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Edited Transcript of ACE.MI earnings conference call or presentation 31-Jul-19 2:30pm GMT

Half Year 2019 Acea SpA Earnings Call

Rome Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Acea SpA earnings conference call or presentation Wednesday, July 31, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Elvira Angrisani

ACEA S.p.A. - Manager of IR

* Giuseppe Gola

ACEA S.p.A. - CFO and Director of Finance, Administration & Control

* Stefano Antonio Donnarumma

ACEA S.p.A. - CEO, MD & Executive Director

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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

* 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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Welcome to ACEA's First Half 2019 results. (Operator Instructions) Now I would like to leave the floor to Mrs. Elvira Angrisani, Investor Relations Manager at ACEA. To you, please.

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Elvira Angrisani, ACEA S.p.A. - Manager of IR [2]

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Thank you. Thank you for being connected to ACEA's first half 2019 results. Mr. Donnarumma, CEO of the company, will illustrate the results, and then it will be possible to open the Q&A session together with Mr. Gola, the CFO, and Mr. Donnarumma, of course. To you the floor, Stefano Donnarumma.

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Stefano Antonio Donnarumma, ACEA S.p.A. - CEO, MD & Executive Director [3]

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Good afternoon, everybody, ladies and gentlemen. I, as usual, introduce the main topic, I would say that, following the presentation on Page 2, we can actually show you improved results, significant improvements, in fact, EBITDA EUR 503 million in the first half with -- plus 12% versus the first half of last year.

EBIT EUR 260 million, plus 4%. And CapEx grew as forecasted in our business plan by about 21% versus the first half of 2018 with EUR 342 million.

CapEx grew and also grew in 2018 as per original business plan at the end of 2017, and this CapEx is actually driving the improvement of the main economic KPIs of the company.

We are therefore witnessing the possibility of raising the guidance throughout the EBITDA, which was between 5% and 6%, and it is now 7%. EUR 933 million was the EBITDA in 2018.

We confirm the trend of investments of CapEx was 10% up versus 2018, so around EUR 700 million. And we also confirm the guidance for the net financial position for the net debt because we think we can reach between EUR 2.85 billion to EUR 2.95 billion by the end of the year.

During the first part of the year, we've had some significant events. In March, we concluded the acquisition of 51% stake in Pescara Distribuzione Gas, and so we officially are also presenting gas distribution. And we want to continue with further acquisitions, and then at a later stage also we want to participate [to] tenders. We've approved on April 2, a business plan review, which we have presented to the market for the 2019/2022 business plan. And by 2022, we should reach EUR 1,270 million EBITDA, with an -- RAB almost reaching EUR 5 billion; investments for EUR 4 billion for the whole period of time for which obviously the trend this year represents a consistent element and also a minimum dividend start in 2019 equal to EUR 0.75 per share, which obviously we hope can rise further over the life of the plan.

We, in May, we issued bonds worth EUR 500 million with maturity of 9 years and a fixed rate of 1.75%.

On Page 3, we see some further important activities or events. In May, Fitch Ratings confirmed its BBB+ rating with a stable outlook, and this clearly thanks to the positive results we have reached with regulated activities. Then the acquisition of 90% of Demap the owner of a plastic treatment plant. In July 2019, the value -- the enterprise value of 100% of Demap was worth EUR 20 million. The EBITDA coming from this activity will be equal to EUR 3.5 million. And this is important for our development strategy within the environment business because the plant will treat 75,000 tons of plastic per year.

We have recently concluded the renewal of the concession for the Peschiera-Le Capore water main. We were waiting for this. And we've been waiting for this for the last 24 years because this basically represents an important element in preparation for the approval of the project and the construction of a second pipeline of the Peschiera water main, the so-called doubling of the Peschiera water main, which should take place in the near future. We hope we can start works by the end of 2020.

So the impact of this construction can be foreseen within the business plan. We've recently signed an agreement with Enea for the joint development of circular economy projects. So we will try and cooperate with the idea of sharing scientific and technological experiences for the development of activities connected with circular economy. And we are about to acquire photovoltaic plants. We are a 25 megawatts, making up 50% of the whole [plant]. We had our [profit sized] and -- which should have developed within a 3-year period. So this, in fact, is a positive trend because it could lead to conclude this first tranche of development of photovoltaic plants earlier.

