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Edited Transcript of IRE.MI earnings conference call or presentation 31-Jul-19 3:30pm GMT

Half Year 2019 Iren SpA Earnings Call

Torino Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Iren SpA earnings conference call or presentation Wednesday, July 31, 2019 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Massimo Levrino

Iren SpA - Financial Reporting Manager and Manager of the Administration, Finance & Control

* Vito Massimiliano Bianco

Iren SpA - CEO & 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

* Roberto Letizia

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

* Roberto Ranieri

Banca IMI SpA, Research Division - Research 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 Iren First Half 2019 Results Conference Call. (Operator Instructions)

At this time, I would like to turn the over to Mr. Massimiliano Bianco, CEO of Iren. Please go ahead, sir.

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Vito Massimiliano Bianco, Iren SpA - CEO & Director [2]

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Thank you. Good afternoon, everybody, and thank you for attending Iren's first half '19 result presentation.

Starting from Page 2, the graph shows the contribution to EBITDA increase of each business unit. The first half is impacted by the absence of the extraordinary positive contribution of white certificate sales reported in '18 equal to EUR 60 million and the expiry of green certificates on Pont Ventoux and Bussento hydroelectric plant for EUR 22 million. Out of EUR 32 million expected on this year and no longer payable. These negative elements are partially offset by the recognition of balances on energy certificate for roughly EUR 15 million included in the energy business unit.

All the strategic pillar have contributed at the operating margins increase. The growth in networks and waste is led by organic growth for EUR 11 million related to the investments supporting RAB growth and to investments in waste activities, collection and treatment development.

Finally, also the energy efficiency investments are starting to contribute for EUR 5 million in the energy business unit.

Referring to M&A. Contribution stands at EUR 9 million. Remembering ACAM, which is worth EUR 6 million and it has already been reported in the first quarter. The increase is due to the operating results of San Germano in waste sector and to the contribution of Spezia Energy Trading in the market business unit.

Concerning the contribution of '19 M&A transactions, we have the visibility to improve our forecast providing a contribution in 2020 at EUR 10 million, EUR 12 million from EUR 5 million, EUR 6 million in '19. Synergies are continuing to follow the path indicated in the last business plan and we are confident to reach the target. In addition, farther synergies opportunities could arise, thanks to the latest external growth transaction.

As far as the energy scenario is concerned, it's important to highlight the factors that influenced this first half. The lower energy production from the renewable sources has widened the market opportunities for cogenerative and thermoelectric power plants with positive impact on volumes and spark spread. Indeed, we confirmed the [scenario of normalization] plan and that's been led by the high spark spread combined with lower contribution from MSD when compared to last year. The climatic effect reported in second quarter had different consequences on the energy value chain. On one hand, the lower temperatures recorded in second quarter has allowed us to partially recover the volumes of heat distributed. On the other hand, the shortage of the rain has reduced the volumes of energy per user from hydroelectric source.

Concerning the line below the EBITDA, the results have been impacted by an increase in depreciation due to higher investments in all the business units and the inclusion in the scope of consolidation of ACAM and San Germano. It's important to highlight that if we excluded the energy certificates from '18 results, the net profit has grown close to 20%.

Let's start with the business unit section with the network sector, Page 3, which during the first 6 months of '19 reported a growth in EBITDA of 7% depending on several effects. First of all, the consolidation of ACAM equals to EUR 5 million related to the lack of the company in the first quarter '18. This impact is in line with yearly contribution expected to be around EUR 22 million in the water cycle.

Secondly, the organic growth of EUR 4 million, thanks to the increasing RAB, plus 4% compared to full year '18 supported by the important investment made in previous years that have allowed the company to increase the regulated revenues.

Finally, the water business have benefited from EUR 2 million of synergies achieved, thanks to the continuing implementation of the performance improvement initiatives.

On top of this, the positive trends in investment continued mainly for water and the electricity network in line with the growth prospects outlined in the business plan. The larger investment are allocated to improve the resilience of energy infrastructure and to reduce the leakage and increasing efficiency of the water system. As far as the outlook is concerned, the positive trend reported in the first half of the year is expected to persist also in the second half. Likely, positive balance as in the past will look over the second half of the year, the impact of this balance could be significant even though they're not yet quantified.

