A2A SpA

MIL:A2A

Earnings Call Transcript

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the A2A First Quarter 2022 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Renata Bonfiglio, IR Manager. Please go ahead, madam.

[Renata Bonfiglio, executive]

Thank you very much. Good afternoon, and welcome to our conference call. Today, the results will be presented by Renato Mazzoncini, CEO; and Filippo Torcetta, Head of Planning. The Q&A session will be based on the questions present by the financial analysts. I now hand you over to Renato Mazzoncini. Please go ahead.

[Renato Mazzoncini, executive]

Okay. Good afternoon, everyone, and thanks for joining our conference call for the first quarter results. So it's a quarter very particular, '22 started with the Russian-Ukraine war. So with a huge increasing in volatility in energy and raw material prices and with an aggregate inflationary pressure so a little bit complicated, let's say.

However, our group managed by -- managed to cope with the harsh times, showing once again, the high resiliency in their overall economic results. So once again because exactly 2 years ago during the pandemic, the topic of the resilience was enough proof.

So let me briefly sum up our main achievements in the first quarter, which continue to set up the basis for our long-term goals. So we have accelerated towards energy transition. You remember that we have 2 pillars. Our industrial planning is divided in energy transition and circular economy.

So starting from energy transition. We have an acceleration with -- aimed at ensuring more flexibility. So in fact, we have been awarded 5.4 gigawatt in capacity market with delivery in '24 with a total expected revenue of 20 -- EUR 220 million, including both existing capacity in our plant for 4.1 gigawatt and new capacity, 1.3. In particular, a couple of plant for us, very important [indiscernible] from coal to gas, and Cassano, with a new plant of gas of high performance.

And as a part of our asset rotation plan, we completed the closing for the sale of nonstrategic natural gas distribution asset with a regulated asset base of EUR 102 million. And the cash -- the cash-in is expected in second quarter.

In addition, we obtained a crucial authorization for a new plant of Bedizzole for the treatment of 60,000 tonnes of organic fraction, so for the production of biomethane, let's say it's very important for us. We have under construction 2 other plant for biomethane in Lacchiarella and in [indiscernible].

But it seems that one effect -- indirect effect of the war and the problem of the energy autonomy of the country is that some dossier can be unlocked. And this is one good example, exactly like the discussion that probably you know about, the waste energy plant [indiscernible].

Okay. We arranged an important collaboration with Pipecare for water networks, so it's new technology for water cycle. You know that we are very committed in growing water. And the idea is to be partner of a public water cycle company, in particular, using new technology. And we finally closed the sale of 3 of our building. And we issued our second sustainable linked bond related to total revenue energy capacity installation for 2024.

Well, looking at Slide #4, the highlights of the period. As I mentioned, this quarter has been quite hard in market by relevant effect on positive and negatives effects. So first of all, we benefit from a robust performance of ancillary services MSD. I can then the first quarter '21, so much higher, EUR 52 million. And the start of capacity market. The effect in this quarter is EUR 35 million more so in the full year, EUR 140 million.

And our energy traders recorded an excellent result in trading portfolio, so about EUR 70 million versus the first quarter '21, thanks, of course, to the right level of volatility. In addition, our Waste to Energy and the [indiscernible] plants took advantage, of course, from the current energy scenario with EUR 60 million of more better result.

And on the other hand, so minus, energy retail unitary margins were affected by contract timing and the consumption profile. Later, we'll explain better this effect with the difference compared with '21 of EUR 80 million. And the growth -- of course, a step reduction in hydroelectric production because you know that we had in Italy a lot of problem with rain this year, and the result is 35% less of hydro production.

At a net financial position level, we recorded a significant cash-in of over EUR 220 million related to the property disposal, so some buildings, with a positive impact also in our P&L. And the extraordinary increase accounts receivables related to Energy Retail mainly due to higher energy prices.

So if you look at Slide #5, we summarize all the effects. So -- and also showed in past crisis, I remember the crisis during pandemic, our group showed good resilience thanks to business diversification and solid financial structure.

