Good day, and thank you for standing by. Welcome to Iren's H1 2021 results call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star and zero. I would now like to hand the conference over to your host today, Mr. Gianni Vittorio 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 2021. 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 I.Blu and Unieco results that were not considered in the first half of 2020. Secondly, the energy scenario reported very positive results in terms of volume growth, particularly on the hydro and WtE production. Even though the general increase in demand reported a lower value for MSD market compared to last year, and a reduction of distributed heating margin, even though a 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, reported at EUR 6 million, more or less, and emerging structural costs, mainly on market and networks driven by digitalization and service improvement. Below EBITDA, we have some extraordinary elements that impacted the performance, particularly the EUR 10 million of provisions for COVID credit and the debt. Lower than last year, it was reported EUR 25 million. The optimization of Unieco debt for EUR 13 million, and the contribution for specific fiscal measure that reported an improvement in net profit of EUR 32 million. 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 reported also during the semester an increase in investment of 10%, mainly concentrated in maintenance, but one third on development CapEx. 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 MW in the CCGT plant in Turin, the entering to operations of Cairo Montenotte organic fraction treatment plant that produced the first cubic meters of methane last week. We also started the new plastic recycling plant of I.Blu, for the production of Blu Polymer that is used for steel production decarbonization. We also started operations of Rapallo municipality water purifying plant that is serving 90,000 inhabitants for almost EUR 40 million of investment. 60% of our CapEx was focused on ESG projects.
Going to the next page three, we are reporting significant improvement on main drivers for ESG measurements. Particularly, we increased 12% our purified water volumes. Thanks to new plants that were introduced this year, and the reduction of duration in the energy interruptions by 4%, electricity and energy. Also, on the waste sector, we reported an improvement in CSS waste share, 90 basis point improvement in this field, and a significant growth in recovered material volumes from waste, more than 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. On the market side, we report the effective success of our campaigns in order to promote the use of renewable energy, that extended this service to additional 250 gigawatt hour.
The significant increase 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 a positive growth of 6%, reaching EUR 190 million. This is mainly driven by the growth of allowed revenues from organic growth of RAB, that reported a 5% increase from EUR 2.2 billion-EUR 2.4 billion. Mainly in the water sector, where we are intensifying our districtization of our network, reaching 57% of network districtalized, thus being able to reduce losses in our network. In order to measure this, we report a reduction in consumption by our inhabitants of nine 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 structural 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 EUR 6 million 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. Going on the waste business, page five, we reported a very interesting 24% increase in EBITDA, leading to a result of EUR 99 million of EBITDA. The rise, as mentioned, is mainly driven by I.Blu and Unieco consolidation, that contributed EUR 18 million on the final results, 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 the commodities. Plus, we had an additional, as mentioned before, contribution from increased pool price, thanks to the sale of electricity from WtE production. In addition, our WtE, in particular, TRM, the Turin plant, was connected to district heating, increasing the 54% heat distributed on the network. On the negative side, we report a 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 Roncocesi structure, which is expected to obtain authorization for expansion next year.
Overall, the outlook for 2021 EBITDA is the confirmation of the consolidation effect of I.Blu and Unieco, which I remember, does not have an impact on the second half, which were already consolidated. The extension of the energy scenario after 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 EUR 134 million of EBITDA.
As said, the growth in the energy scenario and the increase of pool price positively impacted the hydroelectric production, with an average pool price of EUR 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. Overall, higher production of CCGT was partially compensated the lower hydro production linked to lower rainfall during the winter. We experienced a positive clean spark spread for CCGT of EUR 1.4 per megawatt hour compared to last year negative measure. An increase in energy efficiency business, thanks to Superbonus initiative and Bonus Facciate for buildings, reported a EUR 6 million increase in EBITDA. On the negative side, we have two main elements, specifically, MSD contribution that was reported up to EUR 41 million during the first half, at EUR 10 million less than last year.
