Thank you for standing by, and welcome to Iren's Q1 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, press star one again. For operator assistance throughout the call, please press star zero. Finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Giulio Domma, Head of Investor Relations, to begin the conference. Giulio, over to you.
Thanks, and hello, everybody, and thanks for attending our conference call on Q1 results. I'm here with our CEO, Mr. Gianni Armani, and our CFO, Ms. Anna Tanganelli. As usual, they will give first the presentation, then we'll have the room for the Q&A section. Gianni, please go ahead.
Thank you, Giulio. Good afternoon to everybody. Starting on page two, I would like to highlight what has happened in the first three months of 2023. First of all, EBITDA growth is in line with our guidance and with our budget. The recovery in market view profitability was partially offset by the reduction in energy volumes registered during the winter. Organic growth was supported by significant investments carried out in the last period, and was partially offset by higher operational costs due to inflation, mainly still not captured by the tariffs. Sei Toscana consolidation contributed to a EBITDA increase, and this highlights once again, the capabilities of the company to quickly integrate and improve new companies as they enter the group.
The recent upgrade in rating positively judges our sound financial discipline and our strong commitment on cash flow optimization focused on regulated businesses and our business plan as a whole. Taking into account these elements, we confirm the guidance at the end of the year. Moving to page three, also, this quarter, continued our sustainable growth path and in all key indicators, and they are all on track with our plans.
First of all, the reduction in carbon intensity that stands at 301 gram of CO2 per kWh is the combined effect of lower thermal production, higher renewable and improved efficiency in the emissions on WtE, in part, contributed by the reduction in humidity content in the waste treated in the plants. Positive achievements likewise on the material recovery in our plants and the production of biomethane, which will benefit even further this year with the phase-in of two additional plants that are going to enter into operations in the Q2.
We continue to reinforce our source and waste collection performance to 70% and extend the heating volumes, reaching 102 million cubic meters distributed, and also in completing our the development of rebuilding projects that was started two years ago. Finally, it's worth mentioning that districtization activities on the water cycle continued, reaching 63%-65%, enabling to decrease water withdrawal by 5% is a significant performance in the reduction of leakages. Sustainable investments account for 80% during the period, we continue as we stated in our plan. On slide four, it shows the key financial figures in the period.
In the Q1 of the year, EBITDA was EUR 368 million, reporting 2% growth, as anticipated in slide two, mainly related to the following factors. First of all, the market view recorded a recovery profitability from 2022, particularly in the energy supply. This is contributing by EUR 37 million. At the same time, energy volumes negatively hit EBITDA. We excuse us for the inconvenience. I don't know what has happened. The technology is way too complicated to understand at this point. We'll restart from slide four, if you don't mind. I was mentioning the performance of market view that recovered profitability. Compared to last year by EUR 37 million. Energy volumes impacted negatively EBITDA by EUR 34 million.
This is the contribution of two elements. First of all, lower volumes due to mild temperatures, energy efficiency initiatives, but particularly demand elasticity given the high prices in 2022. This accounted for EUR 30 million out of EUR 34. The reduction in electricity volumes, mainly to the due to the not yet available thermoelectric turbine that had an outage in 2022 and restarted operation in Q2. Sei Toscana, the waste collection company, operating in Siena is fully consolidated since July 2022 and reported EUR 7 million during this quarter. I remind that last year from July reported EUR 7 million in Q2 and Q4, in Q3 and Q4 last year.
Organic growth is contributing by EUR 6 million, mainly driven by network tariffs and waste treatment plants. At the same time, during the period, this period, we experienced emerging costs mostly related to inflation, which is to be recovered in the next years in the tariff, particularly on regulated activities. Net profit was up 14% due to the absence of extraordinary tax on energy bills, the so-called Contributo di Solidarietà. Going on CapEx, technical CapEx, the contribution and gross growth of 34%, while total CapEx were down 30% because of last year numbers were affected by the cash out of the acquisition of photovoltaic assets.
