Good day and thank you for standing by. Welcome to Arend's H1 2021 Results Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Mr.
Gianni Petorio Armani. Please go ahead, sir.
Thank you, Nicole, for the introduction. Thank you all for attending the conference. We are presenting today very positive results for first half twenty twenty one. We are reporting 9% growth on the EBITDA. That is mainly driven by several elements.
First of all, the consolidation in the first half of iBlue and Unieco results that were not considered in the first half of twenty twenty. Secondly, the energy scenario reported very positive results in terms of pump growth, particularly on the hydro and the WT production. Even though the general increase in demand reported a lower value for MSD markets compared to last year. And a reduction of distributed existing margin, even though growth in volume of heat sold during the winter partially offset this reduction of heat margin, which I'll clarify later on in the presentation. Organic growth investments on the network and improvement in synergies are also reported and contributed to the EBITDA growth.
On the negative side, we have further cost of COVID for reported at €6,000,000 more or less. And emerging structural cost mainly on market and networks driven by digitalization and service improvement. Below EBITDA, we have some extraordinary elements that impacted the performance, particularly the provisions, euros 10,000,000 of provisions for COVID credit and the debt, lower than last year, it was reported €25,000,000 The optimization of Unieco debt for €13,000,000 And the contribution for a specific fiscal measure that reported an improvement in net profit of €32,000,000 that is due to realignment of tax and statutory asset values on the books, which released provisions for deferred taxes that were in our books. We have also, during the semester, an increase in investment of 10%, mainly concentrated in maintenance, but onethree on development CapEx. We are main investments that we report is, of course, the new combined cycle in Turbigo that is under the capacity market mechanism that will be online next year.
The new installation for battery system of 6 megawatts in the CCGT plant in Turin and the enter into operations of Cairo Montserrat, not an organic fraction treatment plant that produced the 1st cubic meters of maintenance last week. And we also started the new plastic recycling plant of eBlue and for the production of blue air polymer that is used for steel production decarbonization. And we also started operations of Rapallo municipality water purifying plants that is serving 90,000 inhabitants for almost €40,000,000 of investment. 60% of our CapEx was focused on ESG projects. And going to the next page, Page 3, we are reporting significant improvement on main drivers that for ESG measurements.
Particularly, we increased 12% our purified water volumes, thanks to new plants that were introduced this year. And the reduction improvement reduction on duration in the energy interactions by 4%, electricity and energy. And also on the waste sector, we reported an improvement in software waste share, 90 basis point improvement in the field and significant growth in recovered material volumes from waste more than 400,000 kilo 400,000 tons. On the energy side, the carbon intensive index that is measured with the science based target mechanism was improved 6%, thanks to the optimized production of heat and electricity in our district heating plants. And on the market side, we report the effective success of our campaigns for in order to promote the use of renewable energy that extended this service to additional 2 50 gigawatt hour.
And the increase significantly in digital transaction in our Customer Care Services, thanks to improved digital platforms and the self care operations that were made available to our clients. Now we go deeper into each single business unit. Going to Networks, we report positive growth of 6%, reaching €190,000,000 This is mainly driven by the growth of allowed revenues from organic growth of ramp that reported a 5% increase from €2,200,000,000 to €2,400,000,000 mainly in the water sector, where we are intensifying our digitalization of our network, reaching 57% of network digitalized, thus being able to reduce losses in our network. And in order to measure this, we report a reduction in consumption by our inhabitants of 9 liters per day per inhabitant. It's an indirect measure of losses, but it's a very significant one.
On the negative, on the network, we have increased structure cost partially on digitalization and remote control of our networks in order to improve our measurement and control of the networks plus COVID impact extra cost for Service and Operations. We have a positive €6,000,000 effect mainly due to insurance reimbursement on the water sector and the cash in of previous year green certificates in the gas and electricity. The outlook at the end of the year will be, however, in line with last year if we offset for the one off elements. Moving on the waste business, Page 5. We reported a very interesting 24% increase in EBITDA, leading to a result of €99,000,000 of EBITDA.
The rise, as mentioned, is mainly driven by iBlue and Uni Eco consolidation that contributed €18,000,000 on the final results and allowed us to increase volumes managed by 32% over the year. The positive contribution of treatment activities, mostly on plastic and paper sectors, is due to the increased higher prices of commodities. That is, of course, across the board on all commodities. Plus, we have an additional, as mentioned before, contribution from increased food price, thanks to this sale of electricity from WTE Production. In addition, our WT, particular TRM, the Turin plant was connected to the heating, increasing the 54% heat distributed on the network.