On Page 4, we see a summary of the main financial data. So consolidated revenues at EUR 1,553,000,000 with a 6.8% increase versus the same period of last year. EBITDA, EUR 502.6 million, plus 11.7% versus the first half of 2018. Part of this increase is due to the effect of Gori's consolidation, EUR 34 million was -- EUR 34 million, which, for us, is obviously something new that happened at the end of last year and which is now part of our financial data. EBIT EUR 260.2 million, it grew by 3.8%. The net group profit EUR 143 million, practically identical to the net profit of the first half of 2018, with a plus 0.2%.

Mr. Gola, the CFO, who will go deeper into this will tell us how important it is to look at this result for -- to understand where our company is going.

CapEx grew by 21%, in line with our guidance because in -- within the business plan. Gradual increase has been envisaged up to about EUR 700 million.

The net debt is fine, I would say, because we have a good level in line with our budget and our forecast. And in any case, this is within the guidance we have shown between EUR 2.85 billion and EUR 2.95 billion.

So at this point, on Page 5, we have the EBITDA divided amongst the different businesses. And I would ask Mr. Gola to take the floor here. And then should you want to ask a question, I'm obviously here to try and answer them.

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Giuseppe Gola, ACEA S.p.A. - CFO and Director of Finance, Administration & Control [4]

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Thank you very much. Good afternoon, ladies and gentleman. Now the group EBITDA grew to EUR 503 million. If we look at the EBITDA with nonregulated and regulated businesses where it's 80% from regulated business and 20% from nonregulated business. And if we see the different areas, we see that there's been a strong growth in water, mainly due to the consolidation we've had.

So now we reached 47% in water in terms of EBITDA; energy infrastructures, 37%; commercial and trading 26% (sic) [6%]; environment and others, engineering and services, you see the different percentages.

Water EUR 244 million in terms of EBITDA grew by almost EUR 52 million, EUR 34 million of which -- thanks to the consolidation; energy infrastructure plus EUR 15 million. Commercial and trading dropped by EUR 12.7 million, the environment grew by EUR 1.7 million and the other components dropped by EUR 2.6 million.

As to the number of employees, the workforce considering all consolidated companies include 6,612 employees, increasing due to the consolidation of Gori.

If you go on Page 6, we can see the details of Water. In terms of EBITDA, we go from EUR 192.3 million in the first half of 2018 to EUR 244 million in the first half of 2019. Obviously, the components are, as we've already said, Gori, which is no longer consolidated partly. So we have EUR 34.2 million here, then ACEA ATO2 with a plus 9.3%. Then Acea ATO5 plus 13.9% versus the previous year. And then companies consolidated using the equity method plus 3.5%, EUR 17.8 million; and other consolidated companies, EUR 2.1 million with a plus 10.5%.

And in fact, the main highlight under water, as I said, are the consolidation of Gori. After the consolidation of Gori, in these last few weeks, we finalized the company financing for about EUR 100 million. So now this transaction has been totally concluded. We have growth, and it's interesting here to see the -- all in all, the growth is only EUR 0.6 million. But we have a series of one-off effects that need to be commented. In fact, the effect of this growth, well, in these values, you have to take into account the fact that, the water company sold the swap to refinance the company, and this has impacted on ACEA's Numbers for about EUR 4.5 million negative. But then on the other hand, we've had positive effects coming from structural growth of all companies, EUR 5.7 million, and the main player here contributed with EUR 5.3 million, mainly due to the fact that after the postponement of the concession, saw strong depreciation and this led to a strong improvement of the net profit of the company.

Then we have [forecast] adjustments. And so the 2018 results is consolidated [within] 2019 in the first half of about EUR 2 million, and then we have to eliminate the EUR 2.6 million from Gori, which, last year, were in a different perimeter and now are part of the water sector.

In terms of the CapEx, we have EUR 168.3 million, growing by 7.6% versus the previous year, and this growth is totally due to Gori, EUR 21 million.

We can go to Page 7, where we look at the quantitative data as far as Energy and Infrastructure goes. Here, [we have] the same perimeter, we have important growth because we have an EBITDA, which from EUR 178.7 million grows by 8.2% to EUR 193.3 million. And this growth is mainly driven by distribution, which grew by EUR 13 million growth, 6.5% (sic) [8.4%] due to growth coming from the development of investments after we reviewed the regulatory work we had at the end of last year. And then we also have about EUR 4 million -- EUR 4.5 million in terms of efficiencies, EUR 1 million of which is an accounting effect due to IFRS 16, whilst the rest is real efficiencies and about EUR 2 million of one-off impact.