So the massive increase in revenues is in effect incredible. We closed the quarter with EUR 5.5 billion of total revenue, driven of course by a huge increase of course of the price of energy and gas cost but was not followed by an increase of EBITDA, of course, because -- is a trading at the end of the day. So the EBITDA is more or less stable. So 2% less, but it's also an effect of the extraordinary decree that our government decided to take at the beginning of the year.

The ordinary net income is down 22% compared to the first quarter '21 mainly due to as a consequence of expiring bad debt provision linked to a greater credit exposure to customers due to the exceptional increase in the turnover grew. And the group net income instead is EUR 65 million higher than last year thanks to capital gain on building disposal. So the last figure is the net financial position, increased by EUR 184 million, topping EUR 4.3 billion mainly due to significant net working capital absorption in energy retail.

If you look the breakdown in Slide #6, is very clear the effect due to, let's say, also the hedging between an increasing EBITDA in generation, EUR 41 million, and increasing in the result of waste business unit. Also in this case mainly due to the increase of price of energy for EUR 32 million. On EUR 37 million is due to the increasing of energy.

And this is [ staged ] with the reduction of the market EBITDA of EUR 88 million. So the total result is EUR 9 million less than '21. And there is an hedging between power generation and our market.

And then I leave the stage to Filippo Torcetta, our controller, to explain in detail our 4 business unit, in particular, will come back on the market business unit to explain what we are doing to recover the results of the market. Filippo?

[Filippo Torcetta, executive]

Okay. Thank you, Renato. Starting from BU Generation, Page #7. We achieved a favorable quarter compared to the first quarter 2021, EUR 41 million better on ordinary EBITDA. Main positive effects are higher MSD. We closed an extraordinary quarter, topping around EUR 90 million, EUR 52 million better compared to the last year, the start of the capacity market, resulting in a plus EUR 35 million versus first quarter 2021 and the high level of volatility as seen in fourth quarter that lead to greater trading portfolio opportunities, plus EUR 17 million.

On the other side, a contraction of 35% in hydro production corresponding to around EUR 31 million of EBITDA reduction and the negative effect on scenario on gas portfolio of about EUR 25 million. We are currently hedged 51% on year to go, mainly on hydro production, about 80%, with an average selling price of EUR 64 [ per ] megawatt hour. This may leave it upside. But at the moment, we don't expect higher volumes.

On CCGT side, we hedge on year to go about 40% with the margin in term of clean spark spread of around EUR 88 megawatt hour. On 2023, the hedge ratio is around 21%, 60% on hydro production.

On Page 8, we have the market. This is the only one with a minus. The reduction of EBITDA margin of EUR 88 million, of which about 50% already expected in our budget, is basically due to the temporary fall in the free market on unitary margin, both power and gas.

The business outlook is still positive, positive customer grow 50,000 new customers in free market compared to the end of 2021, and positive electricity and gas volumes sold, respectively, plus 18% and plus 6%. Focusing on default of unitary margin, main drivers are a different time distribution on -- of the margin of a fixed price contract compared with the previous year, with the same overall contractual margin accounting for about minus EUR 40 million. This is a temporary effect since we expect, all the rest being equal, to recover more than half within this year and the remaining part within 2 years.

Consumption profile, different from those contracted due to the effect of an extraordinary high and volatile price contracts, which accounted for about minus EUR 30 million, and the higher unbalancing cost for about minus EUR 7 million. In addition to unitary margin effect, we recorded higher operating costs for EUR 6 million.

Moving to Page 9. New waste is up 43%. Excluding the positive contribution of M&A, which account for EUR 4 million, the organic growth is 38%. The energy scenario is the main positive effect, impacting on WTE margin for EUR 32 million out of EUR 38 million on urban waste treatment plant.

In addition, we recorded higher quantities disposed in our treatment plants. And the waste collection, that is down EUR 4 million, mainly due to higher fuel cost and the end of a waste concession in Varese since January 2022.

Page #10, smart infrastructure. Smart infrastructure shows an increase of EUR 5 million, driven by positive scenario effect on district heating, which account for EUR 16 million, partially offset by lower regulatory cost of capital, both electricity and gas network, and lower volumes on integrated weather cycle, RAB. Both electric and gas is increasing following to the important CapEx plan carried out.

