Business outlook

In an international scenario in which the largest world economies recorded a contraction of GDP due to the global health crisis, the Iren Group is dealing with a national 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 the one hand, the crisis slowed some construction sites and consequently the investments planned, a delay that we expect to recover during the year; on the other hand the Group will incur emerging costs related to the extraordinary situation, a slowdown of the efficiency projects and a partial reduction in sales volumes. It is estimated that, if there are no further lockdowns in the second half of 2020, the impact on the EBITDA at the end of the year generated by COVID-19 will be equal to € 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). Due to the possible cash flow difficulties of the customer portfolio, the Group has already increased the provisions for impairment of receivables by evaluating the expected losses of € 25 million. These assumptions are in line with the hypothesis that no further lockdowns will occur in the second half of the year.

Despite the cessation of the lockdown this past May, the previous shutdown of activities and the continuation of containment measures will not lead to a full recovery of demand and of prices compared to the previous year. However during 2020 the Group, as regards energy activities, has carried out a series of actions which will make it possible to mitigate the impact of the crisis: we should be able to seize the potential of the customer portfolio through a recovery of the unit margins thanks to the commercial strategies implemented and to the increase in the customer base.

As regards the regulated sectors, we expect that the tariff 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. Finally, as regards the Waste Management segment, the new ARERA regulation of the collection service will have a limited negative impact on profitability. The profitability of the 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 destined to increase electricity generation capacity. Iren also confirms sustainability as one of the main strategic pillars, continuing to invest in projects linked to the Circular Economy, the efficient use of resources and the reduction of emissions, for an amount of approximately 60% of the investments provided for in the business plan.