In this area, and in these values, we still do not see a real impact. We finalized the acquisition, as Stefano said before, during the month of July, of photovoltaic plants for about 25 megawatts. And this will contribute to the EBITDA with about EUR 11 million. So they'll try start contributing to our EBITDA starting in the third quarter this year.

As for our CapEx, also this grow, EUR 133 million -- plus 26.3% versus the previous 6 months. Let's have a look at Commercial & Trading on

(technical difficulty)

So Commercial & Trading business reported dropping EBITDA from EUR 43.9 million last year to EUR 31.2 million this year. And this is the result of a number of factors. Please note that the performance is, however, positive. I can explain why this drop occurred. The main driver of this reduction of our EBITDA is regulatory effect. So the regulations have changed and had an impact of roughly EUR 6 million on this -- in this first year half and EUR 12 million for the full year.

If you have a look of the EBITDA development over the past couple of years, half year by half year, as you can see, last year, H1 reached EUR 43.9 million, EUR 32 million in the second year half. Now we have a EUR 32 million, roughly -- EUR 31.2 million, net of this regulatory impact, our EBITDA is growing 6% to over same period of last year, which means that, from a conversion point of view, the company is performing. And if you have a look at the energy sold in the free market, we had 100 tons -- 100 gross adds versus 80 last year. And if you consider June only, we released roughly double. So 22,000 versus the 12,000 last year in terms of gross adds, which means, our, say, marketing strategy is working, and this is clearly shown by the growth of the free market clients by 30 -- 347 [and mainly] 6% for the energy, 6% gas -- so 7% energy and 6% gas. So this means that free market clients are growing. It's just the enhanced -- [or the presented] categories that are waiting for the full privatization -- or liberalization of the market.

Page 9, the Environment business that performed very well, EBITDA grew by 5.3% to EUR 33.5 million from EUR 31.8 million same period last year.

Good news is that CIP6 that we expected it to end -- that is to say, the incentives for our burning plant in San Vittore, checking all the existing regulation that we realize that the chip CIP6 can be extended to half -- the month of July, which meant EUR 6 million more than last year, when CIP6 still applied. So EUR 6 million above our budget and above our plan target. On top of it, we reported a higher compost volumes of 25,000 tons, accounted for additional EUR 2 million of profit margin. In July, as Stefano pointed out, we completed the acquisition of 90% of Demap, the owner of a plastic treatment plant that has an authorized capacity of 75,000 tons per year, and we'll see the impact start in Q3 of this year.

Page 10, very briefly all the other businesses.

So overseas is growing slightly, EUR 7-point -- million (sic) [EUR 7.9 million] in terms of EBITDA, thanks to the contribution of Aguas de San Pedro. And Engineering & Services slightly likely dropping and Holding company stopped -- dropping from EUR 11.7 million to EUR 13.8 million negative, of course, and this is the result of a higher fixed cost.

Page 11. You see our EBIT and net profit, EBIT raised to EUR 260 million, up roughly 4% on the same period as the 2018. And net profit that is the same of last year EUR 143 million, but net of the TWS acquisition, it should be increasing by roughly 7%. Having a look at the [growth] post under the EBIT, we see depreciation growing substantially from EUR 160 million to EUR 200 million, mainly the result of growing Capex and also because of the IFRS 16 accounting principal impact that, as you know, will lead to an increase of depreciation in general, in our case by EUR 10 million. Then write-downs and loss provisions. So write-downs amounted to EUR 36 million versus EUR 32 million last year. Please consider that here we have the impact of Gori consolidation of roughly EUR 5 million. And please consider that, if you have a look at the evolution of write-downs by year half, last year, we had EUR 32 million in the first year half and EUR 43 million in the second year half. This means that our write-downs are decreasing as a result of the improvement in the receivables and [cachings]. So -- and I get back in -- when I comment on the cash flow. Provisions are flat and tax rate is flat too, 30%.

Page 12. You see the evolution of Capex, which I've already commented on. You see all-in-all, in the first year half, we have reached EUR 342 million, as Stefano already mentioned, we expect to reach roughly EUR 700 million in full year net of the M&A deals that are not considered under Capex. Such investments are mainly focused on regulated business. So 87% regulated business and 13% nonregulated business. There's a typo in the pie, the sales and nonregulated businesses, but it should be nonregulated investments, of course -- sorry, it's not EBITDA, but it's investment from regulated and nonregulated business.