Moving to waste sector, Page 4. The 14% growth reported in EBITDA is related, firstly, to a better disposal plant saturation; secondly, to higher prices of waste treated in our plant; and lastly, to the increasing collection margins related to door-to-door extensions. For these reasons, the organic growth reported in the first 6 months is equal to EUR 5 million. On top of this, we have to consider the contribution coming from consolidation of ACAM and San Germano for approximately EUR 3 million.

The investment increase around EUR 10 million is aimed to increase the collection services mainly widening the waste collection fee supporting also the extension of door-to-door collection system. This way made possible to achieve the 66.2% of sorted waste collected plus 2% better than compared to full year '18.

As far as the outlook is concerned, the results are expected marginally better than '18 due to the consolidation process and the disposal plan situation that would be partially offset by lower plant availability because of maintenance. It is important to point out that according to our business plan assumption, we are carrying out the activities and the authorization processes for new plants that will start contributing at the end of '21 onwards. Most specifically, we are working to complete the waste treatment cycle in group's plants. In this context, the last 2 transactions, FG Ferrania and Territorio E Risorse will lead the goal to increase the volumes of organic fraction treated. In addition to purchase of 2 existing plants, we are working to obtain the authorization for the construction of other 2 plants for treatment of organic fractions, 2 plants for paper and plastic treatment, and a plant for wood recovery and production of pallets.

Moving to Page 5. It's important to point out that the negative result is affected by the nonrecurring positive elements occurred last year. Stripping out to the -- stripping out the non-recurring elements, the result would have been positive because of the supportive energy scenario. In more detail, it's important to take into account the sale of white certificates for EUR 60 million reported in the first half '18, the majority of which related to the completion of energy titles for previous years linked to district heating, the expiry of the last green certificates concerning Pont Ventoux and Bussento hydroelectric plants for roughly EUR 22 million out of EUR 32 million for the full year.

On top of this, other plants have been benefited by positive balances concerning the energy certificates valorization for approximately EUR 15 million. The latest are related to balances on energy certificates recognized annual debt over the first half has been of significant magnitude.

Stripping out the impact of energy certificate, the operating results has been: The hydroelectric generation has suffered the lack of rainfall in the first quarter and the consequence have been tangible in this quarter where the production has been lower compared to last year for an amount equal to EUR 7 million. As of 24, the cogenerative and thermoelectric generation reported a positive result of over EUR 10 million compared to last year, thanks to higher volumes due to the lower contribution of the renewable sources in the market and higher spark spread with the recovery of EUR 5 megawatt hour compared to last year. The contribution of MSD markets stands at EUR 28 million in reduction compared to last year when it was particularly relevant for about EUR 40 million.

The heat generation has partially recovered to the climate effect reported in the first quarter '18 that's now widening for only EUR 2 million. Thanks to the higher heat volumes distributed during the quarter. In addition to this, the heat spark spread has farther increased, thanks to a lower cost of gas. Special mention is necessary for energy efficiency sector that's reported a positive result for EUR 5 million. Combination of synergies and organic growth, thanks to the development of building energy requalification project and the management of public lights and traffic light.

As far as the outlook is concerned, we are confident that the energy scenario reported in the first half, will persist also in the second half of the year and that the results would be in line with last year recurrent EBITDA of roughly EUR 270 million. Recovering the negative impact of EUR 32 million green certificates expiring this year.

The last business unit to examine is the market sector, Page 6. Despite the negative operating margin recorded, it is important to underline the elements that allowed partially recovered compared to the results of the first quarter. As far as volumes are concerned, in gas sector, we reported a reduction of gas sales of roughly EUR 4 million in the first half due to the mild temperature. Regarding the electricity, the higher volumes sold are mainly linked to the new small business portfolio.

Concerning the margins reported in the first half '19, on the electricity sales, we are recovering and according to the trend, the profitability suspected to turn positive by the end of this year. On gas margin instead, we have benefited on the reduction in gas cost improvement recovering about EUR 2 million compared to the first quarter. It's important to highlight that in order to cope with high scenario volatility of this year, we have put in place a conservative hedging policy not allowing for getting market opportunities on uncovered volumes.

The higher investment has been made to increase client base to our commercial activity in particular, pushing into digital channel. This policy have allowed the increase in our customer base also in second quarter, on the right path to reach 2 million customers in 2023. Furthermore, the investments are the result of a customer loyalty policy basis on sale of high value-added products with the aim to reduce the churn rate also in a future perspective of fully market revalidation in which the customer base scale would be one of the main success factors.

