Half Year 2018 A2A SpA Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Stefano Gamberini - Equita SIM S.p.A., Research Division - Analyst : A few question, if I may. First of all, regarding the new board of the energy authority, if you can share with us what is your view and also regarding the new undersecretary of the development minister with the -- which are in charge -- who are in charge for energy. The second question, regarding your renewables. The EUR 500 million that you want to invest, could you spend a few words about that? You said, you took part to the tender for RTR, but at the end, you left. So when we could have an acceleration of these investments? Lastly, sorry to come back to power generation and full year guidance. But you stressed that there were in the first half EUR 21 million of higher green certificates as well as the MSD market that was EUR 150 million. Your expectation for full year is now EUR 150 million versus EUR 100 million the previous expectation despite that the full year guidance has not changed. So why you have this? Where is the compensation where the margins are lower in the power generation or other sector in order to keep the same full year guidance? Finally, regarding the hedging, if you can give us an indication, what was the hedging impact in the first half? And what is your strategy for '19? And because, if I'm not wrong, the market is still strong with high power generation, high forward power curve, so what is your strategy on that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2018 / 12:30PM, A2.MI - Half Year 2018 A2A SpA Earnings Call Luca Camerano Okay, Stefano. On the new board of ARERA -- of course, we need to express our thoughts. I think we should wait for the first interaction with ARERA. What we can say is that we have already had that in the past, at least in interactions with 3 of the -- of 4 -- 5. So the 3 of them -- I mean, the chairman, certainly. The chairman of ARERA, [he] was involved in many debates and studies and analyses we had done in the market. We think that he's a very reputable person, very knowledged and very structured in the knowledge of this domain. So he's certainly not somebody new to this industry. And then, we know, at least better 2 out of the 5. And the same is also applied to both of them. So we'll see. But it seems a balanced board with enough experience in the industry. So at least one of them also has experience and knowledge also on the waste side. On the undersecretary, again, I think, we know that the -- under ministry, he's involved since, at least, 3 or 4 years on the energy domain. So we will see what his opinion is. But we don't have for time being any specific elements to comment personally on the person. On the renewables, we confirmed our interest in the progressing our -- expanding our portfolio. As you might have seen, personally, we have been also involved in the latest deal, which the Glenmont tender. I think we're going to be soon shortlisted for this deal, which is quite significant in terms of amount. It fits for our size. I mean, it is something in the region of 80 megawatt. We have dropped our RTR mostly because we didn't feel we had the right partner to do that for the magnitude of the investments, but we confirm our interest from a strategic point of view. That's why for the reasons we've also discussed with some of you several times, I mean, there's a solid and strong view provided by the government on the growth, maybe even stronger than previous energy strategy was looking at. And we do see prices going down significantly in the -- in solar and wind technology. So we want to be part of this game for the future. Last but not least, we have integrated the 3 assets we had bought in the last 6 months. We're happy now they are running and dispatching immediately. We have, et cetera, et cetera. So we'll continue to look at these deals. The typical, average site deal we look at is between 50 and 80 megawatt. So this is the kind of deals that we're looking at. So we confirm our strategic goals. Of course, what we will do, we'll go after deals only and if the strategic content and the industrial content of the deal is confirmed and the financial KPI of the deal are acceptable to us in terms of IRR and et cetera. So we will continue to have a disciplined -- a financial discipline in all our investments. On the guidance, full year guidance, I think, you're right. I mean, we have MSD up of basically EUR 50 million, going forward. This is entire year I'm talking. And we also have green certificates up EUR 20 million, which is basically EUR 70 million up. By the same time, we have a gas portfolio, which is down by EUR 30 million. And we have no capacity market arriving, which is something in excess of EUR 30 million. So globally, we are pretty balanced. So plus EUR 70 million minus more than EUR 60 million. So we're pretty much balanced in terms of effects. And this is why we want to keep our view in terms of guidance. Maybe just another comment on the -- before, I think I forgot to mention this on answering your third question, Stefano, regarding renewables. I think it's -- we are close to issue -- although we already issued the press release where we announce the construction of the largest rooftop, in Europe, solar plant, which is 14 megawatt, which will be, basically, in joint venture with Fiera di Milano. This is going to be the largest rooftop plant probably in Europe, among the largest, which will -- basically, will provide clean energy between structures and storage and recharging stations in the area of Fiera di Milano. Just to give you the sense of what we're looking after, we're looking after existing assets when we are ready to go. Also under grid parity -- market parity deals, this is going to be probably the first rooftop market parity deals in the country. So last but not least, I mean the hedging. We have hedged in 2018 64% at an average rate of EUR 55 million in 2018. In 2019, we have hedged at the moment roughly 28% at an average price of EUR 54 million. But if you dig out a little bit in this 28%, you will see that we have hedged quite significant portion of the hydro, which is in the range of 60% of hydro in 2019. Why? Because we're starting to see prices that are satisfactory for us and, generally speaking, above our budgeted target. So we believe that it's a good opportunity to start closing 2019, which basically [so much] and strengthen our paths to generate the targeted EBITDA in 2019 also. So I think we are a little bit more active than usual in 2019 because we do see a space to close interesting prices and interesting spreads. This is why we are more using hydro than other technologies. If you remember, normally, we tend to leave open the CCGTs in order to exploit the flexibility. So if I have to take the chance to comment, 2019 for the time being, it looks that 2019, it is a year of more interesting opportunity in terms of boon and spreads.

Question: Stefano Gamberini - Equita SIM S.p.A., Research Division - Analyst : Yes, I was trying to understand why you are not changing the full year guidance and what is the negative impact from the hedge. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2018 / 12:30PM, A2.MI - Half Year 2018 A2A SpA Earnings Call

Question: Stefano Gamberini - Equita SIM S.p.A., Research Division - Analyst : Yes, or the full year because probably you can also visibility on the full year right now.

Question: Stefano Gamberini - Equita SIM S.p.A., Research Division - Analyst : But positive EUR 15 million, 1-5?

Question: Stefano Gamberini - Equita SIM S.p.A., Research Division - Analyst : Yes, more or less. And now it's clear it's mainly on the gas. The difference why on the capacity market, it's so that this was already excluded from the guidance, but it is not the case, okay. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2018 / 12:30PM, A2.MI - Half Year 2018 A2A SpA Earnings Call Luca Camerano No, no, no. The effects of gas and the capacity market are now -- I was commenting on a full year basis, yes. Full year basis.

Question: Stefano Gamberini - Equita SIM S.p.A., Research Division - Analyst : Just a few words, if you can, regarding the Waste business. What is the situation of the authorization of new treatment plants? There were, just this morning, an article on the press regarding some risk of postponement of the -- all these new projects due to some new [load debt] that is needed for going ahead with new investments. And what do you expect for the market next year? Luca Camerano So Stefano, for the market, we do expect still a tight market. So the market will continue to be tight. So we expect prices to be -- to remain or to increase -- inventory increase. So the market's this tight. In terms of authorization process, we don't have elements to change our view. It's progressing. We are getting the authorization pretty much in line with our expectation despite the fact that the authorization entities are a public entity, so they have their own timing. So we keep going ahead. On that, no issues on that front, okay?