So having a look at CapEx by business. So the Water business, we plan to make investments on the water and sewage pipes. The maintenance water centers and treatment plants EUR 168 million all together, and roughly EUR 21 million is accounted for by Gori, that was not, as you remember, consolidated [SG&A.] As for Energy Infrastructures business, we see a substantial increase of Capex to upgrade the -- extend the grid then to revamp the Mandela and the Tor di Valle and Montemartini thermoelectric plants -- or hydroelectric plants in case of Mandela. As for IT, we are developing our IT systems to acquire more customers. So higher cost for customer acquisition. As for Environment business, EUR 11 million Capex, mainly to extend the Orvieto landfill and revamp the Monterotondo plant. Other investments are accounting for EUR 2.6 million -- overseas and the [balance] IT investment at corporate level.

On Page 13, you see our cash flow. So we generated EUR 503 million EBITDA in the first year half and working capital EUR 96 million, Capex EUR 342 million. So the free cash flow of EUR 65 million versus EUR 87 million previous year.

So in terms of working capital absorption, we are in line with our targets and our expectations. So here we have a seasonal impact. The net of seasonality because, as you might remember, Q4 is generally more positive in terms of cash generation and working capital. So the last few months, the working capital absorption was [EUR 55.0 million] in line with full year targets.

In this regard, let's say, roughly EUR 47 million, again, the impact of regulatory changes, and we expect the amount to be very similar at the end of the year for the full year. So we are well in line with our strategic business plan so we expect that the absorption of working capital for the full year to be equal to the regulatory impact.

In the first year half, we reported substantial improvement in receivables, especially in the trading business. If you have a look at number of KPIs, last year, we managed to -- we have managed to improve our commercial trading receivables by 5%.

The overall cash flow shows EUR 274 million cash absorption that includes the impact of IFRS 16, namely EUR 57 million. So net of it, cash absorption will be EUR 202 million. So let's say, that in terms of cash flow and net debt -- that I'm going to comment in a minute, are fully in line with our targets, as Stefano already pointed out. We are focusing on the low end of the range of our guidance, net of the impact of IFRS 16 that we did not factor in our guidance and net of our M&A activities that had not been factored in our guidance, again. As for our net debt, net debt-to-EBITDA is 2.9x, net of IFRS 16 is 2.8x. So flat and in line with the end of 2018. As Stefano already pointed out, we issued a bond and successfully so in May 2019 worth EUR 500 million, maturity 9 years, fixed-rate 1.75%. And in July, we completed the increase of the ceiling of the EMTN program to EUR 4 billion to have all the necessary financial flexibility we may need. In terms of debt structure, we have fixed-rate, 80%, average cost of 2.18%, average term or average maturity 5.8.

And for our rating, Fitch rating was confirmed BBB+ and stable outlook. Moody's Baa2 stable outlook, too.

So this is it as far as our presentation is concerned. And we'll be happy to take your questions.

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Elvira Angrisani, ACEA S.p.A. - Manager of IR [5]

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Thank you very much, Giuseppe. We can start the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question Javier Suarez, 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 2 or 3 questions. The first on the cash flow statement on Page 13. You have explained the working capital absorption, EUR 96 million. And now to better understand what you were talking about, if I understood correctly, basically, 50% of this is due to regulatory effects. And this – therefore should be there also at the end of the year. And remaining 50% is your working capital management, and this should go down to 0. Can you please confirm this, did I understand correctly? Then a question connected to this, the debt guidance was confirmed without considering IFRS 16 so can you tell us what the debt will be by the end of the year, considering IFRS 16? [This is a first] -- and also possible M&As.

So then the second question about CapEx. Acceleration on CapEx has been very strong, it seems the company has a strong capability of increasing CapEx and in its business plan wants to bet a lot on photovoltaic plants. Is there any space to further accelerate this CapEx? Because delivery should be faster than the market expected. So do you see these are conditions for you to accelerate your expansion plan? And then one last question on supply activities, which is a bit more on the negative side. I've noticed margin contraction, especially in the liberalized supply business. Can you give us a bit more details about what you have seen in the market at the moment? Because this should have an impact on margins. So what are you seeing in the liberalized supply market? What's your margin? And what are the deviations from your business plan in terms of margin?