Finally, net financial position at the end of March was equal to EUR 3.7 billion, increasing versus December last year due to temporary. Thank you very much. Excuse us again for the technical default. I was talking about net debt. The increase is mainly due by networking capital expansion that we expect to be reabsorbed by the end of the year, and we will explain later, Anna particularly will explain later in the presentation. Now I'll hand over to Anna, to go through each business unit and the financial evolution.
Thank you, Gianni. Good afternoon to all of you. Let's now move to our business unit results, starting with the business unit networks on slide five. Q1 2023 EBITDA was in line with prior year as the increase in tariffs resulting from a 7% RAB growth year-over-year, mainly driven by water and electricity networks, was entirely offset by higher operational costs, the majority of which will be recovered through tariffs over the coming years. As for investments, gross CapEx increased by 31% over the period. Consistently with previous quarters such increase was mainly linked to the revamping of wastewater treatment plants, and to the increase of our electricity networks resilience. Brief focus on water distribution. We are successfully progressing in our strategy to consolidate companies in which we hold minority stakes.
In particular, at the end of March, Iren acquired 51% of AMTER, a water management company based in Liguria, with about 35,000 inhabitants served. At the beginning of April, we signed definitive agreements for the acquisition of a majority stake in AcquaEnna, a Sicilian water concessionaire in the province of Enna, with almost 180,000 inhabitants served. Closing is expected by May end. Moving to slide six, the waste business unit EBITDA posted a +4% increase year-over-year to EUR 68 million. The higher PUN price on the electricity produced by WtEs in Q1 2023 versus fully hedged prices at pre-crisis levels in Q1 2022 has been counterbalanced by several factors. One, lower energy volumes sold -3% year-over-year.
Two, a contraction in heat prices compared to Q1 2022, which had been positively affected by a spike in gas prices. Three, a reduction in prices of recoverable materials deriving from sorted waste collection. For our collection business, positive contribution from synergies resulting from the consolidation of Sei Toscana. Finally, efficiencies achieved in the period were offset by higher operational costs due to inflation. In the quarter, we also doubled investment to EUR 47 million versus EUR 23 million in Q1 2022. As you already very well know, the growth here was mainly linked to the development of several new treatment plants, three of which will come into operation by year end, i.e., the wood treatment plant for pallet production in Vercelli, the plastic and paper treatment plant in Borgaro Torinese, and the new organic fraction treatment plant with biomass production in Santhià.
Turning to slide seven. The energy business unit EBITDA decreased by EUR 31 million over the period to EUR 134 million, mainly as a result of lower volumes. The overall price effect was flat despite the generally negative price scenario, thanks to the positive impact of our hedging strategy on hydro prices and on clean spark spread. Heat was down EUR 42 million compared to the prior year due to lower distributed volumes, i.e., - 250 GW year-over-year, along with lower margins versus Q1 2022, which had been strongly affected by gas price volatility. The contraction in distributed volumes as a result of milder temperatures and customers saving actions, was only partially offset by the network expansion, which reached 102 million cubic meters by quarter end, i.e., plus 3% of distributed heat.
As for hydro, the positive performance was supported by higher year-over-year prices and the contained volume increase of +22 GW hours compared to last year, notwithstanding the overall persistent drought. These positive elements were partially offset by higher concession fees versus Q1 2022. On thermal, the reduced production volumes of the Turbigo plant were due to the continuous turbine outage, which led to an overall year-over-year drop of around -400 GW hours, while CCGT plant volumes suffered from a lower heat and as a result, electricity output. Turbigo returned to normalized production levels beginning of May.
At the same time, the higher clean spark spread of the period was offset by a lower MSD of EUR 7 million versus EUR 50 million of prior year. The positive performance of our energy efficiency business continued also in Q1 2023, with its EBITDA increasing by EUR 7 million year-over-year. Going to slide eight, it is immediately visible from the chart that the market business unit substantially recovered its profitability in Q1 2023. This recovery has been achieved despite an overall reduction in volumes. On electricity, the reduction was a result of a change in client mix, shifting more focus from businesses to retail clients to minimize price and volumes volatility. As for gas, the warm weather, combined with energy savings actions put in place by retail and business customers, led to an overall contraction of volumes sold.