On the negative side, on the negative side, we report higher cost of collection, mainly driven by increased service level, and that allowed us to improve our share of sorted waste, plus a reduction of availability of ray length field structure, which is expected to be to obtain authorization for expansion next year. Overall, the outlook for 2021 EBITDA is the confirmation of the consolidation effect of Baidu and Unieco, which I remember is not does not have an impact on the second half, which were already consolidated, plus the extension of the energy scenario up to the end of the year. We will have also the negative impact on collection and availability of the plants that will be confirmed over the year, leading to a stable second half and maintaining the increase that we have in the first half over to the second half. Shifting to Energy. We reported interesting results from hydro production and from energy efficiency businesses.
Overall, EBITDA grew 5.5%, leading to a result of €134,000,000 of EBITDA. As said, the growth in the energy scenario and the increase of pump price positively impacted the hydroelectric production with an average pump price of €57 per megawatt hour, 33% higher than last year. Higher heat volumes mainly driven by climate conditions during the winter and impacted by the expansion of the network. And overall, higher production of CCGT, we had was partially compensated the lower hydro production linked to lower rainfall during the winter. We experienced a positive clean spot spread for CCGT of €1.4 per megawatt hour compared to last year negative measure.
And an increase in energy efficiency business, thanks to SuperBond's initiative and bonus facade for buildings reported a 6 €1,000,000 increase in EBITDA. On the negative side, we have 2 main elements, specifically MST contribution that was reported up to €41,000,000 during the first half and €10,000,000 less than last year, plus a reduction on heat start spread by 20%, driven by the fact that the tariff has a delay HEETS tariff has a delay in adapting to growing gas commodity. And therefore, with growing gas prices over the winter, the margin was reduced compared to last year. Of course, this effect will be partially offset in the second half of the year given that we estimate stable gas prices over next winter and fall. Going to market view business unit, we have a higher significant higher margin in gas that has driven 8% EBITDA increase up to €93,000,000 Particularly, higher gas margin was driven by procurement seasonality and gas store stored gas prices that came from last year.
Total contribution of this element is €19,000,000 We had a contribution from new retail clients acquired during this first half of the year, and our customer base arrived to 1,900,000 clients, increasing growing 2%. And a positive contribution from erem plus products, The total penetration of these products on our customer base grew 49%, reaching 19.4% of total customers. On the negative side, we have lower we experienced lower electricity margin given the fact that part of our customer base has not been hedged and growing food prices hit the part of unhedged customers. Structural emerging cost specifically on digitalization and commercial activities also offset the part of the positive effect by €8,000,000 and a slight decrease in electricity sold linked mainly to COVID effects on small business activities also contributed to a small part in the electric side. Overall, the outlook for the end of the year, excluding the €8,000,000 €4,000,000 of reported extraordinary one off effect will be in line with last year.
Looking at what is below the EBITDA, we are moving to Slide 8. We reported 46% growth in net profit. That is driven by a number of elements, particularly the higher depreciation due to organic CapEx plus the increased perimeter due to iBlue and Ooneco. Lower provisions for Vertex related to COVID, €10,000,000 versus €25,000,000 of last year. And the absence of €16,000,000 of provisions fund release in 2020 for the electric sector.
Plus, we have an optimization of Unieco Debt. They reported an improvement of €13,000,000 of financial charges and a lower cost of debt and partially offset by an increase of gross debt and that less unchanged the financial charges element. Extraordinary tax reduction led to an effective tax rate of 14%. That is an extraordinary effect that contributed significantly to the net profit growth. Contributed significantly to the net profit growth.
Passing to cash flow and net financial position. We, in Page 9, reported the bridge between the end of the year situation in the net financial position and the current first half net financial position, which shows that EUR 280,000,000 investment plus dividends payout of €150,000,000 and cash out of €27,000,000 for Futura acquisition were completely offset by organic operating cash flow given by net profit plus amortization. Also derivatives and change in net working capital and the positive contribution showing particularly for net working capital management the effectiveness on how we manage our working capital. Going to the financial profile. We are reporting 97% of our gross debt that is fixed rate and an increased debt duration up to 5.7 years, thanks to renegotiation of loans.
And we also can report 50 basis point improvement in the cost of debt. 85% of year end total debt is composed by bonds and almost 60% is green assimilated instruments. Going to the closing remarks. We are today reporting solid results that allowed us to improve the guidance for the end of the year. We uplift EBITDA guidance to EUR 990,000,000 with a larger growth, especially in the Energy and in the waste business.
