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Edited Transcript of FKR.MI earnings conference call or presentation 7-Nov-19 5:00pm GMT

Q3 2019 Falck Renewables SpA Earnings Call

Milan, Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Falck Renewables SpA earnings conference call or presentation Thursday, November 7, 2019 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Paolo Rundeddu

Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer

* Toni Volpe

Falck Renewables S.p.A. - CEO, GM & Director

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Conference Call Participants

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* Dario Michi

Fidentiis Equities S.V.S.A., Research Division - Analyst

* Emanuele Oggioni

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

* Paolo Citi

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

* Roberto Letizia

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 presentation of the Falck Renewables Group results as of September 30, 2019 conference call. (Operator Instructions).

At this time, I would like to turn the conference over to Mr. Toni Volpe, Chief Executive Officer of the Falck Renewables Group. Please go ahead, sir.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [2]

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Thank you, and good evening, everybody. Paolo Rundeddu and I welcome you to the Falck Renewables 9 months 2019 results. And let me start by saying in our overview page that we are commenting today another set of remarkable results that builds upon a streak of positive quarters.

During the first 9 months of 2019, just to pick a number, EBITDA is 16% up relative to the same period of last year on an adjusted basis. Nine months 2019 figures are exposed, including the adoption of IFRS 16 related to leases, and Paolo will spend more time just in a few minutes explaining the variations, comparing the same numbers versus the 9 months of 2018, when we exclude in 2019 the IFRS 16, and for 2018 when we exclude also the transaction, nonrecurring for -- that we had for EUR 7.1 million.

More in detail. We reached in the 9 months of 2019, the highest EBITDA ever, at EUR 147.7 million, which is better than a year before, up EUR 17.1 million, we also -- with that number we benefit of EUR 4.4 million for IFRS 16 leases from January 1, 2019. Without IFRS 16, the number would be EUR 143.2 million. Therefore, the business performance is strong versus the same period of 2018. When we compare the 9 months of 2018 adjusted value of EUR 123.5 million, that excludes the impact of the mentioned nonrecurring transaction, in essence, an increase of EUR 19.7 million or about 16%. As I mentioned above.

In terms of our underlying assets, we achieved strong generation numbers, 7% above in '19 versus the same period of '18. And this is essentially due to better wind production in Italy, essentially good, thanks to a good performance in the first and second quarter of '19. Also better wind in the U.K., we had a good recovery in Q3 of this year. And of course, we have the contributions to operations from the increase of the perimeter because we acquired the assets in France at the beginning of 2019, 57 -- 56 megawatt and the full operation of the 20.5 megawatt of DC solar in the U.S.

The evolution of construction is in Sweden, Norway and Spain is progressing well and accounts for the EUR 85 million in CapEx in the first 9 months. Things are going in accordance to our plans. So the activities of the -- relative to the turbine installation, civil works and grids are all on schedule. We expect the 107 megawatts to be in operations by the end of the year. On these assets, we reached as of September, 81% of completion, measured in CapEx. And so we confirm the deadline that we previously provided for the online operations of these assets.

Our net financial position, in the third quarter at EUR 701 million. That includes EUR 74 million relative to the adoption of IFRS 16. The net amount without IFRS 16 would be EUR 627 million. The increase of the net financial position is mainly due to the acquisition of the French assets in March and the CapEx plan, which I already mentioned, for an overall amount of 160 -- EUR 156 million, which, of course, is counterbalanced by the ongoing cash flow generation of the operating assets.

In terms of trends and wind and solar resources, we recorded the same trend. And that leads to an EBITDA that is supported by good wind conditions in the U.K., 20 gigawatt hours above the Q3 of 2018, and on the [DC] asset. So the quarter is also a strong quarter compared to last year.

We are also benefiting from a higher contribution, an estimate of a higher contribution of the ROC Recycle, which we have incorporated in our numbers, which is expected to be roughly a couple of -- [GBP 20] million higher compared to the 9 months of 2018. From an operational standpoint, we also will spend a little bit more time on our decision to revamp 6 megawatts solar plant in Spinasanta, due to the fact that with new panels, we expect a much better performance. And that technical improvement also led us to successfully renegotiate the existing debt facility on the Actelios Solar holding company that owns these 3 assets. And that provides better funding conditions and cash, which is not only there to pay for the expenditures necessary to changing the panels, but also will come as a distribution to us and will fund further expansion of our business.

We are progressing well and in line with our goals in terms of energy management and business development. On that standpoint, the pipeline have now reached the size of 1.4 gigawatts. That includes also the agreement that we signed with REG Windpower, which is about a couple hundred megawatts of wind and solar projects in the U.K. It's a pipeline of future projects. And we're quite pleased to see a continuation of our presence in the U.K. in the long run, which is where we started our onshore wind business in -- back in 2002.

Services, in terms of energy management, we dispatched about 654 gigawatt hours in the 3 quarters of 2019. This is 100% of our production in Italy, but we're also working in the same countries for third parties, about 100 megawatts contracts. And of course, this amount is much higher than the year before, where we were only partially dispatching ourselves the energy that we are producing in the Italian country. We also keep signing contracts in other cases. So we signed a PPA in U.K., the electricity produced on the Kilbraur Wind farm. It's a short term contract, but with an important counterparty, Shell Energy Europe, which gets the power and the associated benefits, such as renewables obligations and REGOs and ROC Recycle as well. And so we are happy to work with them in contributing to their decarbonization goal.

Of course, we have to consider the good results. And on the back of that, we decided to update our original guidance on EBITDA on group net earnings and our net financial position. And we will have a specific slide at the back of our presentation to discuss the new guidance.

Turning page now on the wind portfolio operational performance. Wind performance in Q3 2019 recorded a good year, especially in the U.K. and France. When compared to the same period of 2018, the performance of the first 9 months in 2019 was better in Italy, France and the U.K. However, performance was not enough to beat our index number for the first 9 months due to the lack of wind resource, which, over time, deteriorated in Italy. And in U.K., there was a slight improvement between second quarter and third quarter. In general terms, this was a wind -- lack of wind because our availability actually improved 0.9% when we compare these numbers to the same period of last year.

Index numbers. Index number in Italy went down from 2.1% in first quarter to minus 4% in the 9 months, still a little bit better relative to same period of 2018. And in the U.K., it went from a plus 1.2% in the first quarter to a minus 3.7% in the first half to then 3% in the 9 months of 2019. In the U.K., wind conditions were not fully reflected in the energy output due to the fact that we are curtailed, but we received compensation. And the lost performance because of curtailment, which is 52 gigawatt hours is, in fact, compensated for a large portion. As a consequence, our overall production was down 7% relative to the index, comparing to a minus 7.9% of a year ago, but it is 3.4% if we include the partial compensation.

So things improved, of course, with the compensation on an economic basis. And this number is in line with the last year number, essentially. Most of the difference, I would say, is explained by the impact of grid curtailments when we compare the 9 months of 2019. We lost 52 gigawatt hours versus 63, which was lost in the 9 months of 2018.