Now let's have a look at profit and loss, Page 11. Amortization and depreciation increased by EUR 20 million due to the important CapEx plan carried out in 2021 and the impact of the Octopus and Agripower deal, consolidated since the second half 2021.

Risk provisions equal to EUR 32 million, higher than corresponding figure in the first quarter 2021. The related change is mainly due to a bad debt provision following to the surging of revenues in Energy Retail to higher energy prices. In Q1, we sold some our buildings with a capital gain pretax of around EUR 160 million. Taxes increase for capital gain and include also the impact of the law Taglia prezzi and the Aiuti. Thus, the group net income in the first quarter 2022 reached a value slightly higher, EUR 200 million. So Renato, I'll leave you again the floor to present the CapEx plan.

[Renato Mazzoncini, executive]

A quick overview on our CapEx program. It's easy to see Slide #12 that we increased 20% of CapEx in '22 compared to '21 but confirm our plan -- CapEx plan included in our industrial plan. In particular, you can see that EUR 114 million are development; the other, maintenance. 80% linked to SDGs goal, so a huge part. And 60% in energy transition, 40% in circular economy.

Surely, the growth of another EUR 31 million compared with last quarter or the first quarter of '21 confirm that we are pushing a lot in investment. And with this strategy, that guarantee the growth for the future and to catch the opportunity that we have in this period. Filippo, do you want to say something about net free cash flow?

[Filippo Torcetta, executive]

Yes, Renato. Slide 13. Moving to our cash flow. The total absorption is equal to EUR 184 million despite cash-in of EUR 221 million related to the property disposal deriving from a significant increase of net working capital and other asset liabilities.

In the first quarter of the year, the net working capital is usually affected by seasonality, the commercial receivable growth to the sale of gas, electricity and heat. This year, we experienced a temporary effect, about EUR 460 million from energy market and one-off measure from government that will be resolved. Considering that we have not seen any deterioration in our customer portfolio delinquency, all the movement in the net working capital should be considered temporary.

Now if you turn to the following page, there is a focus on temporary items and their effect on our cash flow. By excluding changing perimeter and property disposal and the temporary items, the ordinary cash generation is positive and reached EUR 80 million. That said, government measure include installment plant -- plans for electricity, gas and distributing builds and the cancellation of general system cost, leading to higher net exposure. On the other side, scenario and volumes include an increase of the trade receivables primarily due to tariff grow for electricity, gas and distributing sales. So Renato, if you want to show the guidance?

[Renato Mazzoncini, executive]

Yes. The guidance, Page #15. We confirm our guidance '22 shared during the last strategic plan update with an EBITDA in a range EUR 1.4 billion, EUR 1.45 billion. And net ordinary income, excluding nonrecurring items and extraordinary government measures, so below decrease Taglia prezzi and [indiscernible] Aiuti in a range of EUR 330 million and EUR 370 million.

So as reflected in the first quarter results, the group benefited from business diversification and a solid financial structure. And so despite all the problem of scenario and the problems linked with a different decree but arrived in the last month, we are able to confirm the guidance. That is truly good news. Okay, guys. So I think that we can shift to question and answer.

[Renata Bonfiglio, executive]

Okay. Now we start with the Q&A session that as I anticipated are based on questions which we have received from the financial analysts. And I'll start with the first one.

For Renato, do you see any risk for A2A deriving from the potential interruption of gas supply from Russia impacting CCGT plants or gas retail sales?

[Renato Mazzoncini, executive]

Well, first of all, A2A has no direct supply from Russia or from Russian counterparties. So in a scenario, of course, very critical of a full cut of Russian gas imports, the price of European gas will increase surely. And in this case, A2A have 3 main exposures. The first is A2a purchases gas for its CCGT power plant. But in this case, the high level of price will be reflected in the power price like usually. Then there is absolutely no risk for A2A.

The second is that A2A purchases gas for its customer portfolio. But since A2A does not currently have an open position to fix prices, the market price will also be reflected in the final price to clients. So let's say, is -- it pass. And so also in this case, 0 risk. And the third is A2A will be exposed to a variability of a daily volume profile, so problem in today in case of metrological condition different from the region, and however, their impact may be absolutely negligible so.