As far as the outlook is concerned, we expect a full year '19 results in line with the last year recovery in the contribution of nonrecurring element reported last year for about EUR 8 million. We are confident to reach a target of approximately EUR 100 million, thanks to our recovering margins mainly in the electricity sales. Indeed, the repricing and the hedging policy are starting to improve the result with the major impact expected over the last quarter.

Now I hand it over to Massimo Levrino, the CFO of the group, for comments on financial performance of the company.

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Massimo Levrino, Iren SpA - Financial Reporting Manager and Manager of the Administration, Finance & Control [3]

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Good afternoon, everybody. We are going to Page 7. The chart shows the results from EBITDA to net profit. EBIT stands at EUR 257.7 million. You can see a decrease of EUR 57.3 million. A reduction -- (inaudible) decrease of EBITDA. This is due to the growth on depreciation and amortization and other items for EUR 29.2 million of which EUR 22 million related to the increase of depreciation are linked to the growth of fixed asset to the extension of the scope of consolidation to the company ACAM and San Germano and to the IFRS 16 accounting standard application. The other items rose by -- rose and are provision for industrial activities and impairment on assets.

Provision to bad debts stands at EUR 16.8 million. This was stable. We confirm that the forecast of the provision for bad debt for the full year should be roughly EUR 40 million. EBT stands at EUR 234.4 million. The reduction of EUR 50 million is compared with the first half of '18 is lower than the reduction of EBIT. The reason is positive contribution of the financial charges for loans and bonds that stand at EUR 32.3 million and they decreased by EUR 1.7 million. This increase was due to the lower cost of financial debt from 2.9% to 2.5% that was partially offset by the increase of the energy financial debt. The net profit of the company consolidated, we'll be using the equity method, stands at EUR 4.7 million. The increase was EUR 3.9 million and is due to the growth of the net profit of some of the company consolidated.

The net profit stands at EUR 150.7 million. It has a decrease of EUR 18 million but excluding the effects of certificates and net profit would be up by roughly 20%. The tax rate was about 30% and we confirm the same tax rate for the full year. Minority was EUR 13.7 million, otherwise increase of EUR 1.7 million.

Now let's move to Page 8. You can see the cash flow and the net financial position. The net financial position at the end of June '19 was a slight increase of EUR 12 million from EUR 2,453 million to EUR 2,475 million (sic) [EUR 2,465 million], without considering the effect of the IFRS application -- the IFRS 16 accounting principal that has a significant impact of EUR 105 million. Excluding this accounting effect and excluding the purchase of treasury shares, the net financial position would have been substantially in line with the figure at the 31st of December 2018.

I'd like to focus on the cash flow that had an increase of EUR 16 million compared with the previous year. An important contribution comes from the net working capital that showed an improvement of EUR 62 million. The investment -- the total investment was EUR 197 million compared to the EUR 164 million recovered in 2018. The increase is by EUR 33 million. The consolidation process in particular the acquisition of San Germano for EUR 30 million and Bussento for EUR 4 million contributed to the growth of the financial debt for EUR 34 million.

Again, EUR 8 million is the cash out for treasury shares that are starting on the 14th of May, and we purchased 3.7 million of shares. The mandate is to execute the first tranche of the buy-back program for a maximum amount of EUR 20 million to be completed within 6 months.

The dividend were EUR 150 million compared with EUR 113 million recorded in 2018. The increase of EUR 37 million due for EUR 18 million to shareholders, the remaining increase of EUR 19 million is an extraordinary dividend of the company going up to the shareholder as to have that as a stake of 40%. And it is one-off according to the agreement signing some years ago. Derivatives had a negative impact of EUR 57 million. In detail, derivatives affected negatively the net financial position for about EUR 40 million in the same way the commodities derivatives contributed to Iren financial debt to EUR 42 million.

Going to Page 9, you can see the interest rate and the debt structure. There are no significant changes compared with the third quarter. The first pie chart on the right represent the breakdown of the gross debt. As you can see, on the 11% of the gross debt is at the variable rate, the remaining 89% is at fixed rate or hedged with swap. The average duration of long-term debt is 5.3 years. It was 5.5 years in 2018. The cost of debt, I already mentioned it, it was 2.5% instead of 2.9% in the previous year. The reduction, of course, is thanks to the liability management we did the last year. It is slightly better than our expectation.