Also net profit is expected to be around €290,000,000 plus CapEx is going to be confirmed at €800,000,000 and net financial position over EBITDA improves to 3.3% period. Such positive performance drives this group to look to further improvements on our business plan that will be unveiled in November. We are already working on these documents. And we confirm even today that new business plan will focus on IFC as a strategic measure of success in our businesses. Industrial growth is based on circular economy, networks and resilient cities, which are drivers and distinctive abilities of our company.
And development will be focused specifically on our territorial presence, of which we can from which we can derive significant success. We are also introducing some innovations in our planning. We are focusing on a 10 year horizon with, of course, different milestones during the 10 years horizon projections because a longer horizon allow us to focus on priorities and change. We will introduce a greater focus on decarbonization that is today one of the elements that has no specific response in our plans. And M and A will be part of the total CapEx of the plans simplifying the view on the company and leverage evolution.
Also, we will focus and report projects that will that aim to have T and R contributions, specifically on waste to technical and purification plants in the in Liguria and district heating initiatives. Plus, we will focus our alignment of capital deployment on new taxonomy and in general on E and P investments. This is all for this presentation, and we can pass on to you for questions and answers. Thank
you. And your first question comes from the line of Javier Suarez at Mediobanca. Please go ahead. Your line is now open.
Hi, good afternoon and thank you for the presentation. Three questions. The first one is, I guess, on the NIO strategy of the company. There is a NIO CEO and I wanted if you can I was wondering if you can share with us kind of your priorities on what you think the new strategy is going to be different from the previous one in things such as for example, M and A versus organic growth, dividends versus CapEx or approach versus renewable synergies? So any light on the direction for the new strategy that would be very helpful?
Then the second question is on the consultation document by ARERA on the regulatory work and also on the waste collection and treatment businesses. You can share with us the latest part of Eden on those documents. And the third question is on the dynamics for the supply business. I have seen we have seen higher gas margin offset by the contractions of the electricity supply business, you can share with us the dynamics that you are seeing on the energy supply business overall. Many thanks.
Regarding the business plan, of course, more information will be available as we are going to present the plan in November. A few elements are, of course, clear, and we'll try to highlight them. Of course, we will have, in general, stronger decarbonization focus, specifically on our energy business, but also on our district heating business. That is currently included differently from our competitors in the energy sector instead of the network. So this will be we lead to, of course, investment in these areas that will be I don't know how to define them.
Of course, the more you integrate early on, on the value chain, the more value you can create. Of course, we have 0 pipeline in terms of new developments in renewables. And therefore, we need to acquire something, which means that some M and A will be needed. This M and A though, we'll try to concentrate it on the development phase, which allow us to have better returns overall. Of course, we are not aiming to be a market leader in the renewable sector, but we are able to give a contribution to the energy transition of the market.
We are very strong in developing authorizations for very complex plans and very effective in our engineering and construction business. And therefore, we are best suited to be very effective in development of Renewables. We also have an important and very stable customer base that can hedge with PPAs the evolution and development of new renewable plants. I tend to exclude to be the primary acquisition partner of any already leased plans in Remuco. But we could partner with investors to support them in managing these activities and hedging the industrial risk.
In waste sector, of course, we are a leader in a few areas that are very important like plastic recycling business. And we have a significant position in all waste treatment activities. We are also very effective in entering into new areas with our collection business. It is normally a poor activity, but that we are able to transform into a positive contribution activity. And therefore, of course, we look for growth in the overall value chain of waste sector.
But on this, of course, it's a very fragmented activity and very fragmented market. So a combination of organic growth tenders and acquisitions will be highlighted and more clarified better clarified in the business plan. In terms of energy market supply, of course, we are experiencing an increased competition in this market. We are also, I mean, managing a very strong and very stable customer base in our specific territories. But we understand that being a leader in customer service is the strongest retention tool that we can develop.
And we are also very strong in penetrating our customer base with more services, which allows us to retain and to reduce churn over time. On ARERA, instead, we registered, in general, a positive return on the ARERA regulation. RERA has generated and is one of the most important contributor of stability in our sectors and is driving from coming from the energy experience is expanding stable regulation also to waste and motor business. On the waste business, of course, we see favorably the fact that the regulation is being extended, especially for new investments. Of course, there are some elements that need to be clarified.
For instance, specifically, existing contracts, particularly project contracts that need to be aligned to the existing I mean, the regulation need to consider the fact that there were previous agreements underlined. And in fact passing through the WACC evaluation, of course, in general, we see a huge value the fact that the regulator has a consistent approach in evaluating returns from our business. And of course, we are today in a phase in which we should expect a reduction in returns, which on the other hand is an improvement in the eyes of the consumers. But we know that the authority is well aware of the need for investments even by energy transition and in general the development of our network businesses. And therefore, we know that all concerns will be addressed by the new regulation.