[Renata Bonfiglio, executive]

Okay. Could you share your updated view about current energy prices level and market environment? What about 2023/'24 outlook?

[Renato Mazzoncini, executive]

The current situation of high oil and gas prices is also exaggerated by the conflict, of course. A2A expected oil and gas prices, and the point to stay to high level also in the next year, also because it don't seems possible to see an end of the war in few weeks. So TTF prices are expected at EUR 83 per megawatt hour for '23 and EUR 65 for '24. Comp prices are expected at EUR 218 per megawatt hours for '23 and EUR 173 for '24. So it's in line with the forward curves. So this is the number that we have in our forecast in our business plan and higher than -- surely higher than our business plan assumption used in the industrial plan presented in January and potentially can be an upside.

[Renata Bonfiglio, executive]

Our third question, on geopolitical macroeconomic environment. How are you managing the procurement for the construction of renewable plants in the context of growing inflation? In addition, are you experiencing any supply chain issues?

[Renato Mazzoncini, executive]

Well, a significant inflationary impact is occurring both in the sector in general. It's clear. It's enough to read the newspaper every day and on photovoltaic panels in particular. However, in the first few years of our business plan, there are no significant planned plant construction. If you remember, in the first phase, we have more M&A, and in the second, greenfield construction. So the hypothesis is that the inflection that we have today in this particular moment probably also due to the huge demand, can change in the next years. So the only project included in our pipeline that will start shortly is a 30-megawatt wind plant -- power plant in Sicily, which has been already contracted with an EPC in accordance with the assumption included in the business plan. So we was able to close this procurement at the exact very same price used for the valuation of a return of investment. So we expected that this inflection level is not going to be structural because it -- in this case, it would be a very big problem for all the economical system.

On other CapEx, the average increase during the negotiation with suppliers is about 5%. So yes, 5% is not peanuts but is not the 30% that sometimes is possible to read somewhere. So however, we are discussing framework agreements with suppliers to mitigate the inflationary effect. Also for suppliers, can be an opportunity to stabilize their relation with us.

[Renata Bonfiglio, executive]

The following question is about the National Recovery and Resilience Plan. Could you please give us an update on the potential projects? And also, what is the timing for them? And in your opinion, is there any risk of under-allocation of the financial resources available?

[Renato Mazzoncini, executive]

Well, starting from the fact that A2A has identified a total of 43 target project with a total allocation of EUR 57 billion as relevant for these activities, the timing for our participation in the project is mostly dependent on when and how they are made publicly available. Generally, we adopted 2 different approaches based on the retail and the level of fit with our industrial plans.

So prompt -- the first is prompt application from those that are already were defined in the scope and are highly compatible with our industrial plan. So we are not looking for resources from P&L. They're out of scope for us, to be clear. For those that are still a work in progress at the ministry level and still have a substantial degree of fit with our business, we are adopting an active stance of -- in our effort to influence the [ founds ] at the policy market level. So the risk of under-allocation of the financial resources available is real and -- as well are tenders, but so minimal or 0 allocation on the available funds. However, the general understanding is that the policymaker will tweak the deadlines or the specific or those tender in order to achieve higher rates of authorization. The main problem that we see is achieving full allocation of the '26 completion deadline, which is extremely tight for some infrastructure projects, requiring length authorization, processes and with fairly substantial construction time, plus, the magnitude of some of the incentives which are not necessarily enough to bring some project in the money. But to conclude, talking only about A2A, the impact of the money from National Recovery and Resilience Plan is very, very marginal, so I think that it's more interesting for us, the money that can arrive in research. So university, we are closing a lot of agreement with more or less 10 very important university in Italy because they have money, in particular, for technology transfer. And so they need to beat ecosystem with such center, university and companies. And so probably, the best effect of this money for us is to be able to push more the research. In some field, for example, battery, hydrogen and so on, that can be very interesting for the future.