A reduction on heat spark spread by 20%, driven by the fact that the heat 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 would 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 BU, business unit, we have a significant higher margin in gas that has driven 8% EBITDA increase up to EUR 93 million. Particularly, higher gas margin was driven by procurement seasonality and stored gas prices that came from last year. Total contribution of this element is EUR 90 million.
We had contribution from new retail clients acquired during this first half of the year. Our customer base arrived at 1.9 million clients, growing 2%. A positive contribution from Iren 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 experienced lower electricity margin, given the fact that part of our customer base has not been hedged, and growing pool price has hit that part of unhedged customers. Structural emerging cost, specifically on digitalization and commercial activities, also offset part of the positive effect by EUR 8 million. A slight decrease in electricity sold, linked mainly to COVID effects on small business activities, also contributed to a small part in the negative side.
Overall, the outlook for the end of the year, excluding the EUR 4 million of reported extraordinary one-off effect, will be in line with last year. Looking at what is below the EBITDA, moving to slide eight, 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 I.Blu and Unieco. Lower provisions for bad debt related to COVID, EUR 10 million versus EUR 25 million of last year. The absence of EUR 16 million of provisions fund release in 2020 for hydroelectric sector. Plus, we have an optimization of Unieco debt. They reported an improvement of EUR 13 million of financial charges, and a lower cost of debt, and partially offset by an increase of gross debt, and that left 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. Passing to cash flow and net financial position. In page nine, we 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 the EUR 280 million investment, plus dividends payout of EUR 150 million, and the cash out of EUR 27 million for future acquisition, were completely offset by organic operating cash flow, given by net profit plus amortization. Also, derivatives and change in net working capital had a 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 increased debt duration up to 5.7 years, thanks to renegotiation of loans. We also can report a 50 basis point improvement in the cost of debt. 85% of Iren total debt is composed by bonds, and almost 60% is green assimilated loans. 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 million, with a larger growth, especially in the energy and in the waste business. Net profit is expected to be around EUR 290 million, plus CapEx is going to be confirmed at EUR 800 million, and net financial position over EBITDA improves to 3.3 tier. Such positive performance drives the group to look to further improvements on our business plan.
That will be unveiled in November. We are already working on this document. We confirm then today that the new business plan will focus on ROIC 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. Development will be focused specifically on our territorial presence, 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.
M&A will be part of the total CapEx of the plans, simplifying the view on the company leverage evolution. We will focus and report projects that aim to have PNRR contributions, specifically on the waste to chemical and purification plants in Liguria and district heating initiatives. We will focus our alignment of capital deployment on EU taxonomy and in general, on ESG investments. This is all for this presentation, and we can pass on to you for question and answers.
Thank you. Ladies and gentlemen, as a reminder, if you would liek to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel that request, please press the hash key. Once again, that's star one to ask a question. Your first question comes from the line of Javier Suarez at Mediobanca. Please go ahead. Your line is now open.
Hi. Good afternoon, thank you for the presentation. Three questions. The first one is, I guess, on the new strategy of the company. There is a new CEO, 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&A versus organic growth, dividends versus CapEx, or approach versus renewables energy. Any light on the direction for the new strategy, that would be very helpful. The second question is on the consultation document by ARERA on the regulatory work and also on the waste collection and treatment businesses. If you can share with us the latest of Iren on those documents. The third question is on the dynamics for the supply business.
We have seen higher gas margin offset by the contraction of the electricity supply business. If you can share with us the dynamics that you are seeing on the energy supply business overall? Many thanks.
Regarding the business plan, more information will be available as we presented the plan in November. A few elements are, of course, clear, and we try to highlight them. We will have, in general, a 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 networks one. This will lead to, of course, investment in these areas that would be I don't know how to define them. The more you integrate early on the value chain, the more value you can create. We have zero pipeline in terms of new developments in renewables, and therefore, we need to acquire something, which means that some M&A will be needed.