Of course, in the numbers specifically, we see this alignment with our estimates, particularly on the cost of debt, but I'm sure that these details will be adjusted in the final document.
And yes, as a follow-up, it would be fair, I'm referring to your statement on the M and A activity that as part of your new strategy, the focus on M and A is going to be on renewable energies, trying to help with the construction phase and therefore buying pipeline and to a lesser extent on the waste management business. Is that a fair summary? Sorry.
We are of course, we will need to focus on acquiring M and A pipeline for renewable business, but we are looking also at growing into the Waste Management business. Then of course, I cannot highlight the specific targets or specific sectors in this, but we are we see a value in consolidation of the waste management activity, and therefore, we can be an actor in this consolidated process.
Okay. Many thanks.
Thank you. And your next question comes from the line of Enrico Bartoli at Stifel. Please go ahead. Your line is now open.
Hi, good evening. And first for taking my question. The first one is regarding on the impact of the new scenario for the pulp prices in Italy on your numbers. If you can share with us the hedging volumes and maybe the prices for the second half of the year and at what level you are also on 2022. And actually, it would be very interesting if you may share with us your view on the sustainability of the current level of high prices that we see for this year and also in the forward for 2022.
And second question is related to the again, to the strategy. If I understood well, actually, you are planning to rely on the capabilities of the company in terms of development of renewables starting from the pipeline. If you can elaborate at what stage the company is at this moment considering that the exposure to wind and solar of year end at the moment is 0. And also was wondering if discussion are still going on regarding the possible transaction with the CBA and if CBA would still fit in your mind within the business portfolio of the company. The last one is on the supply margins.
We saw this reduction of electricity margins in the second quarter. If we can expect this to continue in the second half? Or you think that you can have also some adjustments on the final prices to customers and have a recovery in margins in the 2nd part of the year? Thank you.
Thank you. I will leave the details on the hedging strategy to Massimo or Reno. First of all, I will address sustainability of prices. There are 2 factors that are driving increased prices on commodities and particularly on energy. 1 is the growth of gas prices and the second one is CO2 increased emission trading cost that is increased.
First of all, the second element is something that, of course, it's not clear that there is a stable market for this kind of commodity, given the fact that it has no optimization. So it's a synthetic, let's say, product. But we see, in general, an increased need for reduction for CO2. So in general, we see that compared to last year, I would expect in the long term an increase in that cost in order to allow and facilitate the growth of new initiatives that reduce emission in this sense. Then of course, this is not I'm not able to set the price on this given the fact that it has no real utilization value.
But if I see that the strength at which institutions are pushing towards decarbonization, I would expect higher prices more aligned to today's prices than those that we experienced in the past years. On the other hand, gas prices, we have seen and experienced a divergent dynamic from prices in the Far East and with which our European prices are linked and those that characterize U. S. A. Prices.
In general, I would say that the marginal facility for gas production is more aligned to that of the U. S. So shale gas is the marginal price facility or price source for gas. Of course, you can increase shale gas production only with long term price setting or price signal. And therefore, in the short term, you would see more oscillation, more volatility on the European and Asian market.
Of course, the Asian market is the one that is creating volatility. Therefore, debt price, I see it less sustainable in the long term, and I would expect a reduction in future times. But I cannot, of course, I would be very rich if I had known when. Then you were mentioning the renewable growth strategy. Yes, we definitely have 0 pipeline currently.
And this is, of course, a challenge on which we need to work. Of course, it's 2 months that I'm in charge. So I need slightly a longer time to create an impact on this element. I had already experienced in my professional past a similar situation in Termina with the possibility to create a pipeline with plants built and sold in 1.5 years. So I see the possibility to create a significant pipeline and a stable source of investment opportunity, of course, looking at 10 years horizon and not in the very, very short term.
So this will be part of our development plan. And of course, we will be, therefore, a contribution to the energy transition in Italy. Regarding CVA, of course, I mean, it's a long very long story that we are addressing. It's not easy to spot the possibility to finalize any kind of agreement. Of course, the 2 companies have been close very close to at least discuss some possibility for an agreement in the past.
And as a matter of fact, it makes a lot of sense also, industrially, but not always what makes a lot of sense is effectively implemented. So we will see. Of course, there are different ways to cooperate with one another. I believe that this is something to explore. But of course, I would not invest any of my personal money on the finalization of it.