On the right side, you can see the breakdown of load factors over time, which follows trends already illustrated. And when we turn now to the next page to solar assets. I'm pleased to say that things improved here in the 9 months of 2019 compared to where we were at the first half. We still have underperformance relative to the index. But now it ends at 10.6%, while it was a 16.9% in the first half. And this is driven, of course, by the largest plant, which is the North Carolina plant, which had a good performance in the quarter.

As a matter of fact, we had to take extraordinary maintenance activity during the first half in May of this year, but it was down for a significant amount of time in May, and we lost about 8 gigawatt hours of power production, but then -- and this was due to the fact that we had to do works in order to elevate from ground level, the inverters and, therefore, mitigate potential future flooding events like the one that was caused by Hurricane Florence last year. And then once we completed those works, that performance went back to normal. And actually, we were above budget -- [record] number in August and September.

The Italian solar plants, (inaudible) Cardonita, Sugherotorto and Spinasanta show an underperformance of 5.3% versus index. And as announced, on Spinasanta, we will replace the module, which will lead to an improved index in the future, and we'll see these things in the specific table.

Moving now to the next page, where we have total energy production for the 9 months. As mentioned before, we're up 7%. We were plus 4% in the first half of 2019. So we have a relative improvement. This is due to the improvement in solar production, where the output increased quite significantly over the same period of last year. I remind you that last year in September, we already had some effect of the hurricane, while production was [moved] this year.

Commenting a little bit on Trezzo. The amount of energy produced at Trezzo was up in the 9 months of 2019 versus the same period of last year. Thanks to a better performance in second Q and third Q, which more than covered some extraordinary maintenance we had to take in March. The Rende biomass plant is slightly above also compared to last year, [3%.] And after a promising first quarter, we had some unexpected maintenance work in second quarter, which reduced the availability, while in third quarter again we recovered a little bit compared to the same period of last year. So these are the main drivers in terms of volume.

Moving now to prices. And we analyze here the comprehensive captured price, which is essentially what we get at our power plant. In Italy, we are slightly below the same period of last year. And this is due to the incentive, which is much lower than last year, and a much higher captured energy price, which is the [debt] including the benefits of the energy management dispatching activities and [so on,] which are performed by Falck Next Energy. Falck Next Energy is simply the new name of Falck Renewable Energy, our company that performs energy management. So in terms of captured energy price in Italy, we were USD 55 per megawatt hour in the first 9 months, which is 13% above the same period of last year. And this is happening even though solar prices were below the last year. And this is due, of course, to the fact that we hedged at higher prices in 2018, part of the production for 2019.

In the U.K., we captured net of course of the PPA discounts that we have to provide to the PPA off-takers, better energy prices, which were up 4% year-over-year. Inclusive of incentives, we are 4% in the 9 months, above 4%, above, in the 9 months of 2019 versus the same period. And captured energy prices were significantly higher in the 9 months of 2019 compared to the wholesale price, which went down to GBP 44 per megawatt hour. And this is due to the hedging activity, where we had an average price comprehensively of GBP 52 per megawatt hour, as shown in the graph. This is almost in line with our budget expectations. In terms of budget, we were slightly higher. We were at EUR 54 of course, the hedging was partial, so we couldn't necessarily meet our target. But we still went fairly close to our target.

In Spain, captured price shows a slight decrease of 3% compared to 9 months of 2018. In France, our situation is stable because we have a feed-in tariff mechanism, but we have an increase because Julia perimeter is slightly higher than our historical perimeter. And also in the U.S., we had no reduction because of PPAs.

So moving now to something which has been a very interesting and exciting for us in the possibility to revamp existing solar plants in Italy. We conducted a fairly thorough investigation for a few months over the possibility to replace solar panels and in Spinasanta we found the right reasons and conditions to do so. And in fact, we went ahead and decided to replace the 6 megawatts, entirely the solar panels.

This will happen by Q1 of 2020. And the reason why we decided that is because we concluded that as a result of hot spots and faster degradation than expected, the case of substituting the panels with new ones and also with the counterparty that unlike LDK is a solid counterparty, we were going to generate significant value for our company. LDK is a bankrupt company, so no longer able to honor their replacement of panels, which are not performing according to specs, unfortunately.

When we look at the technical upsides, we think we're going to have 20% more cumulative plant generation from 2020 until the end of the plant useful life. And this is reflected on, of course, a higher EBITDA and higher project IRR. And we think that the new investments or the marginal investment necessary for the new panels from the installation will have a payback of just 3 to 5 years. And of course, a very significant IRR on those EUR 1.9 million we're going to spend at the end of the day.

Fortunately, this results into a write-off of EUR 6.2 million because we had to write-off the old panels. So from an accounting standpoint, we take a hit, but from an economical standpoint, we're generating significant upside for our company.

Thanks to the technical improvement, we were able to renegotiate our project financing. And we were able to add EUR 13 million of cash that will be used to finance the replacement of the solar module and the rest, of course, would be available for growth. And we also had a chance to decrease the spread that we previously had negotiated on this project finance. And this was one of the last ones. We still have to renegotiate. All the others took place in past years. The IRS interest rates swap linked to the original financing will be terminated and the impact on profit and loss of this instrument will be spread over the residual life of debt, which is approximately 6 years and 9 months.

The disposal of the modules will happen, of course, in accordance with [EEE 49-14] regulation that regulates the collection, transport, treatment and disposal of these panels, and the manufacturer of the new panel will take care of that. So all in all, we think this is an interesting case of revamping, which is possible, of course, thanks to the new DTR. And we will continue to evaluate the other plants. We haven't reached yet the final conclusion over what to do for the other 12 megawatts in Sicily, and of course, we also have another couple of megawatts in [Puglia.] But we'll keep analyzing, and of course, as soon as we reach a conclusion, we will inform you.

But I think it's also an opportunity for Vector Cuatro now that they have developed the methodology to -- and the technical approach to provide the same advisory service essentially to other owners of power plants, solar power plants in Italy. And as you know, there are many megawatts installed in Italy with the same vintage, so 2011, 2012 and same kind of panels that might benefit from such an approach.

So with that, I will leave to Paolo, which will go through the more details in terms of our numbers and then I'll take it back for the guidance. Paolo, please.

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Paolo Rundeddu, Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer [3]

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Thank you, Toni. As already mentioned during our previous calls, 9 months 2019 figures are exposed, including the impact of the application of IFRS 16, while 9-month 2018 figures have not been restated.

Starting from 1st January, 2019, Falck Renewables recognized a right-of-use asset and the lease liability. The right-of-use asset is treated similarly to other nonfinancial assets and depreciate accordingly. The liability accrues interest. The lease liability is initially measured as the net present value of the lease payments payable over the entire lease term, which is the useful life of the plant. While 9-month figures are impacted by IFRS 16 adoption, I remind you that in 9 months 2018, we benefit from the effect of a nonrecurring event from the release of provision related to the Sicilian project.