Full recovery of our customer portfolio will be completed within the next quarter. Let's now briefly comment the key P&L items below EBITDA on slide nine. Depreciation was up EUR 20 million versus prior year as a result of the acquisitions made and the increase in CapEx carried out during the period. Bad debt provisions were essentially in line with Q1 2022 and no particular remarks also on taxes. Please here remember that Q1 2022 had already been negatively impacted by the Contributo di Solidarietà decree for EUR 24 million. As a result, net profit for the period was EUR 135 million, up 15% year-over-year. Let's now comment the net financial position evolution over the period on page 10.
Net debt increased by EUR 369 million versus year end, mainly as a result of EUR 190 million of net CapEx carried out during the quarter, in line with our 10-year strategic plan, and the temporary increase in our networking capital. In particular, the EUR 345 million of temporary increase in networking capital was linked to the following factors, one, EUR 120 million related to an acceleration in CapEx execution in Q4 of last year. This is very much recurring in our business model. We usually accelerate CapEx in the last quarter of the year. EUR 105 million of seasonal ordinary working capital absorption. Technology is sabotaging our call, so I'll try to speak faster, so at least you can get to the all the slides, the comments on all the slides. Okay.
In particular, I'll go back to the comments on the temporary increase in net working capital. I was saying EUR 120 million were related to the CapEx executed in Q4, and this is very much recurring. EUR 105 million were seasonal ordinary working capital absorption. EUR 60 million were linked to a change in waste collection payment method. We moved from monthly payments to different, so to half year payment terms in selected areas. EUR 60 million were due to gas payment terms still not normalized in Q1 2023. In addition, in the quarter, we also counted EUR 130 million of tax credits, mainly related to Superbonus 110%, which we are going to factor, so to sell in the second part of the year.
Given all the above, out of the overall net debt increase, approximately EUR 350 million will be reabsorbed in the next quarters and for sure by year end. I will now turn, hopefully, the call back to Gianni for our closing remarks.
Thank you, Anna. Moving to the closing remarks on page 12, we would like to point out that we expect in the next quarters a solid contribution from the supply business due to our commercial strategy and the successful preemptive hedging activity. Since the beginning of May, we restore full availability of thermoelectric plants due to the turbine repair. On the industrial side, we want to highlight that we expect the phasing of three plants on the waste treatment activity and new photovoltaic parks for overall capacity of 70 MW. In addition, we want to highlight the conclusion of the first phase of the Public-Private Partnership proposal that was granted public interest on the hydro concessions in Piemonte region.
This will involve 300 MW of plants that have expired the concession, and the proposal is going to extend the concession for additional 20 years in a regulated framework fashion. Finally, we want to highlight in terms of outlook that call, for which I'm very sorry. On the full year outlook, we have net financial position that is in line, totally in line with our expectation and in track to achieve full year guidance. We confirm full year guidance, providing EBITDA growth of 6% versus full year 2022, gross CapEx of EUR 1.2 billion, and a net financial position over EBITDA ratio around 3.3 and in line with our newly upgraded rating.
Thank you very much. I will hopefully open up a Q&A session that will explore the technology even further.
Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star one on your telephone keypad. Your first question comes from the line of Roberto Letizia from EQUITA. Your line is open.
Yeah, thanks very much for taking my question. The first one is on the potential involvement of you in EGEA tender, as we have seen the interruption of the exclusive talks. Maybe this is going to transform into a different one, as the group is not a small one, that could bring significant financial consideration, you to enter in such a negotiation. I was wondering if you can add a few details on how do you think this may fit the financial position of Iren with regards also to the target of the strategy plan. I would like to have a view on how the hydro is actually going in the last week.