This M&A, though, we 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 plants and very effective in our engineering and construction business. 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 edge, with PPAs, the evolution and development of new renewable plants. I tend to exclude to be the primary acquisition partner of any already built plants in renewable. 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's normally a poor activity, but that we are able to transform into a positive contribution activity. Therefore, of course, we will look for growth in the overall value chain of waste sector. On this, of course, it's a very fragmented activity and a very fragmented market. 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 managing a very strong and very stable customer base in our specific territories.
We understand that being a leader in customer service is the strongest retention tool that we can develop. We are also very strong in penetrating our customer base with more services, which allows us to retain and to reduce churn over time. ARERA, instead, we register, in general, a positive return on the ARERA regulation. ARERA 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 extending stable regulation also to waste and water 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 The regulation need to consider the fact that there were previous agreements underlined. Instead, passing to the WACC evaluation, of course, in general, we see a huge value in the fact that the regulator has a consistent approach in evaluating returns from our business. 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. We know that the authority is well aware of the need for investments, driven by energy transition, and in general, the development of our network businesses. Therefore, we know that all concerns will be addressed by the new regulation.
In the numbers specifically, we see disalignment with our estimates, particularly on the cost of debt. I'm sure that these details will be adjusted in the final document.
Just as a follow-up, it would be fair, I'm referring to your statement on the M&A activity, that as part of your new strategy, the focus on M&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?
No, sorry. No. Of course, we will need to focus on acquiring M&A pipeline for renewable business, but we are looking also at growing into the waste management business. Of course, I cannot highlight the specific targets or specific sectors in this, but we see a value in consolidation of the waste management activity, and therefore, we can be an actor in this consolidation process.
Okay. Many thanks.
Thank you. Your next question comes from the line of Enrico Bartoli at Stifel. Please go ahead. Your line is now open.
Hi, good evening, thanks for taking my question. The first one is regarding the impact of the new scenario for the oil prices in Italy on your numbers. If you can share with us the hedged volumes and maybe the prices for the second half of the year, and at what level you are also on 2022. 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 you see for this year and also in the forward for 2022. A second question is related, 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 Iren at the moment is zero. Also was wondering if discussion are still going on regarding the possible transaction with the CVA and if CVA 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 of margins in the second part of the year. Thank you.
Thank you. I will leave the bit on the hedging strategy to Massimo Levrino. First of all, I will address sustainability of prices. There are two factors that are driving increased prices on commodities, and particularly on energy. One is the growth of gas prices, and the second one is CO2 increase, the emission trading cost that is increasing. First of all, the second element is something that, of course, is not clear that there is a stable market for that kind of commodity, given the fact that it has no utilization. It's a synthetic, let's say, product. We see, in general, an increased need for reduction for CO2. 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.
Of course, I'm not able to set a price on this, given the fact that it has no real utilization value. If I see 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 USA prices. In general, I would say that the marginal facility for gas production is more aligned to that of the U.S. Shale gas is the marginal price facility or price source for gas. Of course, you can increase shale gas production only with a long-term price setting or price signal.
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, that price, I see it less sustainable in the long term, and I would expect a reduction in future times. I cannot, of course, I would be very rich if I had known when. You were mentioning the renewable growth strategy. Yes, we definitely have a zero pipeline currently. This is, of course, a challenge on which we need to work. Of course, it's two months that I'm in charge, so I need a slightly longer time to create an impact on this element. I've already experienced in my professional past, a similar situation in Terna, with the possibility to create a pipeline with plants built and sold in one and a half years.
I see the possibility to create a significant pipeline and a stable source of investment opportunity. Of course, looking at 10-year horizon and not in the very short term. This will be part of our development plan and, of course, we will be there for a contribution to the energy transition in Italy. Regarding CVA, of course, it's a very long story that we are addressing. It's not easy to spot the possibility to finalize any kind of agreement. Of course, the two companies have been very close to at least discuss some possibility for an agreement in the past. 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. We will see. Of course, there are different ways to cooperate with one another.
I believe that this is something to explore, of course, I would not bet any of my personal money on the finalization of it. Going to the hedging scenario, okay, Massimo?