To compare these figures, we have prepared an [analysis] in the Appendix, while in this slide on the right, we have chosen to show the differences of the main P&L drivers, namely EBITDA and EBIT adjusted by the mentioned impact. Therefore, when in my speech, I mention the word adjusted, it means the comparison between results, which are not including IFRS 16 in 2019 and are not including a nonrecurring event in 2018.

So let's see the figures. Revenues and other income was EUR 276.6 million in 9 months 2019, up 13.4% when compared to 9 months 2018, primarily driven by better wind volumes in Italy and the U.K., by the additional contribution coming from the estimation of ROC Recycle components compared to a year ago period. I remember (sic) [remind] you that ROC Recycle is the variable component of the incentive that is dependent on the number of ROCs submitted [and requesting] the relevant annual period.

As mentioned in our previous call, we did not include the amount in our first half 2019 figures due to the prolonged process of calculation not completed yet, by better prices for wind in the U.K. and for waste disposal in Italy at our WtE plant in Trezzo sull'Adda. Finally, a significant role has been played by a perimeter increase related to the increased wind and solar capacity in France and the U.S. and the full contribution of Energy Team and Windfor. As already explained in our previous calls, 9 months 2018 benefit from a positive impact from a nonrecurring transaction of EUR 7.1 million, to be considered also the sale of Esposito Servizi Ecologici completed in January 2019. The impact of the exchange rate of the sterling against the euro, which was positive for 0.1%, as you may see, is very limited.

EBITDA was up by EUR 17.1 million in 9 months 2019 versus 9 months 2018, primarily as a result of increased revenue, offset in part by higher operating costs due to the increased perimeter. On adjusted basis, the EBITDA increase is EUR 19.7 million, plus 16%. Breakdown of depreciation, amortization writeoff is showed in a separate table on the right. In particular, higher depreciation costs year-over-year are mainly due to the increase of wind and solar capacity and due to the IFRS 16 adoption, while write-off includes primarily the negative impact related to the solar module replacement, which Toni just explained a few minutes ago. The amount is EUR 6.2 million.

Higher depreciation, amortization write-off led to a 9-month 2019 operating results, higher by EUR 2 million versus same period 2018, increased to EUR 8.9 million on an adjusted basis.

Earnings before taxes increased by EUR 3.5 million in 9 months 2019 versus 9 months 2018, benefiting essentially from better operating results, while financial charges are aligned, notwithstanding the adoption of IFRS 16, with a negative impact of EUR 2.2 million, supported by [management board] to improve efficiency at that level and by foreign exchange gains. The net financial position, including the fair value of derivatives, which increased at the end of September 2019 to EUR 701 million, which is EUR 627 million net of EUR 74 million of accounting impact of IFRS 16 adoption, from EUR 547 million at the end of 2018 is mainly as a result of a significant cash flow generated by the operating plants, absorbed by the acquisition of the franchise that performed in the first quarter 2019, and the construction activity mainly in the Nordics and Spain.

Let's look now at 9 months 2019 cash flows, we are at slide 13. This slide provides a [indiscernible] breakdown of our net financial position and shows the change in the net debt compared to 2018 to end of 9 months 2019, which includes the initial impact of 1 January 2019 of IFRS 16 was EUR 72 million.

Let's start with net financial position breakdown. Our gross debt is mainly composed of project financing nonrecourse debt of EUR 687 million, which decreased by EUR 13 million in 9 months 2019 compared to the end of 2018, essentially driven by the debt repayment by group special purposed focused vehicles. Derivatives accounted for EUR 44 million. Community Fincoop instruments, which are the participative financing instrument that [involves] local communities recorded EUR 12 million, and we also accounted for EUR 33 million in other debts, which are mainly composed by the put option on 49% of Energy Team, hot money credit line, minority shareholder's loan and some other minor bank debts.

We still have cash available equal to EUR 47 million, slightly higher than an amount at the end of first half 2019, [whose] EUR 124 million of cash reserve in the special purpose vehicle, which is required by the project financing schemes and EUR 10 million of third parties' financial receivable, which are mainly related to CII Holdco, our [bench] minority shareholder in our U.K. [plant.]

In addition, we have 2 additional -- sorry, in addition, we have 2 components of [stock vested,] the amount of EUR 74 million that reflect, as I told you, the present value of the lease payment [table in the] lease term at the end of September 2019 according with IFRS 16 and the first drawdown of the revolving credit facility committed line for EUR 32 million required by the progress in the investment activities. I remind you that this credit facility committed has a total amount of EUR 325 million.

As you know, we are renegotiate these credit lines last year. The cash flows from operation of EUR 105 million (sic) [EUR 109 million] was offset by EUR 156 million in cumulative CapEx, mainly construction activities, partially mitigated by EUR 3 million related to the tax equity [strike] and minority contribution to equity in our U.S. and Norwegian projects. We also consider a negative contribution coming from the [valuation of premium led to the] exchange ratio [serving] slightly higher at the end of 9 months 2019, when compared with the end of 2018. Our net financial position was also negatively impacted from the EUR 6 million change in the fair value of derivatives.

Now let's look at 9 months 2019 EBITDA bridge. EBITDA increased from EUR 130.6 million in 9 months 2018 to EUR 147.7 million in 9 months 2019, which is the best 9-month results ever, as Toni said. We start considering 9 months 2018 EBITDA adjusted by the impact of nonrecurring transaction for EUR 7.1 million, reaching EUR 123.5 million. The EBITDA increase is the result of a EUR 5.9 million perimeter rise of assets due to the (inaudible) operation in U.S. solar plants in Massachusetts, 20.5 megawatts, and the acquisition of 56 megawatts of wind assets in France.

Prices were up EUR 5.6 million impact, as we already mentioned [accounting] ROC Recycle estimation, group sales price in the U.K., which including [Santi] and the energy captured price, up 4% in 9 months 2018 -- sorry, '19 versus the same period of 2018. Prices also included positive effect of better comprehensive captured price in waste-to-energy, increased by 14% in 9 months 2019 versus 9 months 2018, while the comprehensive captured price for wind in Italy was slightly below same period 2018 as already described by Toni.

Higher volumes increased EBITDA by EUR 3 million, primarily as a result of higher wind production in the U.K., thanks to a strong Q4 -- sorry, Q3, for a total amount of EUR 1.9 million and Italy for a total amount of EUR 1.6 million, as confirmed the positive trend occurred in first half 2019. [Offers] are better than in first half [2019,] mainly due to the [avoided] maintenance costs at Rende biomass plant occurred in first quarter 2019 and lower charges on O&M contracts renegotiated last year.

On service side, asset management, energy management and managed efficiencies show a positive trend, mainly due to the full consolidation of Energy Team results and increased results from Vector Cuatro. G&A and other costs are positively impacted by insurance [proceeding] liquidity damages [preceding] 9 months 2019, partially reduced by G&A costs to strengthen the existing structure.