[Renata Bonfiglio, executive]

After the interruption of the negotiations with Ardian, does A2A still look for a deal in the energy business as to accelerate growth, extract energies, et cetera, without paying high multiples? Have you changed your strategy in renewables?

[Renato Mazzoncini, executive]

No. We have absolutely not changed our strategy of renewables. Also because, what you can find in our industrial plan is what we are able to do alone. And so also the hypothesis of agreement with Ardian was linked to opportunities of acceleration from industry plan, not hypothesis to do it. So A2A is constantly reviewing several M&A opportunities in dossier in line with the strategic lines of our business plan, which means mainly renewable energy and circular economy, of course. At the moment, we are not planning any partnership. As we won, we were evaluating with Ardian mainly due to the current macroeconomic situation and likely volatile market conditions. So I think that in this particular moment, it's better to understand the evolution of a scenario before starting eventually new agreement. So we have not in place any plan to sell other parts of our gas network's assets as well. Our growth strategy of [ SM ] has not changed. And we keep striving to raise our solar and wind capacity of 3.9 gigawatt by 2030 as written in our install plan.

[Renata Bonfiglio, executive]

Okay. On hydroelectric concession standards, could you please give us an update on the discussion on Competition Law, please?

[Renato Mazzoncini, executive]

Well, the topic is already under discussion. The Italian Parliament is still discussing the draft of Competition Law. You know that inside the Competition Law is in particular a topic about whether concession, Article 5 of the Competition Law. At the moment, the draft of Article 5 does not modify the current regulation, particular considering that the A2A plants are taking in long but different and it's a [ Julie ] in Cavaglià, which have already adopted their own regional laws. In '21, [indiscernible] region has begun inspections of A2A hydro plants with expired concession. In April '21, the concessionary submitted into Lombardy reports about the above-mentioned concession. But at the moment, Lombardy has not yet adopted the regulation needed to issue tenders. And in April '22, Lombardy launched the proposal of regulation about evaluating on water use to determine if water deviation could or not continue. But definitely, the regulation of water use has not been adopted yet. So we are, let's say, ongoing. And I repeat that I imagine that, for the income of hydro concession, there will be opportunities to invest and to continue to operate this asset.

[Renata Bonfiglio, executive]

Okay. The following set of questions is for Filippo. There are -- we got many questions on details on 2022 guidance. Could you please tell us the risks regarding the different business units, the CapEx, and the expected M&A and the debt expected at the end of the year? Could you confirm the guidance given of the business plan of the level around EUR 4.4 billion bond, hybrid bond included? Please go ahead.

[Filippo Torcetta, executive]

Thank you, Renata. Focusing on risk, we can see 3 main risk. First of all, lower hydro volumes than expected in Q4. At the moment, we forecast a standard hydroelectricity after lower snow level seen in Q1.

The second one is the unexpected higher volume of sales to Energy Retail final customer to be covered on the spot market at an average purchase price higher than average selling price. And finally, impact of unbalancing cost in Energy Retail in a context of high spot prices.

Relating to CapEx and expected M&A, we have already signed crucial M&As acquiring to new and for new. Cash-out is expected in Q2. And the Volta Green Energy, this deal was closed in March. We still keep looking for interesting target that fit with our long-term strategy. We want to keep a high level of CapEx in line with our business plan commitment. However, in case of an emergency, we are fully able to postpone some of them. With regarding on guidance on that, this stage, given the high uncertainness on the current environment, commodities market volatility and government measure impact, we will provide an indication on the debt evolution different from what included in the business plan.

[Renata Bonfiglio, executive]

Okay. Go ahead with the results and guidance. What are the effects of government measures on Q1 '22 results at EBITDA, EBIT and taxes, please?

[Filippo Torcetta, executive]

Okay. Q1 result include the FX related to both restoring decree law and Taglia prezzi, Aiuti decree law on the extra profit, extra contribution of 25%, in particular, related to restoring decree law account for minus EUR 6 million in first quarter 2022 and EUR 60 million on full year. This is classified amount nonrecurring EBITDA in BU generation. The greater weight of the following quarter derives from the current lack of hedging on production in some month of the year, in particularly, July, November and December.

