Terna Rete Elettrica Adr

Good afternoon everybody and welcome to TERNA's full year 2021 results presentation. Before starting to analyze the features, I would like to share some important highlights of the year. Firstly, regarding regulated activities, it's important to highlight that during 2021, 37 new projects for the development of the Italian grid were authorized. For a total value of over 1 billion investments, in line with the 2021 National Development Plan. Concerning international activities, Terna started the valorization of South American assets for the disposal of its portfolio, lowering even more the risk profile of the group. The due diligence process is ongoing. Closing is expected by year-end. Regarding sustainability achievements, let me say that Ternas' strong commitment in measuring and improving its sustainability performance is positively reflected in its ESG ratings, and consequently its inclusion in the most relevant international sustainability indexes. For instance, I can mention the Dunn-Town Jones Sustainability Index, Stocks Global ESG Leaders, the MIB40 ESG, the Feeds for Good Index. Finally, regarding our shareholders' remuneration, today's Board of Directors approved the 2021 final dividend of 19.29 euro cents per share to be paid in June and to be proposed to the next AGM. The 2021 interim dividend of 9.82 euro cents per share was already paid last November. In line with our dividend policy, total dividend for 2021 is 29.11 euro cents per share. After this brief introduction, let me give you the usual overview of the Italian electricity market, moving to the next slide. As you can see in this chart, in 2021 national demand was about 318 TWh, an increase of 5.6% compared with the same period of 2020, when national demand was about 301 TWh. I would like to underline that in 2021 electricity consumption in Italy substantially returned close to 2090 values. recovering the sharp decline recorded in 2020 caused by COVID pandemic. In 2021, renewable sources covered about 36% of national demand. Regarding national net total production, this stood at 278 TWh, 2.4% higher than 2020. Rest covered about 41% of national net total production, mainly thanks to the contribution of hydro and solar generation. Finally, let me highlight that in line with our institutional role of ensuring security of supply and quality of services at the lowest possible cost for final users, Ternach held in February a capacity market auction for 2024 delivery. With this auction, we awarded all the capacity that had to be allocated, thus covering the system needs. In addition, coverage took place with a good mix of technologies, including the storage system with about 1.1 GW allocated. Now let's move to the main feature of 2021. Regarding 2021 numbers, it is firstly important to clarify that, given the ongoing LATAM revalidation process, according to accounting principles, 2021 and 2020 results attributable to LATAM subsidiaries have been classified as activities held for sale, with impact on revenues and EBITDA and no impact on CAPEX, net income and net debt. Considering this change, group revenues and EBITDA were up by 5% and 2% respectively versus last year, which means 114 million and 44 million higher than last year. Moreover, we reported a group net income of 789 million Almost 4 million higher versus the same period of 2020. Group CAPEX stood at 1521 million, 13% more versus 2020, confirming our strong CAPEX acceleration. To support this huge CAPEX acceleration, our net debt stood at about 10 billion, but about 9.2 billion at 2020 year-end. Regarding 2021 guidance, Considering the statement of international activities held for sale, as you can appreciate from the chart, all these main features met and exceeded the provided guidance for the year, showing Terna's commitment on the execution of the plan. Plan update which is about to be presented on the 24th of March. Now let's make a deeper analysis of the 2021 key features, leaving the floor to the CFO, Agostino Scornaiechi. Please, Agostino.