The second pie chart in the right represents the breakdown of the debt structure. The pie shows that the Iren total gross debt is formed by bond for 67%, the same percentage in the first quarter was 56%. The other financial source is EIB funds for 20% and loan from banks for 13%. At the end of June, Iren subscribed to sustainability linked revolving facility for a total amount of EUR 150 million that support the rating level and there are penalty or premium mechanism linked to the achievement of specific environment goal. Few days ago on the 29th of July, Iren assigned with EIB new loan of EUR 120 million to support initiative in the hydroelectric production sector and in the environment sector.

In addition, even as the -- still the availability for EIB fund of an amount of EUR 150 million. All these loans from EIB have a maturity of 50 years amortizing.

Now I hand it over to Mr. Bianco for the closing remarks.

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Vito Massimiliano Bianco, Iren SpA - CEO & Director [4]

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Thank you. In conclusion, I'd like to remark the following main elements. All the strategic pillars of our business model are contributing to the company goal. The strong cash flow generation and the financial flexibility achieved led us to accelerate the investment and conclude small transaction according to the financial sustainability.

Despite the remarkable growth, the investment increase is not yet fully reflected on the current profitability as we have started last year to carry out relevant project with the aim of enhancing organization and processes in light of a larger business gain.

Finally, our expertise on integrating new companies in our business model makes us confident to successfully cope with the new development cost combined with the size increase, which are according to this year and the next one.

Having said that, in light of the positive results achieved in the first half of this year, we improve our expectation of full year '19 result. EBITDA at EUR 900 million, investment at EUR 570 million and net financial position to EBITDA ratio at approximately 2.9x.

Thank you for your attention and now 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) The first question is from Enrico Bartoli with MainFirst.

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Enrico Bartoli, MainFirst Bank AG, Research Division - MD [2]

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First of all, I have a question regarding the power generation market. If you can give us some flavor of what you see in June and July, the first 2 months of this quarter, and particularly if you see an impact in positive way from the high temperatures and the shutdown of some nuclear plants in the recent weeks. So if this can be also one of the driver of the increase in improvement in your guidance for the full year?

Second question is regarding the district heating. You highlighted that you had some benefit in terms of higher margins from low gas prices. If you expect this actually to continue, particularly in the fourth quarter and if this is already included in the updated guidance that you have provided?

The third one is related to M&A. If you can give us some updates on the discussions on CVA with region of Valle d'Aosta and on Sorgenia, particularly on Sorgenia if you can give us some details on the strategic rationale or your interest in the company and when you would expect the process to be completed?

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Vito Massimiliano Bianco, Iren SpA - CEO & Director [3]

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Thank you, Enrico, for your questions. So I start from your third question about the M&A. On [CVA] right now, we don't have any update. As everybody knows, we presented, let's say, an update in our letter of interest for them at the end of May, the beginning of June, started from that point, the regional government didn't pass it at all, but it is known that right now that the political situation in the region is not pretty clear in terms of the -- let's say, a long-term perspective for this government. So at the moment, we didn't receive any answer. I think mainly because right now they aren't in a better situation -- in a good situation to take into account this kind of decision. As well, other decision that are related to CVA right now are in standby, including the appointment of the new board that aimed in the spring of this year. So we do not expect any update in the short term. We are, in any case, confident that our proposal will be considered when they will start to approach CVA issue for the strategic view that they would led.

About Sorgenia, we did the nonbiding offer and we are awaiting the decision of the banks about the process. What we can expect is hearing some news in the next days about the shortlist. Our proposal was indeed a serious proposal because we think that we can have a strategic -- a very, let's say, consistent strategic combination with them because they have a very interesting generation fleet that we expect is synergic with our approach in the market over the generation and as well in the market they performed very well in creating a platform for, let's say, a digital development of client in the supply business. We are doing the same and we think also in this case that it is very in line with our strategy. So we can expect that the combination can strongly accelerating our strategy in both businesses. Of course, right now, we don't know if we will be in the shortlist, but we are confident that our proposal is very serious. About the market condition in power generation looking at the last weeks, for sure, the starting from the second half of June, we saw a better situation with the increase of temperatures especially at the end of June and beginning of July, so of course, this will head until the end of June and will have in the third quarter, a positive contribution both in terms of spark spread and MSD. As we said at the beginning of the year, we hedge a significant part of our portfolio and of course, this hedging strategy includes our expectation in terms of generation. So we will have a positive impact, but that it's already included in our guidance because of the hedging policy we put in place. And we can say that it's something similar for the strategic expectation on full year basis. Of course, we are benefiting from a low cost of gas in terms of thermal spark spread, but any case also this was included in our hedging policy so we are performing well. We expect to perform well in the 4Q, but if we will not see a significant volumes because of temperatures in the 4Q, we will not have a significant upside because of this. So also this is already included in our guidance.