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Unidentified Company Representative, [3]

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Javier, as for the working capital, yes, exactly what you said, you understood perfectly. About 50% of the working capital absorption in the first half is due to a regulatory effect -- regulatory impact both in electricity and water. And all in all, it is worth EUR 47 million. The remaining 50% is the seasonal effect, if we can say so. So currently, we think that by the end of the year, the annual results we expect, might not be exactly EUR 50 million, but more or less will be EUR 50 million and it will be due to regulatory effect.

As to the debt guidance, yes, we've confirmed the guidance, and in fact, our idea is that the result, net of IFRS 16 and net of M&As is within the guidance and on the low part, or less than the minimum of the guidance then this value will have the EUR 57 million of IFRS 16, plus what we invest in M&A. I can tell you straight away because obviously we do not know what our M&A activity will be for the rest of the year because it is difficult to make forecast. But I can tell you straight away that the impact of acquisitions we have concluded in July, on the net financial position, is about EUR 80 million.

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Unidentified Company Representative, [4]

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On my side, as for the acceleration of CapEx and delivery because you mentioned both the idea of CapEx for Infrastructure and CapEx for photovoltaic plants. As far as our investment in infrastructure, we had foreseen this acceleration to the extent that the plan already included it, and now we are actually seeing that -- we can actually keep the pace we wanted to keep.

So both Water and Electricity, the 2 main businesses in which we invest for infrastructure, we are not having any specific problem. So our plan is absolutely in line with our forecast. As for the acceleration of CapEx for M&A as connected to photovoltaic plants, I can confirm that this, for me, will be a trend also in the second half of the year. Currently, our target is that of completing the 50-megawatt photovoltaic plant we wanted to acquire as quickly as possible. We want to do this within this year or maybe beginning of next year. And I think we won't need much of next year to actually reach this target. And then given that our pipeline keeps evolving, I think, we will assess the situation and we might decide to further increase such numbers. But for the moment, our target is completing the 50 megawatts as quickly as possible.

As for margin contraction, while I want to give you a bit more color on that, we already said for the performance on the commercial and trading, well, making a distinction within the economic performance and the operational performance. Well, from the operational performance point of view, the commercial machine and all the initiatives we've launched and we're still developing during this first half, started working and started providing positive results, especially in terms of [safe] capability. So increase the number of customers, the number of new customers in the nonregulated markets, in the nonregulated businesses.

Clearly, in regulated businesses, given it's a regulated market obviously we do not have any preventive action when we lose such customers. [So when] comparing the situation with our plan, while customers may be exiting a bit faster, given that there has been strong pressure from our competitors -- so we are waiting to move to the free market and everybody is so.

And now in terms of margins, we are in line with expectations with our targets, net unfortunately of the RCW (sic) [RCV] component, which decreased and which strongly impacted on ACEA, given that, we managed nonregulated -- sorry, regulated market, especially in central and southern Italy. So we are the main operators who suffered from this impact. And this, as I said before, something is worth EUR 12 million in terms of margin on a yearly basis. So this is possibly the main driver of such reduction. And as for the trend, as the general trend, we are positive and we think that the second half will grow versus the first half and will partly offset such reduction.

In terms of the market, what we see is that the market has a strong competitive pressure. Such pressure is increasing possibly due to the idea that you were -- we're all going to move towards a free market.

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Operator [5]

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Next question by Enrico Bartoli MainFirst.

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Enrico Bartoli, MainFirst Bank AG, Research Division - MD [6]

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I've got a few questions, in fact. First question about the improvement of the guidance that you provided us with. Can you elaborate on the drivers that led you to review and upgrade the guidance, let's say?

And then the question about water business and Gori, in particular. You pointed out that Gori contributed EUR 34 million in H1. If I remember correctly, you had provided guidance of roughly EUR 50 million for the full year 2019. I wonder whether Gori is performing better than expected? And whether the EUR 50 million guidance must be reconsidered and upward, of course?

Then a third question about electricity distribution business -- it performed very well in terms of EBITDA. EBITDA grew substantially in H1. I remember that, also last year, there were some positive one-offs. So can you elaborate, again, on the drivers of such improvement? So you mentioned cost efficiency. What was the contribution of RAB increase and weather in H1? Positive one-offs were also reported. And can we expect the same trend for the second part of 2019?