Relating to Taglia prezzi, Aiuti decree law, account for about EUR 30 million fully recorded in the first quarter. This is classified amount taxes in the income statement.

In the world of adding that some of recent government measure is taken for the surge in commodity prices have introduced the simplification to build renewable plant, for instance, quicker authorization, enlargement of eligible building areas, which may support our effort to grow in this area.

[Renata Bonfiglio, executive]

Okay. Now could you please give us the updated level of electricity forward sales for full year 2022 and 2023, both hedge ratio and prices?

[Filippo Torcetta, executive]

Okay. Group hedge ratio for the full year 2022 is equal to 57%. Fixed price production, mainly hydro, have an hedge ratio equal to 82% at EUR 69 per megawatt hour, while CCGT production have an hedge ratio equal to 46% at EUR 11 per megawatt hour clean spark spread. Group hedge ratio for the full year 2023 is equal to 21%. Fixed price production have an hedge ratio equal to 55% at EUR 141 per megawatt hour, while CCGT production have an hedge ratio equal to 2%, 8 -- EUR 11 per megawatt hour.

[Renata Bonfiglio, executive]

Then on 2022 guidance as for generation, how much is the hydroelectric production expected for 2022? Do you see room for further decrease of hydroelectric output due to the drought? What are the -- you prefer one by one. What are the implications on the sales of fixed price already closed, i.e., over-hedging risk? What is the easy amount of hydroelectric fees expected in 2022 versus 2021?

[Filippo Torcetta, executive]

Okay. At the moment, hydroelectric production implied in our forecast is about 3.4 terawatt hour. If the drought continues and water supplies remain very low, we can expect a further decrease in our hydroelectric production. If snow continues, there is an over-hedging risk, and we may close our position, buying back volumes, hydroelectric fees expected to increase by EUR 70 million in 2022 versus 2021.

[Renata Bonfiglio, executive]

Now we move to ancillary services. Do you consider sustainable the strong performance achieved in the MSD market following the implementation of the capacity market?

[Filippo Torcetta, executive]

As you've seen, in the first quarter 2022, we achieved a total ancillary services margin of about EUR 91 million, EUR 41 million in Q1 2021 thanks to some market opportunities. At the moment, according to the current market dynamics, we can foresee for the following quarters an overall margin for ancillary services in line with the normalized trend, more or less EUR 35 million per quarter, for a total amount of EUR 200 million for the full year. Better performance will be -- depend on the market and efficiencies. The new mechanism of capacity market only affect the price offered on MSD margin, which is kept at strike price.

[Renata Bonfiglio, executive]

Okay, 2022 guidance on business unit market. How much is the impact on 2022 that will be reabsorbed in the following years? Do you see risks of volume imbalancing for contracts at fixed price?

[Filippo Torcetta, executive]

A large part of a reduction in margins recorded in Q1 was already expected in our business plan and will recover in the next quarter for yearly contracts or in 2023/2024 for the contract exceeding 2022. Additionally, recovery action are in place to reassert Q1 unexpected negative impact on margin due to extraordinarily high and volatile price context. Action will be pushed both in term of commercial strategy and leveraging on operating cost efficiency.

Relating to the impact on 2022 that will be resolved. Considering current forward prices, the impact on 2022 to be resolved in the following years amount approximately to EUR 36 million.

Risk of volume and unbalancing cost. Risks are related to fixed price contract themselves, properly hedged according to group policies, but to customer consumption profile, either fixed and variable, that could partially differ from contractualized volume in a context of extraordinarily high and volatile prices. The group will mitigate the risk by reducing the incident of fixed the contract and postpone our portfolio.

[Renata Bonfiglio, executive]

Offers at fixed prices have been proven to be really difficult to manage in a context of rising commodity prices. How does the company intend to modify its commercial strategy, both in electricity and gas?

[Filippo Torcetta, executive]

The commercial action currently in place regard both market -- mass market and large customer segments. On the mass market, the group has interrupt the offer of a new 24-month contract at fixed price since the beginning of March. Current offer mix is composed more than 50% by variable index offer and the rest by annual fixed price offers. On large customer, fixed price sales have been interrupted since the end of February.