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Operator [4]

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Our next question is from Javier Suarez with Mediobanca.

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Javier Suarez Hernandez, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [5]

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I have several as well. The first one is on the guidance that has been improved from previously EUR 880 million to EUR 890 million, now to EUR 900 million around that number. You can explain as the single -- the single reason why the guidance has been improved. I know that may be there are plenty of different moving pieces, but it will be interesting to understand the reason why you increased your guidance between EUR 10 million to EUR 20 million at this stage? That will be the first question.

The second question is on the supply market. During your presentation, you mentioned that you're expecting for a recovery on the electricity margin during the second half of the year. You can explain as the reason why you're expecting that improvement on the electricity supply market when the environment is arguably more competitive?

The third question is on the Waste Management business. I think that you mentioned during your presentation that there are several approval processes that should be get by 2021. If you can update us on how relevant those authorization process for the waste management business could be? And how the saturation in the plants is affecting your business in between?

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Vito Massimiliano Bianco, Iren SpA - CEO & Director [6]

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Thank you, Javier. I'll start from waste question about the permitting process of the plants that we expect to construct. As I said, we are -- we expect to invest a significant CapEx for treatment plants. Right now, we are currently permitting 2 plants in [Fozu] organic portion of urban waste. One in La Spezia that we expect to complete the process at the beginning of 2020 in the first Q and the other one is in Reggio Emilia where we expect to complete the permitting process in the fourth Q of '19. We are also permitting 2 plants in treatment of plastic and paper in Palma and in Turino. In both cases, we already finalized the permitting process and we expect to start the construction phase in the second half of this year. In one case, until you know, we also expect to, let's say, start a new permitting process connected to the obtained one in order to increase, let's say, the phases in the process of recover of plastic material.

And finally, we are permitting a plant in [Vercelli] for recovery of -- wood recovery and product pallet in recovering wood and in this case, we expect to obtain the permitting at the beginning of 2020. All these plans -- the CapEx related to all these 5 plants are roughly in between EUR 150 million to EUR 200 million and we expect to obtain a profitability of roughly EUR 30 million when the plants will work in 2022, let's say. These plants are related to waste already collected by the group. So all of them will help to cover internal product collection of waste that we already managed.

But other question is about the supply. Let's say that the main driver of the recovery in profitability that we expect to have in the second half of this year, mainly in the fourth Q, is related to the repricing activity that we already -- we are going to complete in this week. And so we expect to benefit from this at the end of this year.

On top on these, we can have a little benefit because of the gas storage that's right now we are completing and because of the low cost of gas that we have right now, we can expect to benefit at the end of this year and at the beginning of the next year.

About the guidance, let's say, the main reason is related to the energy value chain and in particularly market -- the generation market that led to an increase in the guidance. In the second half of the year, we expect the recovery of energy sector that allow us for, let's say, have a benefit that will contribute to each in EUR 900 million that we said in the guidance updated.

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Operator [7]

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The next question is from Roberto Letizia with Equita SIM.

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [8]

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I would like to stay again on the generation and if it's possible, I would like to clarify better the Hydro situation. I would like to understand if the reduction in the level of production is purely the absence of water and rainfall. So if that decrease has also a policy of postponing the productions and the reservoir use for the summer season. And I would like you also to comment in this case if you expect a recovery in the second part in terms of production because you will start to use the reservoirs.

And also would like you to comment on the possible impact about the pricing in July, which has been at the end, but for the last days, it has been very bad versus last year. So we're losing around EUR 50 per megawatt hours versus the peak prices of the summer season of last year and I'm wondering if this is penalizing you in some way or if the hedging already fully covered your position with respect to these elements?

I would like you to provide, if it's possible, anything on guidance for the year. Usually in this moment of the year, you provide that with some indication. So I'm wondering if you can give us a range on the net income in this year. And I would like you also making a link with information on the waste that you just provided us. If you can briefly tell us where you stand versus the strategic targets if you believe you're ahead of schedule and where exactly specifically on the waste? I am wondering if all these authorization you're mentioning were already included in the plans or if you believe these are a little bit ahead of schedule. And the other segment, where do you believe you currently stand versus strategy targets?

