be more and more cost reflective, which will decrease the range of uncertainty surrounding the balancing market. So I think that it is positive. There's also another point maybe, it's interesting, for example, storages and other technologies will be able to enter in the market in providing services that, today, are not able to do -- to serve. So all in all, I think that there are at least 2 or 3 areas of developments or new services, and we believe that A2A will be taking advantage and benefits from that.

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Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [12]

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Sorry, just a quick follow-up regarding the estimates, Bloomberg estimates next year. If you can comment about this USD 1,270 million of consensus for 2020.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [13]

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Well, as you know, we -- normally, we don't provide concerns on 2020. I think we'll be maybe ready to comment more on that in the next quarter review.

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Operator [14]

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The next question is from Antonella Bianchessi with Citi.

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Antonella Bianchessi, Citigroup Inc, Research Division - Director and Head of European Utilities Equity Research [15]

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Just a quick clarification on the market activity because, basically, if I look at the ordinary EBITDA and they remove the contribution of the acquisition of ACSM-AGAM, the increase in margin is only EUR 5 million. Can you quantify how much is coming from the salvaguardia and which are the consequence from the provision of this -- of operating in this market? And if you can also give us details on the numbers of customer -- the overall customer base, how much this has developed. Yes, I would say that's my question.

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Andrea Crenna, A2a - CFO [16]

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Antonella, Andrea speaking. If you go to Page 9, okay, we see the contribution of -- the ordinary contribution excluding ACSM-AGAM of the retail business only, i.e., customers, are the 3 -- the (inaudible) sum of the 3 boxes, EUR 15 million on the power market positive, EUR 8 million on the gas margin and then EUR 9 million on the operating costs. So EUR 15 million and EUR 8 million are -- as we usually do on our reporting, is the contribution margin before the fixed cost, which are not split according to -- whether it's power or gas, and then we report the operating costs. So (inaudible) sum here, they're not the EUR 5 million you mentioned. Actually, but it's EUR 14 million, EUR 14 million. Okay.

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

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Safeguard is EUR 2 million.

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Andrea Crenna, A2a - CFO [18]

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Safeguard is EUR 2 million, okay, on this semester. Last year was 0 as we did not have this market. And the total number of customers at the end of June was 1.3 million. This is customer -- these are customers on the free market, okay? Do you want as well the number of customers who are under the regulated market?

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Antonella Bianchessi, Citigroup Inc, Research Division - Director and Head of European Utilities Equity Research [19]

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Yes. If you have it, it will be good.

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Andrea Crenna, A2a - CFO [20]

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Absolutely. Hold on just one sec. We're roughly 1 million, I think.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [21]

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1.4 million, 1.4 million.

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Andrea Crenna, A2a - CFO [22]

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Okay, got it. 1.4 million. So it's 1.3 million at free market, 1.4 million at regulated, 2.7 million total number, okay, which clearly includes as well ACSM-AGAM customers as we're now consolidating the operations, okay?

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Operator [23]

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(Operator Instructions) Next question is from Emanuele Oggioni with Banca Akros.

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [24]

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Only a quick question on the recent news related to the green business major, which (inaudible) your gas peaker project. I know it was not included in your business plan, neither in your estimates.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [25]

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Yes. No, thank you for the question. I mean we -- these projects are quite cumbersome processes in the countries. We consider this the first of the game. We -- by the way, we had some benefits coming from the declaration from the regions because there are no limits on the technology that we can build on the site. There are no implications on the environmental costs. So we believe that the region government, business and uptime, to go in -- more in details and look at the projects more in details and with all the needed elements. So we are confident that we can represent the projects and be successful.

In the meantime, we are developing a strategy with the aim to be -- to develop more options for taking steps and directions of being more present in the new gas market. So there is a combination of other sites that we are looking at, our site of course, and/or potential M&A deals and to enlarge our option strategy for being able to take a big -- a chunk of the opportunity coming from the new gas peakers or open-cycle gas plants or CCGTs. And in the -- either in the next industrial plant or before that, we'll come back to you with a comprehensive view regarding this portfolio of options that we are building to be more present in the flexibility market.

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Operator [26]

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The next question is a follow-up from Stefano Gamberini with Equita.

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Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [27]

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Just a quick clarification on the Waste business, if you can spend a few words about the construction of the new plant authorization and so on if there are some update on that. And you said that regarding the consolidation paper on the Waste, you need more time. But just to understand, what are they regulating exactly? This new plants that you are building are included in this RAB regulation they are working on or not? Just to understand a little bit what could be the perimeter where they are impacting in the future.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [28]

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So no, I mean I'll start on the last part of your question. I mean no, it doesn't seem that in this document, it was mentioning treatment plants. I mean the treatment plants are treated as pass-through assets. So that seems the approach of the authority.

And your first question was on the developments of the plants. I think the only new in the last 3 months was the full completion of the second plastic plant in [Mujano]. So we finally have 100% completed our growth in the selection and treatment plastic plants. After Cavaglià, we are now running our Mujano plant. We have all the other’s organic fraction plants that are still a little bit on hold while waiting for the qualification of the law decree on the -- and waste -- in the waste legislation. So that's where we stand today.

We -- on the WTEs, ever since, we have now almost choose the technology. So as you know, we have the authorization. We have selected a technology. We're now negotiating the global contracts with a general contractor. So I believe that in the next quarter, we will move on also on that site.

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Operator [29]

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Gentlemen, there are no more questions registered at this time.

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Renata Bonfiglio, A2A S.p.A. - IR Manager [30]

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Okay. Thank you very much to everybody for your time and attention. Investor Relations is available for a follow-up. Goodbye for now to everybody.

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Luca Valerio Camerano, A2A S.p.A. - CEO, GM & Director [31]

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Goodbye.