We saw a slight recovery of rainfall, so wondering if this is affecting also your plans, and we may hope in a recovery or a better contribution of the hydro going forward? Briefly, two very small questions. If there are any compensation for the stop of the thermal plant of Turbigo, and what is, the final one, the possible improvement at net income from the acquisition of minorities that you did in the water segment? Thanks a lot.
Thank you very much. First of all, on EGEA, of course, we are analyzing the reason for our competitor A2A for dropping the exclusive negotiation. We have been calling for a competition on this asset, of course, we have not yet have had an access on the data room. We will definitely look at the numbers and we are of course, first of all committed in terms of guidance from what we communicated. That is our priority. Of course, we are looking at this asset given the synergies that we can implement, and also the fact that there is a possibility to turn around working capital in these small supply operators.
Of course, we will look very deeply at the numbers and see if they are compatible with our net financial position. The guidance, of course, will remain unchanged in all scenarios. In terms of rainfall, we have not seen yet a significant change in order to update our views. We expect 800 GW hour production during the year. The level of the basins is higher than we projected. However, if it continues to rain, it's obviously a good thing.
On the stop of Turbigo, it's now two weeks that the plant has been running. We are positive on the possibility of the plant to be stabilized and fully repaired. In terms of acquisition in the water segment, AcquaEnna and the smaller initiatives overall contribute by EUR 10 million in EBITDA.
Brilliant. Your next question comes from the line of Javier Suarez from Mediobanca. Your line is open.
Hi, everyone, thank you for the presentation. Several questions. The first one is on the debt increase that has been significant this quarter, has been explained by a seasonal increase in working capital. The question for you is, what level of visibility do you have on the reabsorption of the working capital during the next few quarters? In the presentation, it's mentioned that EUR 350 million will be reabsorbed. The question is, if that becomes worse and that visibility that you have for whatever reason is becoming more, you know, lower, what managerial measures the company can take to better the balance sheet solidity?
I'm saying this because obviously working capital is something to what market is paying a lot of attention, and I think that's a legitimate question to try to understand why this increasing working capital is just something seasonal or there is something more structural that management should take into consideration. That is the first question. The second question is on the dynamics for the supply business. We have seen a remarkable recovery during the Q1.
What changes has the company done during the Q1 2023 in the supply business that are underpinning these improvement, and the lesson that has been learned in 2020 and 2022, what this means for the commercial strategy of the company going forward. The third question that I have is on the Greenfield Renewable Energy Project, if you can share with us the latest visibility that you have on this project and the likely timing of execution. Thank you.
First of all, on debt, we have several certification of effects that with the different grade of absorption. First of all, we have a CapEx seasonal increase. We invested in Q4 last year EUR 150 million more than this year, so we are paying for the extra CapEx of last year. That is, of course, typical of the investment curve every year with the peak on the Q4. Therefore, this is a shift of extra cash that is registered every Q1. Then we mentioned the change in payment terms of the waste business collection. We are changing to a tariff scheme versus a tax scheme.
A tax scheme where we were paid monthly by the concessionaire, the public authority, whereas here we are emitting two annual bills, which is a six-month payment terms. This impacts in particular Q1 and Q3, where in Q2 and Q4, you should have the cash-in from those tariffs. Therefore, on an annual base, this is also an effect that it is mostly reabsorbed. The effect overall was EUR 60 million.
We have also the an ordinary seasonal effect by the fact that this is a peak, it's the winter season that is ending and therefore has a higher in general cash out that impacts and is reabsorbed normally during the period. This is a EUR 105 million. Lastly, we have EUR 60 million that we are working on particularly on the gas payment terms. This is an effect of the turmoil that we registered last year that as a whole impacted all the negotiation terms between our suppliers and.
Apologies for the interruption. We're just switching to a new device. Alex, if you're there, please continue.
Yes, we are here. Can we continue?
Please.
Okay. Sorry, we switched on a telephone.
Went analogic.