And the final question on Water business regulatory framework. So we expect the next steps from the authority, have you already had any meeting with the representatives of the water authority? And what are your expectations? Do you expect the current regulation to be conservative? Do you expect any changes?

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Giuseppe Gola, ACEA S.p.A. - CFO and Director of Finance, Administration & Control [7]

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All right. So I'll try and answer the question, Mr. Donnarumma, about the guidance. Well, clearly, the first year half of 2019 was characterized by the drivers that we mentioned during our presentation that drove our EBITDA up -- we do not expect any change. And therefore, should we proceed as we've done so far, EBITDA guidance has been improved by 7%, but that was, let's say, conservative. It is true that there are some factors that materialized in Q1 and are not likely to materialize again in the second year half -- for instance, CIP6 for the environment business. So we have made our projections and we can say that considering that -- we proceeding as we have done so far with the regulatory impact, the increase of tariffs that we enjoy, the increase of the CapEx -- these are drivers that will drive our EBITDA growth in the second year half as well.

As for Gori, well, Gori is one of the drivers, EUR 34 million, that was the projection for the full year. Full year would not be EUR 70 million, would certainly be less than that, probably EUR 50 million, but we certainly expect an increase in.

Then we have electric power distribution. We already mentioned that we have EUR 6.5 million more that come from the updated tariffs with EUR 4.5 million is accounted for by cost [caching.] And this is, again, an area we've been focusing on and will go and focus on and then EUR 2 million was nonrecurring items. So this explains why we expect that these 2 core businesses -- beside the environment business - will drive the improvement of our EBITDA.

As for regulation of the Water business, we are talking about rumors because no meeting has been held with the authority as yet, just had preliminary meetings. And my idea that I've already uttered out in the past is the following. Despite all the rumors circulating on the changes in the regulatory framework, what I expect is a change in the tariffs structures for water -- for water supply that may have an impact on cost-effectiveness, let's say, which is exactly what happened in the electric power business. And this will also have an impact on WACC when we actually factor in CapEx. But I believe that this will take longer than we may think because we are still waiting for the [product's] issue to be solved for the electric power business. So honestly, I do not expect any major impact in the near future. Of course, I do expect these changes in the midterm that we'll be following closely and we will certainly be discussing with the authority.

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Operator [8]

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Next question Emanuele Oggioni, Banca Akros.

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [9]

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I have 2 questions. The first is on the last acquisition. First, I wanted to ask you, what is the energy account for these plants and the residual part of such incentives? And then also those EUR 75 million, is this already net considering minorities or not? This is my first question.

The second question instead on ARERA for the electricity distribution market, where we heard about measures to promote the consolidation of this business. I don't know whether you have already looked at such documents. And so I wanted to know whether you already have an opinion on this?

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Stefano Antonio Donnarumma, ACEA S.p.A. - CEO, MD & Executive Director [10]

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Sure. Yes. As for the photovoltaic plant acquisition, I mean obviously, these are very many plants, different ones. We have all types of different sections from the second to the fifth.

We have second and fourth mainly, but we also have the third and the fifth. As for EUR 75 million, that's 100%. So it does not take into account minorities. Minorities are only present for 20-megawatt where we acquired 76 -- 75%, sorry. As for the residual duration, whether -- the average residual duration of incentives is 11, 12 years, while the average useful life of plants is about 20 years.

As we already told, when we launched our business, strategic plan, we're working with acquisitions with a cherry-picking attitude. So we're really assessing lots of 1-megawatt plants, and this clearly gives us an advantage because if we can acquire them, we will do at lower prices versus big packages, photovoltaic plants where we'd have to obviously accept lower yields. But then on the other hand, it is also clear that we have a huge variety of plants and of companies, which are obviously more difficult to manage.

Now I'll try and answer your question and the remarks I'm going to make are based upon very little because I read the documents last night. And I'll tell you what I think about them. I want to say something more about what Mr. Gola said before because you said about -- talked about fifth -- well instead, we're talking about the second and the fourth energy account. So we're 80% on fourth and 12% on second. But now given this, what -- by reading the new document, you find some aspects, which are not worrying for us because they impact nonsignificant perimeter of activities as far as our distribution goes.