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Vito Massimiliano Bianco, Iren SpA - CEO & Director [9]

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As usual today, I'll start from your last question. Let's say that we are not ahead compared to our timetable in the business plan, but all the plant, I mentioned before, are included, but that one I mentioned in the [Vercelli] that is wood treatment plant that we included during the last 6 months. So it's a new project that we are -- we think is interesting and so we are including in the update of our business plan.

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [10]

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What the potential profitability of just this plant?

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Vito Massimiliano Bianco, Iren SpA - CEO & Director [11]

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It is comparable to the other one even if, let's say, more than 10% of it is, let's say, in line with the profitability we expect on average on all these kind of plant. It is interesting because of the localization in [Vercelli] could be useful for the whole wood collection we do in all of our areas. And we can have, let's say, a bit better profitability because we are going not only to treat our waste collected wood, but also we are going to construct a plant that will sale on the market pallet or parts of pallet. So a final -- something very close to a final product. Where we can say that we are a bit ahead is related to the, let's say, the broader vision of our capability in recovery material because of the latest 2 transactions we did in the force treatment. One in (inaudible). So acquiring that existing and working plants and having both of them the permit to increase the capability and we are already working in the Savannah case and we will do soon in the Sandia, the possibility to increase the capability of the plant. At the end, we will have a very stronger position in the market in recovery of material in the [medium term]. In this sense, we are ahead compared to the plan in terms of waste -- sorted waste collected that will be treated in our plants.

Moving to your question on net income. We can expect, let's say, in an area of EUR 250 million. So this could be the figures that we will see with the EUR 900 million of EBITDA.

About hydro generation, we expect as you correctly say, we had a bit of delay in production because of the colder temperature in May mainly. So the production started a bit later and we can expect a bit of higher volume in the third Q. In any case, as you said, we saw and we expect to have a bit of lower prices in this period. So at the end, let's say, that we will not have a material change in our expectation because of the delay in production in either generation. So probably we'll have a bit higher volumes, but with a lower price.

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Operator [12]

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The next question is from Emanuele Oggioni with Banca Akros.

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [13]

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Actually, my question has been already answered with regards to the business unit operating issues. I have one more specific or more direct on the Sorgenia deal as you stated that you said that you were interested in the whole group, not in some specific assets. And in my evaluation, the enterprise value is around EUR 1 billion. So if it's correct to assume that a capital increase could be on the cards if you spend or in general apart Sorgenia if we put on the table EUR 1 billion including the debt is on the cards or not?

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Vito Massimiliano Bianco, Iren SpA - CEO & Director [14]

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For sure, we are looking at Sorgenia as a wall and so we are evaluating the deal, the entire Sorgenia. In our estimate, we don't need a capital increase and we can afford the deal, financing it with our capital structure. So of course, this will put in the short term under pressure our capital structure, but we expect that this will not affect our investment-grade.

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Operator [15]

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The next question is a follow-up from Enrico Bartoli with MainFirst.

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

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First of all, we are very close to the finalization of the capacity markets and this is going to start in 2022. Can you give us, let's say, some flavor on what you think about the regulation in the business plan. And kind also you have a neutral impact on your numbers as an assumption if you can see or anticipate some different impact than what you are assuming at the moment?

And second is, in the guidance you provided for net profit, if you can share with us the assumption in terms of contribution from D&A, including also the provisions?

And the last is on the associates. There was a positive number this first half. I wonder what is related to, if at all, other companies and if some positive contribution can be assumed also for the full year?

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Vito Massimiliano Bianco, Iren SpA - CEO & Director [17]

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Thank you, Enrico. About capacity market, right now we can only confirm that our standard -- it is neutral in terms of impact on our business plan. Of course, we will present the update of our business plan at the end of September and at that point maybe we can have a more internal evaluation about this. For sure, I can say that we can consider an interesting upside can arise from capacity market on both existing plants. We'll have, let's say, a window that will be in '22, '23 for bidding for give the availability of our plants for the adequacy of the market in the capacity market mechanism. So we can have a bit of upside because of this -- because of our existing plants. Let's say that in the current mechanism, even if we don't know exactly all the parameter, we can have, let's say, an upside that we are working on and we think could be, but right now we don't do any assumptions on this. We can have an upside that could arise from new plants. As you know, we have Turbigo, and Turbigo is a site with potential increase in capacity. So we are thinking if in that site we can work as an option as for the increase our capacity in order to apply to the capacity mechanism for the new capacity on the market. In this case could be an interesting option because in that case you can have the capacity mechanism rewards for 15 years. So we are working on this. Right now, we can say that it is neutral, the capacity market mechanism, but we can have some upside and we are working on this. Massimo, could -- can add more before we had a question.