Finally, our 9-month 2019 EBITDA is positive impact by [light] provision in the exchange rate due to the appreciation of sterling at the Euro from an average ratio of GBP 0.884 per euro in 9 months 2018 to an average of GBP 0.8835 per euro in 9 months 2019.

Let's turn to Slide 15. Nine months 2019 gross debt breakdown. Our gross debt, excluding leases and derivatives of EUR 764 million is made up of 90% project financing without recourse and this hedged at 77%. Our net debt, if we see the net debt now is at just [101%] due to the amount of liquidity, which, of course, is not hedged. These figures are slightly lower if compared to the same values showed during our last call due to the impact of the first drawdown of the corporate credit facility of EUR 32 million, as already mentioned in our previous slide.

As a further consequence of the corporate facility drawdown, the average interest rate is lower when compared with the 2018 figures, thanks to the [chief] financial condition of the committed credit line, a 3.62% interest rate includes an average of 3.70% of project financing costs, split into 1.61% of average margin over LIBOR, 2.03% of interest rate swap and 0.06% of floating rate. The Community Fincoop instrument pushed our average interest rate up slightly from 3.70% to 3.76%, while the good financial condition of the corporate loan allows us to reach the final amount in reduction, of 3.62%. The recent increase of the asset base in the U.S., give us the opportunity to show you the breakdown of our gross debt by currency, which is basically split between euro and sterling with a small but increasing portion dedicated to U.S. gross debt.

Finally, the project under construction in the Nordics and Spain for a total capacity of 102 (sic) [202] megawatts expected to progressively reach the COD between fourth quarter 2019 to the end of 2020, contribute to the gross debt for EUR 158 million, which is a [spread] expected to increase in the near future, and represent 21% of the gross debt. These debt related to product under construction, of course, does not produce EBITDA. That's why we present you these figures.

Now I'd like to turn to Toni for his concluding remarks. Toni?

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [4]

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Thank you, Paolo. So going back to the 2019 guidance, which I remind you has been prepared in order to be comparable with our industrial plan presented last year and the previous information that we have provided, and in accordance with the accounting principles applied in 2018 and with the exclusion of the new standards, effective from 1st of January 2019.

We are pleased to update and improve the guidance based on the positive impact of the first 9 months results, which were above our expectations. Therefore, when we look at EBITDA, the new number of guidance is EUR 196 million, compared to the previous EUR 184 million figure. The group net earnings goes from a value of higher than EUR 35 million to a value, which is expected higher than EUR 41 million. And the net debt goes from EUR 737 million to EUR 680 million, which reduces the original estimates provided.

In -- for the fourth quarter of 2019 forecast, of course, we have made a number of assumptions, which are essential for this guidance number of the full year. In terms of prices, we expect a recovery for the wholesale price in Q4, where we think with the full year price in Italy is going to land at about EUR 55 per megawatt hour. This is still not enough to be better compared to the 2018 full year price, which was EUR 61 per megawatt hour, and it is below our assumption of EUR 62 per megawatt hour.

In the U.K., we expect the wholesale price to reach a little bit of a recovery in Q4 and the full year amount should land at GBP 46 per megawatt hour, lower than 2018, where the full year stood at GBP 57 per megawatt hour, and of course quite a bit lower than our initial assumptions, which were for 2019, GBP 54 per megawatt hour.

In terms of energy production, the budget for the quarter is aligned with the index, although we know that to date, we have not performed in line with the index, but we remain positive. We have a slight improvement of exchange rate, which is at 886 -- GBP 0.886 versus the original number we had in mind, which was GBP 0.91, which was underpinning our previous guidance. Of course this is driven by the trend that we have recorded in recent months, and now we have only 2 months to go essentially.

Not a big change in terms of financial charges, in line pretty much with the amount accounted for in the first 9 months. Taxes, also in this case, the tax burden is we have assumed to be pretty much in line with the one adopted for the first half results of 2019. Net financial position is essentially better results in 2019, which improved our net financial position expectation. And also we have realigned the CapEx relative to the effective milestone payments expected for the plants in constructions in Nordic and Spain. And all of these, including certain other items that we don't think are going to materialize in 2019, drove down our expectation in terms of net financial position.

Of course, the guidance does not include -- and this is true every time that we give our guidance, potential impact of additional impairment and provisions that we would consider during the last quarter of the year, so it includes what we already know. It doesn't include what we don't know yet for the quarter.

As I said, we confirm at this stage that the plant in construction will go online by the end of the year. And therefore, they will start their operational phase and have an impact in terms of number, fundamentally, for next year in terms of production, and therefore, revenues and EBITDA.

In terms of the next events, we have updated a little bit the calendar. In December end, we will be at the ESN European Conference in London. January 16, 2020, we will be at the Mediobanca Mid Cap Conference. And then we will have, in the first half of March 2020, the full year results and Capital Market Day. So this year, we will have the Capital Market Day, together with our full year results. We will schedule the event in the first half of March, the exact date is -- needs to follow because we are looking at the location.

During the Capital Markets Day, of course, not only we will update on the full year results, which will be issued at the same time. But also, we will discuss our new industrial plan, which would provide you the visibility until 2023 in terms of targets and commitments that we take.

So at this stage, I'm very happy to take questions on your side, and thank you for your attention so far.

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Questions and Answers

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Operator [1]

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This is the Chorus Call conference operator. We will now begin the question-and-answer session. The first question comes from Dario Michi of Fidentis.

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Dario Michi, Fidentiis Equities S.V.S.A., Research Division - Analyst [2]

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I would like to ask you your help in order to better address the guidance. Firstly, as regards to the EBITDA, considering your fee exposure to the merchant, both in Italy and the U.K. and looking back at the last quarter of 2018, where you posted a EUR 61 million EBITDA, I'm wondering why you expect a reduction in the last quarter this year, considering the change in the perimeter of consolidation.

Also, the prices you mentioned for the full year 2019 are almost in line with those registered last year. So the first question is why you expect a sizable reduction versus last year's results in the last quarter. And then on the debt side, the reduction in the guidance you have just provided is mainly due to the lower cost you are facing for the new capacity?

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [3]

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So what we guided, the figures exactly for the prices in the quarter of last year. So give me just a few seconds for that because I don't have them handy. But as far as CapEx, no, of course, these contracts were locked in, in some cases, 1.5 years ago. So we're not spending less a significant amount, we're spending [EUR 300,000] less, but not that they affect -- we're certainly not over-budget, let me put it this way. But it wouldn't affect the figure of the net financial position.

The [March,] I think, the 2 contributing factors there are we had a better result and we need to take that into account. But also there were a number of things that we had besides the CapEx for the new plants, which we were planning as extraordinary items, which did not materialize in 2019, which have to do with potential payment for all -- for ongoing litigation, which I disclosed, of course, in our accounts, but you have to kind of position them at a certain time. And so we -- in our budget, we positioned some of them in 2019, but they will not happen.

