Business outlook

In an international scenario in which the largest world economies recorded a decline in GDP due to the global health crisis, the Iren Group is dealing with a domestic scenario characterised by a sharp reduction in demand and low commodity prices.

The Group expects to limit the impact of the COVID-19 crisis on the Group’s operating profit, mainly due to the nature of its business (over 70% in regulated or semi-regulated sectors). On one hand, the crisis slowed some construction sites and, consequently, the investments planned. On the other hand, the Group is incuring emerging costs related to the extraordinary situation, a slowdown in efficiency projects and a partial reduction in sales volumes. With the current visibility, it is estimated that the impact of COVID-19 on end-of-year EBITDA will be € 15 million.

On the basis of the recent ARERA provisions and of the corporate measures adopted to mitigate the economic and social impacts resulting from the crisis, at the end of the year, the Group will report an effect on the working capital of € 80 million following the interruption of new actions to suspend/reduce supplies (gas, electricity, water and district heating). Owing to the possible liquidity problems in the customer portfolio, the Group has already increased bad debt provisions due to the valuation of expected losses of € 25 million. These assumptions are in line with the assumption that no further lockdowns will occur.

The previous shutdown of activities and the continuation of containment measures will lead to a partial recovery in demand and prices compared to the previous year. However, as far as energy activities are concerned, during 2020, the Group carried out a series of actions that will enable it to mitigate the impact of the crisis. We expect to be able to seize the potential of the customer portfolio through a recovery of unit margins thanks to the commercial strategies implemented and the increase in the customer base in combination with practical management of the thermoelectric plants.

As regards the regulated sectors, we expect that the rate changes related to the regulatory framework approved by ARERA in the water sector and in energy distribution will have a limited negative impact on the expected margins and will be completely offset by the growth in regulated revenue sustained by the investments made. As regards the Waste Management segment, the collection service will have a positive impact on profitability as a result of an improvement in service quality. Profitability of treatment and disposal activities will continue to reflect the drop in volumes of waste managed and the decrease in energy prices.

The Group will also continue in its growth process set forth in the latest business plan, which provides for significant investments, above all in the Networks and Waste Management divisions, as well as investments intended to increase electricity generation capacity. Iren also confirms sustainability as one of the main strategic pillars, continuing to invest in projects linked to the Multicircle Economy, the efficient use of resources and the reduction of emissions, for approximately 60% of the investments outlined in the business plan.