[Renata Bonfiglio, executive]

Now on working capital. The first quarter saw negative movement in working capital. How much of a temporary effect could be reabsorbed during the remainder of 2022? May the working capital boost compromise your capacity to accelerate CapEx while paying growing dividends? Can you detect a risk of excessive leverage in the short term? What are the requests of the rating agencies to keep your current rating?

[Filippo Torcetta, executive]

About temporary effect absorption, the bill's installment plans and the other government measure that hit the net working capital in first quarter should be resolved before year-end. However, other measures expected in the [ law at ] Taglia prezzi will offset the net working capital in the second half of the year. The time recovery of the net working capital increased to commodities prices depend on the energy scenario, excluding the effect of a seasonality. If the price remain at the level or lower, the effect will be reabsorbed. And conservatively, if the price go up, the net working capital will increase absorbing cash. Anyway, any other increase in net working capital only due to prices will be temporary. Our commitment relating to the rating agencies is to maintain the current credit rating. We are closely monitoring the situation, working on strategies to mitigate the temporary impact from energy markets and one-off measure from government. A2A can evaluate many option. In 2022, Standard & Poor threshold for FFO to net debt is 20%. And Moody's requests to be in the low 20s. Additionally, the group has a solid liquidity position, EUR 2.4 billion, made up by cash on hand and unused committed facilities, more than EUR 3 billion to manage commodities market volatility and net working capital swings.

[Renata Bonfiglio, executive]

Question on hybrid bond issue. Any news on that?

[Filippo Torcetta, executive]

A2A is closely monitoring capital market condition. If any case, hybrid issuance is expected to occur in second half. In March, we have successfully issued a 6-year bond despite the volatile environment.

[Renata Bonfiglio, executive]

Okay. Now I'll turn to Renato for the final questions. And can you please explain the poor performance of the gas supply business and your expectations by year-end?

[Renato Mazzoncini, executive]

Yes. Well, the negative performance of the gas supply business is relating of for cause to increasing prices trend started last year but constantly affected the promptly hedging of sales. Therefore, the growing demand by Energy Retail leads to additional purchases at -- an increase in spot prices. So we expected a recovery in the following month, so between April to December, closing more or less to EUR 10 million, EUR 15 million better than '21. However, the future performance may be influenced to that also by the forecastable variables such -- in temperature like area and volatility of a view of volumes. So in addition, consider that the storage in action campaign has not been completed yet. And it could lead to positive effects on the result of the current year and the -- over first quarter '23, so.

[Renata Bonfiglio, executive]

Could you please give us an update of authorizations for biomethane plants? What is the expected increase in capacity of up to 20% of plants?

[Renato Mazzoncini, executive]

Well, as I said before, if you remember during presentation, the construction of 2 plants is ongoing, in particular in Piedmont and Cavaglià and Lacchiarella between Lombardy [ and Liguria ], for treatment of organic fraction, so wet waste, and for the production of biomethane. And this plant will be completed surely by the end of '22. The plants are newly built and therefore being dimensioned to capture the territorial and site synergy. And the equipment has been sized to guarantee an additional 20% on top of the authorized capacity. So if -- with a new law that drive 20% more of capacity in every plant, the IRR of this plant can be absolutely better than forecast.

[Renata Bonfiglio, executive]

Is the capital gain from the real estate disposal eligible for dividend payment?

[Renato Mazzoncini, executive]

Yes. The capital gain from real estate is historically eligible for dividend. But we confirm absolutely the dividend growth envisaged the -- in the strategic plan. So we have no idea to change it using dividend from on this disposal.

[Renata Bonfiglio, executive]

The last question is, what are the prosoluto commercial credit disposed in Q1 '22?

[Renato Mazzoncini, executive]

And this is an easy answer, Renata, because we did not sell prosoluto commercial credits in the first quarter of '22, so.

[Renata Bonfiglio, executive]

Okay. The call is over now. Thank you for your time and attention. The Investor Relations team is available for any follow-up. Thanks for joining us. And until next time. Goodbye.

[Renato Mazzoncini, executive]

Okay. Thank you. Bye-bye.