Thank you, Stefano, and good afternoon, everybody. Let's start with revenues analysis. Total revenues in 2021 increased by 4.6%, reaching 2,605 million, Up by 114 million versus last year. So, as you can see in this chart, we registered positive contributions both from regulated and non-regulated activities for 105 million and 10 million respectively. Then, as already mentioned by Stefano, international activities now include mainly the structured costs related to those activities. For all the details, Let's move to the next slide. Regulated revenues reached 2,254 million, 105 million better than last year, about 5% more than 2020. The increase was mainly driven by the investment acceleration made on the national grid and output-based incentives effects, partially offset by lower revenues coming from quality of service. Non-regulated and international revenues reached 351 million, 2.9% higher than last year. This growth mainly reflected the higher contribution coming from Tamini and Brook. Indeed, Transformers orders intake was up by 69% versus 2020, while high voltage cable production coming from Brook increased by 26%. Regarding energy solutions, we registered higher revenues from the LT Group acquired in October 2021 and higher revenues from connectivity services. Now, let's go through operating cost analysis on page 11. As shown in the chart, total operating costs stood at 750 million, 10.4% higher than last year. The increase was mainly attributable to raw material purchases from Brugge and Tamini due to higher manufacturing volumes and to higher contribution of the LT Group. Let me now analyze EBDA, moving to the next slide. Considering all the previously mentioned effects, 2021 Group EBDA reached 1,855 million, 2.4% higher versus 2020. despite the one-off component related to Brugge acquisition that positively impacted full-year 2020 non-regulated activities. The increase was therefore mainly attributable to a higher regulated contribution of about 80 million versus last year, showing an EBITDA of 1,801 million in 2021. Let's now have a look to the lower part of the profit and losses, turning to the next slide. The precision and amortization amounted to 654 million. The increase versus last year was mainly due to the impact of new assets becoming operational in the period. As a consequence, EBIT reached 1,200 million, 2% higher versus 2020. We reported net financial expenses at 79 million. 8.3% lower versus the same period of last year. This extremely lower level was mainly due to forex effect. Taxes stood at 318 million, 21 million higher versus last year, due to the higher pre-tax result and higher income not relevant for tax purposes registered in 2020. Consequently, tax rates stood at 28.3%. As a result, group net income reached 789.4 million, about 4 million higher versus the same period of last year. Moving to capex analysis, at following page 14, in 2021, total capex amounted to 1,521 million, an increase of around 13% compared to last year. confirming Terna's great ability to pursue its mission. Indeed, we invested about 1,461 million in regulated activities. Among the main projects of the period, it is worth mentioning the Tyrannial Link project, the Paternò-Pantano-Criollo in Eastern Sicily, the rationalization of the Alto Bellunese area, and the Italy-France interconnection. Moreover, Let me underline the investment in stabilization devices such as synchronous compensators, mainly located in southern Italy, that will enhance the national grid stability. Among CAPEX categories, development CAPEX represented 39% of total regulated CAPEX. Defense CAPEX stood at 19%, while asset renewal and efficiency was the remaining 42%. Non-regulated and other CAPEX stood at about 60 million. This includes capitalized financial charges and other investments. Now, regarding net debt and cash flow analysis, let's move to the next slide. Net debt at the end of 2021 was around 10 billion, 830 million higher than 2020 RAND level, mainly as a consequence of the CAPEX acceleration made on the national grid. Let me highlight that we generated an operating cash flow of 1,359 million, thanks to which we were able to cover almost all the capex spending of the period. Let's now make a deeper analysis of our debt profile, moving to page 16. At the end of 2021, we registered a fixed overfloating ratio on gross debt of about 91% and an average duration of about 5 years. In line with our strategy of combining sustainability and growth to promote the energy transition, last July, Terna signed an agreement for a 300 million euro loan with the European Investment Bank at very competitive conditions, represented by a 22-year loan to strengthen and develop the national transmission grid and supporting the 21-25 industrial plan. This agreement followed the new green bond launched in June for a nominal amount of 600 million euro and an effective cost equal to 0.398%. Moreover, let me remind you that at the end of October Standard & Poor's rating agency improved Terna's outlook from stable to positive as a consequence of the same action taken for the Republic of Italy. In December, Tern assigned an amending agreement to the 2018 backup ESG-linked revolving credit facility, with spreads and fees linked to companies' performance on specific ESG indicators. The agreement extended its duration to 26 and increased the amount of credit up to a total of €1.65 billion. I would underline that last February, Terna successfully launched the first green non-convertible perpetual subordinated ivory bone, either for an Italian corporation, for a nominal amount of 1 billion euro. The issuance has been very successful in the market with an order book at peak over 4 billion euro. Lastly, in February, Terna also signed a bilateral ESG link term loan for a total amount of 300 million euro Thank you very much for your attention. Now, before starting the Q&A session, I would like to leave the floor to the CEO, Stefano, for his closing remarks.

Thank you, Agostino. Let me conclude this presentation with some closing remarks. As illustrated at the beginning of this presentation, excluding the first two months of the year, Italian electricity demand substantially returned to pre-COVID levels, with a 5.6% increase compared with 2020. Then we also launched the process of valorization of South America activities, thus lowering the risk profile of the company. Moreover, as mentioned by Agostino, the launch of the new hybrid green bond of 1 billion euro added even more flexibility to Terna's financial profile. As you appreciated, we were able to present a solid set of results for 2021, meeting and even exceeding the guidance provided for the year, demonstrating once again Terna's strong commitment to execution of its plan. From this positive starting point, let me remind you that on the 24th of March we will present the 2021-2025 industrial plan update. Thank you for your attention. We are now ready for the Q&A session.