Okay, good afternoon, Enrico. About the hedging policy in 2021, about the hydro production, we have hedged 60% of our total production at EUR 50 /MWh . The thermal production is indeed, that we have covered, we have hedged 45% at the spot spread, of course, at roughly EUR 7 /MWh . For the 2022 forecast, so far, we are around 30% of hydro production hedged at EUR 64/MWh . Regarding the CCGT and the thermal production is very low, take into consideration the low spot spread and the low liquidity that we experience in the market.
Thank you. Just a comment on the evolution of the supply margins in electricity, if it's possible.
I'm sorry. Yes, I forgot. Of course, we are very active in repricing our clients and, of course, on the retail market, that is a usual practice. This is less true on the SME and business customer base, that has an annual contract projection. We will, of course, try to offset during the year in order to reduce the negative effect that we had from the previous half.
Thank you very much. Very clear.
Thank you. Your next question comes from the line of Roberto Letizia at Equita SIM. Please go ahead. Your line is now open.
Thanks a lot for taking my question. You mentioned before a few words about the new waste treatment plant.
That's right.
I would like if you, if it's possible, if you can expand a little bit more on how the authorization procedure and construction and implementation procedure of the new treatment plants, 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 to 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 exceptions in the results, if you can also sum up what will be probably the total COVID related cost waiting on 2021 results. I'm not looking for the improvements, but the absolute amount that will probably impact this year.
If you believe this can be considered as non-recurring as well on next year accounts, in case we get into full normalization, finger crossed. Thanks a lot.
Okay. Talking about the plants, of course, we have completed Cairo Montenotte, and we are starting a construction with two FORSU organic fraction plants. Santhià, and the other one is I'm sorry. In Reggio, and Cairo is the one that is completed. Plus, we are starting CSS in Borgaro and a paper plant in Piacenza, Parma. Also, we have Scarpino plant, the mechanical and biological plant that is going to be assigned the tender this week. On that complex. About the total cost derived from COVID, the impact of EBITDA full year 2020 will be EUR 10 million. The other impact are on the receivables, and in particular, to the provision to that debt, that are EUR 10 million again. We can add other EUR 8 million, roughly, of cost that are the 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 EUR 20 million. Is that correct?
EUR 10 million is the impact of 2021, and EUR 8 million is the estimate of the impact in 2022 on EBITDA. I'm not to add 10 plus 8-
Okay.
-is in 2021, 8 in 2022.
Okay, thanks.
About provision to bad debt, we don't forecast further needs in 2022.
Thank you. Your next question comes from the line of Emanuele Oggioni 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 Sidiren previous Sidigas assets. Could you please give us a quick rundown of the impact of this acquisition in terms of EBITDA and enterprise value? This is first question. The second one is on the waste business. To what extent the landfill extension capacity that will be available next year will 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 your normalized tax rate for 2021 and also what could be the tax rate for next year. The latest one is, I'm not sure I got the hedging policy because the line was very bad. Can you repeat the hedging for H2 and also 2022? Thank you.
Talking about Sidigas contribution, we acquired EUR 47,000 of EBITDA, right? overall, is expected four, EUR 5 billion EBITDA contribution with a net financial position of EUR 32 million. That is the contribution for Sidigas . I leave the floor to Massimo Garrone for the other data.
Yes. First of all, the contribution in terms of EBITDA, the higher waste plant will be in 2022, EUR 10 million increase. About hedging, I repeat that in 2022, so far we have hedged a little less than 30% of the hydroelectric production at the price of EUR 64 per megawatt, and a very low amount of hedged production, specifically, since the market has a very low liquidity. About tax rate, I remember. Tax rate, of course, this one-off is only in the first half, so the extraordinary low tax rate in the first half will be higher considering the full year 2021. We forecast 20% roughly of tax rate in 2021, and starting from 2022, we confirm roughly the same level of tax rate of 29%.
Thank you.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. There are no further questions at this time. I will now hand the call back over to speakers.
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.