And then there is also a timing on the new CapEx, which is quite important. In other words, while the physical construction is pretty much on schedule in terms of payments towards the subcontractor, the situation is actually not like that in the sense that some of the payments, we think will end up happening in the following year. So the -- if you want our original estimation was we complete and we pay pretty much everything in 2019. And now we are completing but some of the payments, in some cases, quite material will end up happening in 2020. And this is because it takes time to process the final milestone payments, agree on everything and pay with the subcontractors. And this is probably what affects the numbers by, I would say, the biggest amount. So this is probably the -- so it's a timing of payment relative to the ongoing construction, which is the biggest factor.

There was also another assumption we had to make for prepurchase of certain equipment in our budget. And we now think that we're still going to be prepurchase, and it has to do with the U.S. market. We're still going ahead with the prepurchase, but we might actually spend less than what we anticipated in our original estimation. So these are the main factors affecting the change. So I would say, for the most part, it's timing of current CapEx, future prepurchase of components for future CapEx and certain provisions from a cash-flow standpoint that we moved to future years and will not happen in 2019. As far as prices, we'll actually give the word to Paolo, which the numbers are clearer than me.

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Paolo Rundeddu, Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer [4]

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Okay. With reference to the last quarter last year, we have to remember that we have an increase in perimeter, so it's benefiting the results by around EUR 2.5 million. However, last year we had in the last quarter, strong production plus 8% versus our index, which accounts roughly for -- by EUR 5 million, EUR 6 million. Then we had some insurance, liquidated damages related to our plants was about EUR 2.2 million, EUR 2.5 million, and then I will remind you that last year, we had 7 -- sorry, this year compared with last year, we have EUR 7 per megawatt hour less in Italy, which worth at least EUR 1.5 million. Then with reference to the price in the U.K., they were slightly higher than what we expect for the last quarter.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [5]

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And just to complete on the -- I don't have the exact figure of what was the price in the quarter, sort of the average price in Italy for the quarter of 2018 versus 2019. But in general, we are running up [for] prices compared to expectation and to previous year. Now of course, we are hedged for part of that, but there is a component, which is still exposed to merchant prices and again, the -- I don't know what your estimated full amount figure is, but we estimate, an Italian price EUR 55, which compares to last year's full year price of EUR 61. So that is significantly less and again, our initial number where, for example, had an estimation of EUR 62 per megawatt hour. The differences in the first 3 quarters, in relative terms, were higher compared to the last quarter, because in the end of the year, there was a spike of the prices. So on relative terms, we cannot just replicate the effect that we had for the first 3 quarters in terms of price exactly to the last quarter, simply because it is exactly when sort of the increase happened last year as well. So we are still estimating an increase but not as much that we can just multiply by 1 quarter, if you want the price variance that we observed in the first 3 months. And for the U.K., it is actually even more pronounced because compared to our original estimate of GBP 54, we are actually running at GBP 44 on average price. And again, even in that case, the shape of the curve was as such that it was very pronounced towards the end of the year. If I'm able to recover, yes, while in this conference, the quarterly price of last year versus our estimation of this year, I will give it to you, and probably that would clarify a little bit better what I am just mentioning in a qualitative standpoint.

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Dario Michi, Fidentiis Equities S.V.S.A., Research Division - Analyst [6]

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If I may, sorry, probably I'm messing up, but if I look at Slide #9, I see that the captured price is almost in line to the one you recorded last year. And if you are projecting EUR 55 per megawatt for the last quarter, it means that the average captured price for 2019 would be EUR 148, which is in line with last year because it was EUR 149. And the same is more or less for the U.K., where I see a 4% increase in the 9 months. So the data you have collected for October, which probably are not right, but are pointing to an increase in the production in both in the U.K. and in Italy, and this is clearly at a system level. So you are expecting EUR 53 million of EBITDA in the last quarter, it was EUR 59 million, EUR 60 million, net of one-off last year, and you have the delta perimeter and so on. So just to understand if you are cautious, if you are projecting a reduction in the wind? Or if you can provide me the figure you got for October in terms of production, just to understand.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [7]

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I mean, on prices, let's park it for a second. I mean, other than saying, we are expecting EUR 55. I mean if the unhedged part is collecting a much lower number than last year, then the comprehensive price difference, which right now is essentially minimal will increase, however, compared to last year. I mean you'd agree with me in that. In terms of the EBITDA number, which, of course, one of the drivers is the Italian price, but not the only one, Paolo just mentioned EUR 7.2 million of negative difference that we have compared to last year. Paolo, I don't know if you want to...

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Paolo Rundeddu, Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer [8]

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Yes. Again, as I said before, we have EUR 5 million less volume, EUR 2.2 million less liquidity damages and we have plus EUR 2.5 million related to the delta perimeter.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [9]

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Another point I would like to highlight is that the comprehensive price includes, as I mentioned, also the margin that the energy management company performs -- achieves, I'm sorry, on the dispatching activity and balancing activity, which for the first 9 months was actually particularly good. We haven't replicated exactly the same performance for the rest of the year because we feel that, that performance was a little bit above what we would expect on a normal year. So there is a portion of the comprehensive price capture, a couple of million in there that probably as a prudent estimation for the last quarter of this year and that is also something that needs to be taken into account.

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Operator [10]

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(Operator Instructions) The next question is from Roberto Letizia of Equita SIM.

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [11]

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Sorry, if I go back to the guidance, but I'm actually a lot confused about the comparison with the strategy indication. So you're presenting now a net income target of more than EUR 41 million. But actually, it includes the provisions. So if I'm not wrong in assuming that a provision is -- does not generate [traction], correct me if I'm wrong. Actually, you're looking more than EUR 50 million of net income, which is not a 17% improvement, but it's a 40% improvement in the net income guidance versus the strategy plan. But while listening to the conference, I captured this point. So it's not the price because actually, the achieved price is below the expectation of the plan. It's not the production because the production is below the internal index. It's not the currency because you presented a very small change into the provision of the GBP. It's not the debt because the difference is only EUR 60 million. We generate only, I guess, EUR 1.5 million of lower interest charges. So sorry, but actually, what is going 50% better than the initial guidance? But for any contingency that you can -- that you put into the figures of the presentation of the strategy plan? But I'm not looking at the comparison year-on-year, which has less importance because I have the drivers on comparison, but I'm more interested in what was actually causing such a big difference versus the strategy guidance. Then I would also like to understand for the remainder...

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [12]

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Roberto, let's take this first question because it was long one, and then we'll take the other one.

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [13]

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Yes, Please.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [14]

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So if I'm just trying to replicate your reasoning. You're saying the EUR 41 million includes already -- what we already know. So of course, it must include the EUR 6 million provision, right?