We went analogic. Okay. The last element is EUR 60 million that is the negotiated strong terms on the gas supply. This of course is under negotiation, and therefore we cannot commit. I mean, we cannot be sure that we will reabsorb it during the year, we are working on it. The first three elements are definitely seasonal. The last one is probably linked to the crisis, the crisis will be absorbed in the medium term, but we are working on it and will probably be absorbed totally.
Your next question comes from the line of Emanuele Oggioni from Kepler. Your line is open.
Thank you, and good afternoon, everybody. I have a more general question about the confirmation of the full year guidance. Considering that in terms of the EBITDA growth was down, was lower, basically, compared with in Q1, compared with the expectation for the full year. I would like to understand the moving parts for remaining part of the year. Can you walk through these confirmation of the guidance considering that, for example, the lower contribution from the accident in Turbigo plant, the Turbigo plant now is solved, but the EBITDA is definitely lost for this year. For example, the hydro production is confirmed stable, but so not improved.
What are the moving parts, improved in order to confirm the EBITDA guidance? Thank you.
Yes, interms of business unit, networks will be stable. We expect, of course, to commit and to meet the growing objectives on waste. On the other hand, on the two energy businesses, production and market. We highlighted that EUR 30 million growth of market versus last year, Q1, that was the most profitable quarter of the year for market, is a significant performance, which leads to EUR 70 million EBITDA on the market business.
This is going to be consistent during the year and therefore we expect to totally meet the guidance even though we are conservative on the energy production business that might be hit by continues to be hit by volume decrease. Did I respond to your question?
Your next question comes from the line of Davide Candela from Intesa Sanpaolo. Your line is open.
Hi there, thank you for taking my question. I have a few. The first one is a clarification on the tax rate. It seems to me that you reported a 25% tax rate versus an ordinary one of last year in the same period of 29%. I was wondering if there are some items that we are not seeing that have been recorded in the period. The second one is on the hydro concession expired and the new PPP project. If you can you share with us the steps for these this process with regards to these 300 MWs? The third one is on if you can provide update on the gas distribution dossier for the sale of a minority stake.
Lastly, if I may, if you can, answer to the Javier pending questions on energy supply and renewables, please. Thank you.
I'm sorry, I forgot the pending question. Okay. I give priority to the pending question, of course. We are developing 70 MW of greenfield plants. By memory, 20 MW are in Basilicata, 20 MW are in Lazio, Tuscany, and 30 MW in Sicily, overall. This is more or less by memory the projects. Of course, we add on this 400 MW of pipeline that is under authorization currently has not achieved authorization status by now yet. The other two questions were tax rate reduction. We have a stable tax rate, I would say. I will leave the respond to Anna.
Yeah. Of course. you can assume for the full year still a normalized 29% tax rate. It's one into one has been an exception, but for the full year you can assume, like last year, 29%-29.5%.
On the hydro concession, as said, we completed the first space, which granted us the right to be the proponent of the Partenariato Pubblico-Privato. That is the form of contract with the public authorities that gives the privilege of having a ROFO right, a last call right, I'm sorry, for the tender. The tender will be issued most probably at the end of the summer this year, with the assignment next year by the end of next year. On gas distribution dossier, we have sent information memorandum to 16 players.
We are planning to receive non-binding offers by the end of Q2.
Yeah. The end of this, say, next week. Hopefully.
Okay.
Mid-May.
Mid-May, if we don't grant extension on this. T o arrive to the closing by the end of the year.
Thank you.
Again, if you would like to ask a question, please press star one on your telephone keypad now, and we will pause for any final questions. There are no further questions at this time. I turn the call back over to Gianni Armani, CEO, for closing remarks.
I will excuse myself again for the combination of technical and logistics problems during the call. Hopefully, the messages have been effectively delivered, and we are available for additional doubts, of course, with our structures and with our organization. Thank you very much, and have a good evening.
This concludes today's conference call. We do apologize for any inconvenience caused today. Enjoy the rest of your day. You may now disconnect.