And here I am, for example, referring to some of the aspects having to do with very high voltage, which don't have a strong impact on us or maybe power changes, I mean that's another important topic. But the number of such power changes and the different way in which this is dealt with, is not something that creates lots of worries to us. Whilst instead I see aspects having to do with the treatment of contribution on works in condominiums, is something I see as very positive. I was amongst the first who had talked about this with the authority, I mean it's absolutely important to review these types of plans to guarantee a higher level of continuity in terms of low-voltage and the possibility to better read digital counters. And then also to actually enable people to use more electricity because you can increase the power of such meters. Then also electrical vehicles is another positive part. So new tariffs for electricity for such cars is interesting. I don't have any specific worry as for the impact all this could have on our business on ACEA.

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Operator [11]

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Next question, Stefano Gamberini, Equita SIM.

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

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I've got a couple of questions. Mr. Donnarumma, can you elaborate a little bit on the second consultation paper that provides for distributors to acquire services like ancillary services? So I got an impression, this is the time when the DSOs will be introduced. And I don't know whether it is going to benefit you. Can you spend a couple of words on the waste business, mainly on the acquisition of the core of that company that you mentioned that you were going to acquire in the northern part of Italy. But I expect you to focus mainly on your area, so the center of Italy. So consider what is happening in Rome, maybe this waste emergency make -- give rise to opportunities for you? And then the final point, the Daga law -- the Daga bill is over, I believe, or do you think it may be revitalized and discussed again in the Italian Parliament?

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Stefano Antonio Donnarumma, ACEA S.p.A. - CEO, MD & Executive Director [13]

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Well, as for the evolution of ancillary services, I can tell you that, we are on the eve of a major regulatory debate on DSO. I've been an advocate of this and I'm sure something is going to change. So issues like demand response and other similar issues that will certainly create new business opportunities. And we are definitely focused on a number of projects relating to this and will be, again, implementing actions in line with the existing regulatory framework and the future regulatory framework. So we're very, very active. I already mentioned the [rises] and the electric charges. And we have submitted a number of proposals to the European Commissions already.

As to your question on waste, the acquisition of Demap, that is a plastic treatment plant, is perfectly in line with our strategy. Don't be misled by the geographical implications because as far as we're concerned, acquiring such a company means entering new business and acquiring new know-how. So this acquisition is not simply to increase the total amount of waste we can treat -- which is, however, important because it [certainly] contributed to growth and value generation. But thanks to this partnership, please consider, we never acquire 100%. We acquire majority stake when we make an acquisition, but we want the businessmen who funded the company to stay on and stay with us. Because we want to strengthen our management team, considering that we want to double if not triple other business in waste, it is extremely important for us to acquire more know-how and extend our management team. And this position must be considered from this perspective. Please consider that the amount of waste generated in the south and center of Italy is particularly high, and that's why we want to be, again, proactive.

The current waste emergency in Rome is certainly a crisis. An emergency is not an opportunity. We are suffering from it, however, the overall waste treatment system of Italy is undergoing a crisis, particularly in the south and the center of Italy. And this is why we are certainly willing and ready to play an active part in developing the infrastructure that are missing in the Central and South of Italy. And as you're going to hear, this acquisition will not be confided to Piedmont only.

As for the Daga bill, I don't think that the bill on public water or publicly-owned water is not over. So I believe the Daga Bill is now being debated and this is why it is also being amended now. Let's see how it will be amended, but I believe that certainly, this bill is not over, it will go on debated. I don't know what the final result would be, but I am sure that all the players of the industry will contribute to this debate to have the -- good things are already there to be retained and preserved. For instance, businessmen can, of course, make investments in the Water business, but then we are also able to ensure the top-quality level of services and our supply. And this must not be jeopardized by regulatory decisions or political decisions. Certainly, the debate is going on and I don't see it can actually be sped up.

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Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [14]

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And when you said that you are thoroughly doing very well with the [rise of] pipes. Well, can we say then that investments can accelerate once the new regulations on electric or electric power distribution are adopted?

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Unidentified Company Representative, [15]

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Well [the rises or rise of pipes] are certainly an integral part of our multiannual investment plan. When you have a complex business plan like us, that provides for EUR 5 billion for over -- I'm sorry, EUR 1 billion over a period of 5-years devoted only to the Water business -- well, this implies many new production lines that will become operative and that would be definitely favored by the new regulations.

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Operator [16]

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(Operator Instructions).

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Unidentified Company Representative, [17]

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There aren't any more questions it seems. So thank you very much, and now -- thank you very much from all of us. Thank you very much and see you again soon.

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Operator [18]

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This is the chorus call operator. The conference call is over. You can disconnect. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]