Market context and guidance

We operate in a complex area of reference together with national players and local utilities, among which Hera, Iren, and A2A. We are present in sectors that are highly regulated, including in terms of tariffs. The reference regulatory context is extensive and articulated, according to the specific nature of the businesses managed (water, energy and environmental) but also the variety of areas in which the detailed legislative and regulatory provisions affecting our business intervene.

The technological scenario shows great dynamism, with intense research and development activities on the part of innovative service producers, as well as the pervasive application of these technologies in all the group's areas of operation.

In addition to these long-term trends, the year 2022 was characterised by geopolitical and market instability. Moreover, unfavourable worldwide climatic events were recorded. The European Union reacted by way of its REPowerEU plan, aimed at reducing the dependency on fossil fuels coming from abroad and accelerating the green transition. In this context, it is also necessary to understand and evaluate the global institutional initiatives during the year, such as the COP27 on climate change held in Egypt and the COP15 on biodiversity in Montreal.
Within this scenario, the NRRP (National Recovery and Resilience Plan) was confirmed as one of Italy’s key growth factors in 2022. The European Commission has paid the first tranche of loans envisaged for the progress made by our country in the scheduled reforms and investments, including those in favour of the energy transition and the circular economy.

Water sector: The Authority’s action, for all regulated sectors, is directed towards ensuring the usability and distribution of services in a homogeneous manner throughout the national territory, defining suitable levels of service quality, drawing up certain and transparent tariff systems based on predefined criteria and enhancing the protection of user and consumer interests. Moreover, the ruling by the Italian Regulatory Authority for Energy, Networks and Environment (ARERA) on the quality of the integrated water service promotes above all the efficiency of operators, with the introduction of a premium and penalty mechanism associated with performance standards, and gives increased emphasis to issues associated with environmental sustainability.
For service managers, development opportunities are therefore closely linked to their ability to adopt advanced technological systems and efficient performance improvement models, together with general objectives that take account of social issues, environmental protection and the efficient use of resources.

Energy: In November 2022 the COP27 took place in Sharm el-Sheikh, with lines of action pertaining to five issues: decarbonisation, climate adaptation, nature, food and water. The Conference was concluded with the adoption of the Sharm El-Sheikh Implementation Plan, which maintains the points ratified in the Glasgow Climate Pact (COP26), namely the commitment of the signatory countries to limit the increase in global temperature to below 1.5°C with respect to pre-industrial levels.
The National Energy Strategy adopted by the Italian government in 2017, together with the Integrated National Energy and Climate Plan (INECP) definitively approved at the end of 2019, defined certain key elements, including:

• decarbonisation through a strong drive towards electrification and an increase in the percentage of consumption covered by renewable energy sources;
  
• energy efficiency, in line with ecological transition objectives;
  
• the increase in energy security so as to guarantee the flexibility, adequacy and resilience of the electricity grid;
• the development of technology and innovation in order to enable the “new downstream”, making the customer active and aware;
• the full liberalisation of the market and consolidation of players.

To respond to these changes, Acea is working on new initiatives, from developing renewables to e-mobility.

Environment: the market context in this area shows a high “potential demand”, for example insofar as concerns landfill disposal, waste-to-energy, composting and biogas production, sludge and liquid waste treatment, the recycling of mixed materials and production of “Secondary Raw Materials”. The sector is also favoured by the trend in the Italian regulatory framework, which provides for incentive forms and “revenue cap” mechanisms, together with the indications of the European Union with regard to the Circular Economy ("Closing the Loop") aimed at the recycling and recovery of materials, facilitating the development of a new plant engineering in order to recover the infrastructure gap, particularly in the treatment of organic waste. The European indications are currently being implemented in Italy, pursuant to an enabling act giving the Government the obligation to revise the environmental regulations to bring them into line with the new EU standards. The sector offers growth opportunities also due to the availability of new technologies (for example, composting) and the possible industrial integrations with other operators. The situation is therefore propitious for our growth strategy, also via acquisitions and with a view to positioning the Group as major operator in the treatment and recycling of paper, plastic, metal and wood.

Read more about our strategic initiatives in all business sectors.

For further information regarding market trends and the regulatory and tariff framework, reference is made to the 2022 Consolidated Financial Statements

For further information regarding the sustainability context, reference is made to the Sustainability Report.

Business and Financial Outlook in 2022

In a context that remains complex, mainly due to the consequences of the war in Ukraine and its effects on the economy and society, as well as the negative impacts of volatility on the energy market, 2022 results have recorded a solid growth. However, net profit in 2022 was influenced by external factors, mainly taxation of excess profits and the increase in interest rates for financial operations.

Starting from the fourth quarter of 2022, the Group paid greater attention to managing costs and investments. Acea set up a timely revision of its procurement procedures to improve its competitive processes, enabling a prompt reduction in costs and optimisation of investments and work orders. Additionally, lines of action were defined to contain credit risk through prevention and management of the customer portfolio.

All of the actions implemented have led to a strengthening of the Group’s position as an operator with a strong industrial vocation, maintaining a sound financial structure and generating positive impacts on the Group’s economic and operating performance.

With reference to the Water segment, Acea released the doubling project for Peschiera, one of the ten works deemed of national interest. This 1.2 billion Euro project, of which 700 million Euro covered through public resources allocated in the 2023 Stability Law, provides for the safety enhancement of the Capital’s water supplies. Additionally, the assignment of NRRP projects was unblocked, for the implementation of works in the areas of Lazio, Tuscany, Campania and Umbria.

Regarding the environmental area, in October Acea received authorisation from the Lazio Region - initially requested on 20 August 2020- to upgrade the Waste-to-Energy Plant in San Vittore (province of Frosinone). The project is fundamental in closing the waste cycle in Lazio and will improve waste-to-energy capacity by 186,000 tons per year, with an investment of over 230 million Euro. On March 1st, Acea and a group of major domestic and international leaders in their respective sectors presented an expression of interest to participate in the tender for assignment of the new Waste-to-Energy Plant in Santa Palomba (province of Rome).

With regard to public lighting and the electricity distribution grid, Acea was able to relaunch significant investments, also in view of the upcoming Jubilee, thanks to a renewed collaboration with the Municipality of Rome.

As at 31 December 2022, 84% of debt carried a fixed rate, with a view to ensuring protection from possible future increases in interest rates and from financial or credit volatility, as well as an adequate coverage of the Group’s potential financial requirements. In January 2023 the issue of two Green Bonds was successfully completed for a total of 700 million Euro, further strengthening Acea’s position as a sustainability leader.

Guidance 2023:

• Growth in EBITDA between 2% and 4% compared to 2022
• Investments essentially in line with 2022
• Net debt/EBITDA ratio below 3.8x.