Going to the hedging scenario, Gerry Massimo. Okay. Good afternoon, Ron and Iko.
About the hedging policy in 2021, about the hydro production, we have hedged 60% of our total production at €50 megawatts per hour. And the thermal production, as you see, we have covered the average, the 45% at the spot spread, of course, at roughly €7,000,000,000 For the 'twenty two forecast, so far, we are around 30% of hydro production hedged at €64 megawatt hour. And regarding the CGG and the thermal production is very low, taking into consideration the low spas rate and low liquidity that we experienced in the market.
Thank you. Just a comment on the evolution of the supply margins in electricity, is this possible?
I'm sorry. Yes, I forgot. Of course, we are very active in repricing our clients. And of course, on the retailer market, there is an usual practice. This is less true on the SME and business customer base that has an annual contract projection.
So we will, of course, try to offset during the year to in order to reduce the negative effect
that we had on the previous half. Thank you very much. Very clear.
Thank you. And your next question comes from the line of Roberto Letiziere at Equita SIM. Please go ahead. Your line is now open.
Yes, thanks a lot for taking my question. You mentioned before a few words about the new waste to treatment plans. I would like if you if it's possible if you can spend a little bit more on how the authorization procedure and construction and implementation procedure of the new treatment plans envisaging the plan is going. If anything is accelerating in your view or slowing down or you think you can add something more? For example, if you can talk to us a little bit more about the possibilities of the new waste of chemical plants and the new heating possibility for the resiliency plan.
I would like to understand if you can sum up because I saw there are few exceptionally in the results. If you can also sum up what will be probably the total COVID related costs waiting on 2021 results. I'm not looking for the improvement, but the absolute amount that will probably impact this year. And if you believe these can be considered as nonrecurring as well on next year accounts in case we get into full normalization, single cross?
Okay. Talking about the plans, we are of course, we have completed the Cairo Montenote, and we are starting construction with 2 4 2 organic fraction plants, SANTIA and the other one is and the cargo is the one that is completed. Plus, we are starting CSS in order and paper plant in
San Pablo.
And also, we have a SCARTINO plant, the mechanical and biological plant that is going to be signed this tender this week. And that's on plan. About
the total cost of derived from COVID and the impact of EBITDA full year 2020 will be €10,000,000 in gross. And the other impact are on the receivables about and in particular to the provision to that debt that are €10,000,000 again. But we can add the other €8,000,000 roughly of cost that are the impact overall impact on our profit and loss.
Sorry, Massimo, the line was really bad. You said the total expected for 2021 is going to be €20,000,000 Is that correct?
No, no, no. €8,000,000 is the impact of 2021 and €8,000,000 is the estimate of the impact in 2022 on EBITDA. I'm not to add 10% to 20 21, 8% in 2022. Okay. About the issues okay, our position to bad debt, we don't forecast further needs in 2022.
Thank you. Your next question comes from the line of Emmanuel Occhioni at Kepler. Please go ahead. Your line is now open.
Good evening, everyone, and thank you for the presentation. I have a few questions. The first one is on the Siduren previous SidiGas asset, the gas assets. Could you please give us a quick rundown of the impact of this acquisition in terms of EBITDA and net price value? This is first question.
The second one is on the waste business. To what extent the Lendicil extension capacity that will be available next year would increase the contribution in terms of EBITDA for next year for 2022? This is second question. The third one is if you share with us the your normalized tax rate for 2021 and also what could be the tax rate for next year. And the latest one is, I'm not sure I got the hedging policy because the line was very bad.
So can you repeat the hedging for H2 and also 2022?
Talking about City Gas Contribution, we acquired 47,000 of BBI clients. And overall, is expected for €5,000,000 EBITDA contribution with a financial net financial position of €32,000,000 That is the contribution for silica. I leave the floor to Massimo for all
the other details. Yes. First of all, the contribution in terms of EBITDA, the higher revenue, waste bank in 2022, euros
£8,000,000 increase.
About tax rate, about Egypt, as you mentioned, I think that in 2022, so far, we have hedged a little bit less than 30% of the hydroelectric production at the price of 64 euros per megawatt and a very low amount of project production since the market is very, very, very low liquidity. Tax rate in the first half will be higher considering the full year 2021, and we forecast 20% roughly of tax rate in 2021. And starting from 2023, we confirm roughly the same level of tax rate of 29%. Thank you. Thank
you. And there are no further questions at this time. I will now hand the call back over to speakers.
Thank you very much, Nicole. Thank you to all. Thank you for attending the conference, and have
a good day. Bye bye.
That does conclude the conference for today. Thank you for participating. You may all disconnect.