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [15]

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I guess the write-off -- I guess, well, the provision, we usually have the provision. So I I'm not sure (inaudible)

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [16]

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The write-off for the 5 [indiscernible]

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [17]

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Yes. But the write-off is EUR 8.3 million, and I guess -- it's EUR 8.3 million but I guess it does not generate [traction], but I can be wrong, maybe Paolo can tell if it generates or not a write-off. So if I sum up the EUR 8.3 million to the EUR 41 million, you're actually looking versus the old planned -- your plan, more than EUR 50 million rather than more than EUR 41 million and the old one was EUR 35 million, this is a 40% difference. And if it's not the price, it's not the production, it's not the currency and it's not the debt.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [18]

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No. But why you say it's not the production -- I mean, not so sure I get the point about this it's not the production compared to last year? or compared to...

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [19]

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No, no, I'm not interested in the year-on-year comparison. I will try to explain a bit better. The year-on-year comparison is of less relevance for me. I'm more interested in what you expect and what were the expectation of the plan? When you presented in December, you had a power price assumption, which is worse today, but so it's not the production. So it's not the production because internally...

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [20]

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But it's slightly worse, right?

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [21]

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Yes. It's slightly worse, yes. It's not -- the production in per se because it's compared versus the internal index that you assumed at the strategy presentation, the production is lower. I guess, it's not the perimeter because we -- you're on track with the asset actually entering onstream. It's not the currency because there's no big impact here today versus what you were expecting on the strategy plan. And actually, there's only EUR 60 million difference on the debt, which, on a full year base, I guess, is only EUR 1 million on lower interest charges, but the increase in net earnings is relevant.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [22]

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Yes. So you're saying [it's relevant] (inaudible)

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [23]

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Was it a wrong assumption in interest charges maybe? The only things I can guess is that the expected interest charges at the beginning of the year are now much, much lower than you were originally expected. Or the -- I guess, it's not even the tax rate, you're generating such a difference.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [24]

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Okay. So I would divide up the question into what went better than expected compared to the original estimates. And then how does that translates into the net income assumption. Is it a fair?

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [25]

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Yes. That's a fair [indiscernible]

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [26]

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Okay. So let's try to, Paolo, maybe why don't you provide a bit of the figures that....

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Paolo Rundeddu, Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer [27]

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Yes, we have had less development expenses in the last 9 months. We have had higher capitalization of some of these development expenses because there were projects that were going [higher.] We had also less G&A due to the fact that we expected to spend more than what we spend. We had some positive impact on some insurance, as we said, claim that has been paid and we were not expected to receive them. We had some transaction with some, I would say, shareholders that we had for the Sicilian project. We have the repayment due to a substation in Spain. We have some other minor effect.

Remember, the exchange rate has been very good in compared with our budget. The exchange rate was 0.91 for the sterling while being GBP 0.88 and something 3 4, which, of course, the only this effect creating the first 9 months, EUR 2.9 million only the exchange rate better than expected. While the other 2 effects, that I said, was around EUR 11 million between DevEx, G&A in capitalization and other nonoperating items. So as you see, the first 9-month result has been extremely stronger than what we had last year. As you see, there are EUR 143 million (sic) [EUR 143.2 million] versus EUR 130 million (sic) [EUR 130.6 million] that we had last year. So this EUR 13 million is a difference that you had in the first 9 months. And why we had a very good 3 months last 3 month because as you -- as we told you, in the first 6 months, we were not able to post the revenues related to ROC Recycle. While now we have the information so we posted in the last 3 months.

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [28]

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Is there anything also below the EBITDA because everything you mentioned is within the EBITDA guidance so the [indiscernible] that's increasing the EBITDA.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [29]

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And just to complete, and recap, we also had things, which went worse than expected, which we have compensated. So for -- I'll give you one, the consolidation of the Julia portfolio started only in March, while in the Capital Market Day of last year, we expected that to happen in January 1. That alone is a couple of million less in terms of EBITDA, which, of course, we have recovered. I mean, technically speaking, because it was a locked box, we haven't lost anything, but it doesn't show as EBITDA, just to be clear.

The other thing, of course, that is also negative relative to expectation is overall volume. So when Paolo says -- if I look at the comparison of our expectations versus where we are, excluding the IFRS, we're probably EUR 12 million above. There are 10/11 of things that went better, and then there is a bunch of things, out of which some went better and some went worse. For example, we have a timing effect on OpEx, which in the 9 months is quite material. So we have spent, say, EUR 3 million less in terms of OpEx, but some of which is only timing. So in other words, we will spend in the next month. So just to complete the picture, because Paolo, of course, stressed the things that went better. I just wanted to say there were also things that went worse. (inaudible)

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [30]

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Am I correct in saying -- am I correct as a starting point, just for the sake of my thinking is, am I correct that actually the underlying guidance compared with the EUR 35 million is more than EUR 50 million because there is the EUR 8.3 million write-off that should be -- should not be tax deductible? Is that correct?

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Paolo Rundeddu, Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer [31]

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No. I will finish the answer, and then also answer your question. First, what I was saying was related to EBITDA, that we referenced to below the EBITDA, we had EUR 2.2 million less of financial charges because when you compare 9 months 2019 versus 9 months 2018, you see the financial income are the same. But if you take out the IFRS 16, there are EUR 2.2 million savings. Then our tax rate is much better than expected. We expect around 3% less tax rate, which are benefiting. Then the write-offs are -- with reference to the panel are fully tax deductible. And please consider that since you are writing off and taking out physically the panel, you immediately reduce your tax income while previously, you have to amortize it. So this is a full benefit of tax.

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [32]

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Perfect. So basically, there was only less than the EUR 8 million but still the EUR 8 million remains. So if I want to compare it with the main -- more than EUR 35 million, I should think that this is more than EUR 45 million, say, taking only half of the EUR 8.3 million write off.

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Paolo Rundeddu, Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer [33]

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If you want to consider this fine, but please consider that if we consider this in addition...

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [34]

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No. But I need to look at next year. I need to look at next year, so it doesn't matter that you have the EUR 8.3 million write off, I need to understand what's the net income of next year. And if I take the guidance at EUR 41 million, I would be wrong because if I have to make next year onwards estimate, I should make it a reference, at least EUR 45 million, which exclude the net...

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [35]

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Roberto, this is why I was very precisely in my speech to say that the EUR 41 million includes the things that we already know. It does not include what we don't already know. And this is exactly because I wanted to be precise on the guidance in order to provide you a good [business.] I think your point is absolutely well taken. And in the sense, it confirms what I said is just the tax effect, probably that Paolo was pointing out. Is not as simple as to consider that everything is sort of without a tax effect because it has a tax effect. And it is also fair to say that when we said -- when we look at the -- our performance today in terms of EBITDA, and we translate into net income, of course, the effect on net income has been even better than -- in terms of guidance compared to the performance we are having on the EBITDA in relative terms, which I think was one of your points, which was, if I got it right, essentially, EUR 12 million better EBITDA guidance, while net earnings, if I correct for the one-off items, it is better than that. So the point is, yes, we agree. Just don't add up the write-off as it is because you need to do some minor tax consideration to it.