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Massimo Levrino, Iren SpA - Financial Reporting Manager and Manager of the Administration, Finance & Control [18]

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Okay, about the D&A and other provision, yes, we suppose that we can double the value. It's more than what we said in the first quarter, but our estimate now consider that the depreciation could be in the region of EUR 400 million. The provision for bad debt could be EUR 40 million at the end of the year.

The other question was about the contribution of the company consolidated with equity methods. There is no one important company that influenced the figures, but you have to remember that we are about 20 company consolidated with equity method. So there are -- is more contribution from some of them. For instance, I can remember (inaudible) a better result for EUR 1 billion as EUR 300 million [but] -- EUR 0.3 million. And I can remember all 3 is no longer consolidated with company method and then in 2018, it had losses of EUR 1 billion. So we just made an increase of EUR 1 million. There are several companies, not only one.

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Operator [19]

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(Operator Instructions) The next question is a follow-up from Roberto Letizia with Equita.

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [20]

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I have a very quick follow-up as well. I noticed that within the depreciation line, you also include the other provision for the internal losses, which actually had registered an increase, actually more than doubled from EUR 5 million up to EUR 12 million in the first half. So wondering if you can explain what is this. If this has a nonrecurring element included into that, which means that overall depreciation level could be then lower to the positive impact of net income because actually this is not purely a depreciation element. It's another provision of impairment. So can you explain that and give us also a figure on what this specific line could look like on a full year base just to have a clear underlying depreciation level?

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Massimo Levrino, Iren SpA - Financial Reporting Manager and Manager of the Administration, Finance & Control [21]

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Yes, question is clear, but you have to remember that small figure -- EUR 7 million is a very small figure. The forecast for the full year could be EUR 10 million roughly. It's difficult to forecast.

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [22]

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But actually you're leading us to EUR 40 million provision on the full year, but actually there are actually other provisions.

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Massimo Levrino, Iren SpA - Financial Reporting Manager and Manager of the Administration, Finance & Control [23]

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No. Provision for bad debt. Provision for bad debt, EUR 40 million.

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Roberto Ranieri, Banca IMI SpA, Research Division - Research Analyst [24]

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But you already have EUR 12 million in the semester for the other provisions and impairment losses.

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Massimo Levrino, Iren SpA - Financial Reporting Manager and Manager of the Administration, Finance & Control [25]

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No. No. You are referring to the press release?

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [26]

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Yes, in the press release and in the consolidated income statement. At the bottom of the press release on Page 8, there is the detail of what you mentioned as depreciation line. So within the depreciation line, you include 2 elements. The pure depreciation and then the other provisions and impairment losses. The other provisions and impairment losses is EUR 12 million, which actually increases the overall level of depreciation, but this is not a depreciation. So I would like to understand if there is a nonrecurring element because it doubled since last year? And I'm wondering how much can it be on a full year base on a recurring base, if you want in order to better understand the underlying level of depreciation, the pure depreciation?

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Massimo Levrino, Iren SpA - Financial Reporting Manager and Manager of the Administration, Finance & Control [27]

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What I answered was the difference between 12 and 5, that is EUR 7 million less. Probably nonrecurrent, it included several small impairment losses on asset, very small. It included provision for industrial raise, but very small amount. We think that could be EUR 10 million the increase over the full year. So the EUR 12 million should increase by EUR 3 million, EUR 4 million. It's very difficult, but as more figures turn out in our profit and loss with change of our guidance. What is important is the provision for impairment receivables of EUR 60 million could be the good result. But we think that in the full years, we will have EUR 40 million.

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Operator [28]

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(Operator Instructions) Gentlemen, there are no questions registered at this time.

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Vito Massimiliano Bianco, Iren SpA - CEO & Director [29]

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Thank you very much, everybody. Bye-bye.

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Operator [30]

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