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [36]

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I assume I can -- all the things you mentioned that actually highlights a better underlying operational management of the group and also financial management of the group. I guess I have to put the difference also on the next year's strategy guidelines, maybe because I don't see -- actually, in your words, I don't see any reason why I should not increase the whole curve of the results for the same achievement of this year also to the next years? And then my last question, if you can just update on possible project that may arrive in the next 2 years.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [37]

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Sure. And I mean, of course, guidance for 2020, we will discuss in-depth in the Capital Market Day. But I think you bring a very good point, which is that one of the main factors that Paolo mentioned out of that bucket of the EUR 10 million, EUR 11 million better-than-expected that we had in the first 9 months, he mentioned development expenses. I mean, that changes things quite a bit for us. So we always have to remember that in the future because we now are running a budget -- the previous figure that we provided you was we're spending EUR 50 million, EUR 60 million every 4 years in development expenses. That does translate into a significant amount every year, just average it out, you're talking about EUR 15 million of cash that we spend in development. And whether or not we are on timing with that expenses can change the numbers quite a bit. So my point to you would be next year, of course, we will have to make an assumption about how much we spend in development, which will affect the number.

Another important element for next year will be the prices because we are working on the hedge strategy for next year, but prices are lower than what we expected, not only for 2019, but they might be lower also for 2020. We haven't finished the hedging strategy. So I cannot tell you what is the number because I don't have it yet. And there was a moment -- so we have a progressive strategy. So we hedge time over time. We don't hedge 1 day, so that is another important assumption. And then also, there are always those things, which are difficult to forecast like insurance reimbursement and so on. But to give you an example, I mean, the underperformance of IS 42 because of the hurricane and so on, did create a significant reimbursement for us this year, which will not happen next year. Of course, we will have the better performance of the plant, but the insurance claim was paid.

And then also in our forecast, please keep into account that we are estimated -- we have estimated the figure on ROC Recycle, okay? But there is still a fair amount of volatility on that estimate because the ROC Recycle has 2 moments in the year, let me say, when it gets settled. Right about now and I think today, we had an initial information from Ofgem about the value. And then there is a [sub] payment that arrives in January. Now that sub payment is -- it's even more difficult to predict, and it is a number that usually was very little. We're actually assuming that it might -- it will not be as little as it has been in past years. We might be proven wrong. So this will affect, for example -- and it does affect our estimate for 2019, but it will affect -- ROC Recycle estimation will affect also 2020. So we'll have to come up with something. The volatility of the ROC is extremely high. It went from years when it was 0, the value of the recycle, to years where, as in our current numbers, we are estimating about GBP 8. So next year, what will be the number? We need to see, right? It's not -- GBP 8, I mean, basically, GBP 8 million in EBITDA, roughly speaking. So it's a big number and changes things.

So your point, I all agree with your points. I mean first, we'll do our best to provide the most accurate guidance at the time we have it. But our business, the more we invest also in the development part the less it is just the sum of the assets and the prices. The more it is a variable that is the development expenses, which are predictable always up to a certain point. On your final question about -- I cannot comment specifically on sort of transaction ongoing also because if we did have something material, of course, signed and we would have communicated, but we are generally speaking progressing on the greenfield development part. And for sure, we are spending what we thought we would be spending when we looked at overhead, people that are working in terms of our -- we have the right people and the number of people we wanted to have in our development group. What sometimes is -- falls short of expectation is the development expenses on the projects, just because I think you always take a little bit longer in terms of regulatory process and so on than what you expect, so you end up spending also less, which doesn't mean you will not spend, but you will just spend in the future, essentially. And we continue to look at a number of opportunities also in terms of nonorganic growth. We continue to keep an eye for that also because the market is always very flush, if you want, with opportunities. So it will be a mistake not to look at them. And so as soon as we have updates, of course, we will communicate them. But it's early for me to say on what is more likely or less likely to happen over the next months.

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Operator [38]

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Our next question is from Emanuele Oggioni of Banca Akros.

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [39]

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I have one. As regards the revamping projects. Do you have -- are you looking for new revamping projects in solar, wind or reblading and repowering, et cetera, in which regions and for how much capacity, if you can tell something? Then the second one is on the PPA with the Shell Energy Europe in the U.K., you didn't disclose the duration and the price structure. Could you give us some [size and] more color on that? And as regards, the hedging policy, you already mentioned it is too early. So it's fine. Okay.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [40]

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So in terms of Shell, it's a short term. The plan, however, and this is -- we have already mentioned it several times is over time, to have our own dispatching capability also in the U.K. so we think this is a core competence, which is actually fundamental to be able to deliver our final customers. So while we are pleased to work with companies like Shell, over time, we will build, especially in the U.K., where we have 1.2 terawatt hours [net] capacity. It takes a little bit of time. You have to take licenses, qualified people and so on, we are going through the process and we'll continue to do so. Whatever we do on the PPA side is -- and these are, by the way, PPA technically speaking, that they don't offer unless you wanted a fixed price. They are floating prices. Essentially you trade -- these are negotiated on a discount over the wholesale price. Millennium is same because we also announced Millennium is the same thing. The benefit of these most recent deals was that the discount that we negotiated with this counterparty was, of course, is lower than the original PPA, which was an [EDS] PPA negotiated back in the day, which provided a big advantage to them essentially, but that's what it is.

So if you want, these PPAs are not the PPAs for the grid parity projects, right? So the grid parity projects will be articulated on the basis of fixed or not so variable prices, so predictable price. And the one to date that we have closed is the one on Carrecastro, which we announced, the Holaluz PPA, which is a 7-year PPA in Spain, and that covers 70% of the output of Carrecastro, which will go online at the end of the year. So that falls more into the category of sort of what is needed to finance and -- or to hedge the power exposure for new projects. PPAs [of small] projects we will end up not financing it because for 10 megawatts, probably it's -- the cost of the transaction. To put project financing space is more than the benefit. Nonetheless, we thought it was important to transact with a PPA, and we did so. Now, we also picked very selectively Holaluz. Holaluz is a company that is a supplier on that project that has a particular strategy. Their strategy vis-à-vis the customers is not to go only on a price battle, right? So the -- first of all, they are a supplier that provides only renewable power, certified renewable power to their customer. And they also try to incentivize energy efficiency. So we also like the business model besides the commercial conditions, but it was important for us to align also a supplier who's in our view, vision was clean power. It's not about the price. It's about the savings as well, and that's what they do. And that's why we did it because technically speaking, we did not need to do it because of financing purposes.

From a repowering standpoint. So I think that our view is always, we start from our assets. And we actually have done something that was a little bit unconventional, if you want, because instead of looking first at the assets, which have already the longest life, stuff like our Spanish project, for example, we have actually ended up concluding that it was better to look at assets, which were younger but needed more where the performance improvement was higher like Spinasanta. And for us, the next step is what do we do about the other 2 6-megawatt plants in Sicily. And we do not have a final conclusion, otherwise, we would have announced it, but that's the next step.

The other step is, okay, because the methodology -- and the methodology has been quite elaborated for [Spinasanta] that involved also partnering, working with the Politecnico di Milano, testing panels, conducting sort of run tests at the facility with clusters of panels and so on. I don't want to go through the technical details. But we have elaborated our methodology. Now we think that this methodology could be used by Vector to do the same essentially on other owners. Whether that will end up, and that would be another step, providing us with an opportunity to deploy capital, okay, for projects that we do not own, it's yet to be seen. It could be. I mean we would be pleased to do that if -- but we have not identified a customer that is willing to transact on that point.

But I personally see the opportunity of revamping more on solar at this stage in Italy rather than wind because the installed capacity of solar that is underperforming, I think, is probably much bigger than the capacity of wind onshore that is underperforming, because when you're looking at wind you're essentially looking also at the -- only at the very old plants. While on solar, essentially, if you look at pretty much everything in the next 3, 4 years, might have already technical problems. That makes sense in terms of revamping. So strategically, that's where I would like to look first. Having said that, however, we are also working on our Spanish project to understand whether in that project, some sort of revamping might make sense and that looking at the blades would be a good place to look at. And again, we are running a few analyses and tests. And in general, the markets like Spain, the Netherlands, Italy, the ones with the older -- some of the older, so U.K. wind farms are the ones where we can look. Now whether this becomes a stand-alone strategy that we are going to provide specific targets and guidance in terms of capital deployed, megawatts on and so on, we are not at that stage. I -- we'll think it through over the next months. And I appreciate also, many times, the input that we have had in these discussions in that direction, but we're not ready yet to spell out a target from that standpoint. That remains -- but let me say we are advancing from a technical standpoint and analysis standpoint, which I think would be one of the elements for us to be credible if we spell out the strategy in that direction.

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Operator [41]

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The next question comes from Paolo Citi of Intermonte.

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Paolo Citi, Intermonte SIM S.p.A., Research Division - Research Analyst [42]

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I have 2 questions. The first one is a very quick 1 on the CapEx guidance. If you can give an update regarding the full year figure compared to the EUR 154 million you recorded in the first 9 months of the year. And the second question is on the wind sector outlook, generally speaking. We have seen in the last few days 2 sort of profit warnings from big players in the sectors. First of all, Ørsted highlighted a few days ago, expectation of lower production for wind farms, and particularly for offshore wind farms, mentioning blockage and the wake effects that could, in a certain way, impact the expected production for wind farms. And just a few days ago, Gamesa on the other side [announced 5 specials] for wind turbine manufacturers. So my question is, now that you are updating your business plan are you considering potentially a slightly lower load factors for wind farms, also onshore ones? First question. Second, on the price side, are you witnessing some price reductions for wind turbines?

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [43]

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While we recover the figure on the CapEx. I mean, the onshore wind industry already had a similar moment at the end of the year 2000, around 2008 2009, if I'm not wrong, when essentially, there was across the industry reduction of estimates because of how basically wind was estimated and sort of which kind of sensors were used and taking into account certain types of effect. And at that time, that led to a 5% or 6% decrease in every P50 estimate you had in the industry for new plants, right? So in a way, the onshore industry is a little bit ahead. It has a bit more history. And there's been already a couple of times where things have been structurally, if you want, resized in terms of expectations. Now when it comes to our operating assets, so in terms of new assets, if you want, part of that and I hope all of it, but nobody knows what's in the future, but I think we have already learned. So the new estimates include as far as we know, the most updated evidence, if you want, on wind generation.

For the operating assets, of course, our methodology is a methodology where, over time, we substitute the original P50 estimations with a rolling average of the past performance, and that happens in our models after year 5. So I would say for the majority of what we have when we provide an index that reflects not the original P50 estimation, but it assumes a certain -- the history of the past years. Then we do assume that we're going to do things to improve slightly the performance, but we're talking about very small percentages over time that do not change completely the picture. As a matter of fact, the nonwind or solar-related variances that we have in our portfolio are, indeed, relative to things that are in the category of exceptional events like the flooding, like the curtailment and stuff like that.

So it's a fairly long answer just to say onshore has already been there. So I think we have a little bit learned. Of course, we don't know what's -- we don't know -- I mean, if there's something we don't know that we haven't learned yet based on the data, it's difficult for me to say. But I'm not aware of any -- at this stage of any systemic issue, if you want, in the way [indiscernible] estimated and on the operating portfolio, we simply don't have that because we take the original [bit.] When it comes to wind turbine suppliers, my impression concurs that on the fact that probably in Europe, there's a lot less ongoing in terms of -- with the exception of Spain, I would say, there might be a little bit less ongoing in terms of construction. And I wouldn't be surprised that the demand is lower. This could be a good moment to negotiate, but you need to have a project to negotiate and whatever is already in construction contracts were already locked in. So -- and that would be essentially applying for -- applicable to new wind farms. So it comes back to one of the issues we'll discuss in the Capital Market Day, which is a how much wind onshore we're going to plan in the future years and how much solar we're going to have.

Having said that, also for solar, prices are continuing to come down in Europe. If you listen to the figure of the specialized solar manufacturers -- I'm sorry, solar developers, the likes of Solaria and so on, they are now looking at prices, which are EUR 0.5 million per megawatt or even less. So I think it's a good moment for panels as well with the exception, of course, of the United States, where the situation is completely different. And the tariffs, the uncertainty over the China trade situation is pushing prices up. And it's certainly in a completely different price spot relative to Europe on a CapEx per megawatt standpoint. So point being, yes, it could be a good moment, but you need to have a project. So we -- I don't see us closing any turbine supply agreement in the next 2 months between now -- new turbine supply agreement in the next 2 months between now and the end of the year. With respect to the CapEx question, Paolo will take it and do the build up, I guess, from the..

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Paolo Rundeddu, Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer [44]

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Yes, with reference to CapEx, which means all investments and the acquisition of materials. We expect a figure, which can be between EUR 60 million and EUR 70 million.

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Paolo Citi, Intermonte SIM S.p.A., Research Division - Research Analyst [45]

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In the last quarter?

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Paolo Rundeddu, Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer [46]

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Which is included in the [debt].

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [47]

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In the last...

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Paolo Rundeddu, Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer [48]

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Yes, yes, of course,

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [49]

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Which is what we have used, of course, for the net financial position [indiscernible]

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Paolo Rundeddu, Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer [50]

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I remind you that during November, there are payment of taxes, of course. So the net working capital is different in the last quarter of the year.

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Operator [51]

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Mr. Volpe, at this time, there are no questions registered, sir.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [52]

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all right . Thanks a lot everybody.

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Paolo Rundeddu, Falck Renewables S.p.A. - Corporate Accounting Documents Officer & Compliance Officer [53]

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Thank you, bye-bye.

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Toni Volpe, Falck Renewables S.p.A. - CEO, GM & Director [54]

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Good night.