Terna Rete Elettrica Adr

Hello and welcome to the first quarter consolidated results conference call. My name is Jess and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listener only. However, there will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, Good afternoon everybody.

and welcome to TERNA first quarter 2022 result presentation. Before starting to analyze the figures, I would like to share with you the main latest achievements. Firstly, let me remind you that on the 24th of March, we presented the update of our 2125 industrial plan driving energy that foresees 10 billion of total investments. This includes 9.5 billion of regulated investment aimed at developing, modernizing and strengthening the national transmission grid, confirming our role in driving the energy transition and enabling an even more complex, sustainable and innovative electricity system. From a financial standpoint, we continue to enhance our financial structure. In this regard, Let me underline that in February we successfully launched the first green non-convertible perpetual subordinated hybrid bond for a nominal amount of €1 billion. Regarding our rating profile, I would highlight that in March Standard & Poor, Moody's and Scope Ratings confirmed Terna's long-term rating and BBB+, with a positive outlook, BWA2, with a stable outlook, and A- with a stable outlook, acknowledging the stability of the updated 21-25 industrial plan. As already announced, at the end of April we signed an agreement with CDPQ, a global investment group, for the sale of about 100% of Terna Group's portfolio of power transmission assets in Brazil, Peru and Uruguay for an equity value of over 265 million euros. This transaction will allow Terna to focus on domestic core activities and refocus in low-risk markets with an attractive growth potential. The closing of the deal is planned in the second half of 2022. After this brief introduction, let me give you the usual overview of the Italian electricity market, moving to the next slide. As you can appreciate from this chart, In the first three months of 2022, national demand was about 80 TWh, with an increase of about 3% versus previous year, when national demand was 78 TWh. As you can see in this chart, in the last 12 months we registered a full recovery of the national demand, which returned to 2019 levels, recovering the decline related to the COVID-19 pandemic. Moreover, It is important to underline that, in the first quarter of 22, renewable sources covered about 29% of the demand, with a strong increase in wind and solar production. Concerning national net total production, they stood at 71 TWh, 6.7% higher than the same period of 21, mainly thanks to the solid contribution of wind, hydro and solar production. Renewable cover about 33% of total generation. Now, let's move to the first quarter 22 key numbers at page 6. In the first quarter of 22, group revenues and EBDA were up by 5 and 3% respectively versus last year, which means 29 and 13 million higher than first quarter 21. while group net income was 192 million, 1% higher versus last year. Moreover, group capex stood at 293 million, 21% more versus first quarter 21, confirming the robust capex acceleration in line with the implementation of our updated industrial plan. At the end of March 22, net debt stood at 8.7 billion, versus about 10 billion at 21 year end. Let me remind you that 2021 results have been restated for international activities held for sale according to IFRS 5 accounting principle. Finally, at the end of April, Ternas AGM approved the total dividend for 21 of 29.11 euro cent per share including the interim dividend of 9.82 euro cent per share already paid in November 21 and the final dividend of 19.29 euro cent per share to be paid in June 22, all in line with the dividend policy announced in the updated industrial plan. Now, let me make a deeper analysis of first quarter figures turning to the next slide. I am now at page 8. Let's start with revenues analysis. Total revenues in the first quarter of 2022 increased by 4.7%, reaching 644 million, up by 29 million versus last year. The growth was mainly attributable to regulated activities, which contributed for 25 million and to the successful integration of LT Group, one of the main Italian operators in the maintenance of solar systems, acquired in October 21. Let's now go into the details of the regulated and non-regulated revenues evolution, moving to the next slide. Regulated revenues reached 562 million, 25 million better than last year. The increase was mainly due to the ongoing investment acceleration made on the grid and output-based incentives effects. Non-regulated and international revenues reached 82 million, 4.3% higher than last year. Non-regulated growth was mainly attributable to the overall contribution coming from the already mentioned integration of LT Group, while international revenues were set to zero in application of the already mentioned IFRS 5 accounting standard and referrer to asset health for sale in Latin America. Now, let's go through operating cost analysis. As you can see in this chart of page 10, Total operating costs stood at 183 million, 9.4% higher than last year. Regarding regulated activities, the increase was mainly attributable to the insourcing of new competences, while non-regulated activities have been impacted by LT Group full integration. Let me now analyze the BDA, moving to the next slide. Due to the previously mentioned dynamics, first quarter 22 group EBDA reached 461 million, 13 million better than last year. This increase was mainly attributable to regulated activities, which contributed for about 15 million versus last year, and showing an EBDA of 448 million in the first quarter of 22. Let's now have a look to the lower part of the profit and losses, turning to the next slide, page 12. Depreciation and amortization amounted to $168 million. The increase versus last year was mainly due to the impact of new assets becoming operational in the period. And as a consequence, EBIT reached $294 million, $8 million higher versus first quarter 2021. We reported net financial expenses of $24 million. The increase versus last year was mainly due to the rise in inflation registered in the last month. Taxes stood at 76 million, 1.5 million lower versus last year, essentially due to non-deductible costs registered in the same period of 21. As a consequence, tax rates stood at 28.3%. As a result, group net income reached 192%, 1% higher versus the same period of last year. Moving to CapEx analysis, In the first quarter of 22, total capex amounted to 293 million, 21% higher than last year, showing a double-digit acceleration to drive the energy transition process and to deal with the ongoing energy crisis. Indeed, we invested about 281 million in regulated activities. Among the main projects of the period is worth mentioning the terrain link, the Paternò Pantano Prioglio and Esther Sicili, and investment in stabilization devices as synchronous compensators. Among CAPEX categories, development CAPEX represented 38% of total regulated CAPEX, defense CAPEX stood at 15%, while asset renewal and efficiency was 47%. Non-regulated and other CAPEX stood at 13 million, This includes capitalized financial charges and other investments. Regarding net debt and cash flow analysis, at page 14, net debt at the end of March 22 was about 8.7 billion, about 1.3 billion lower than 21 Iran levels, mainly due to the hybrid issuance made in February that, in line with accounting standards, has been accounted as equity. During the period, we generated an operating cash flow of 371 million, thanks to which we were able to more than cover the capex spending of the quarter. Let's now make a deeper analysis of our debt profile, moving to page 15. In line with our prudent and proactive debt management approach, at the end of this first quarter we registered a fixed overfloating ratio in gross debt of about 86%. and an average duration of about five years. As already mentioned, with the aim of confirming our leadership in the sustainable financial market, in February 22 we successfully launched the first green hybrid bond from an Italian corporate for a nominal amount of 1 billion euro. The issuance was very successful in the market with an order book at peak over 4 billion euro. In the same period, we also signed a bilateral ESG-linked term loan for a total amount of €300 million, with a term of two years and an interest rate linked to Terna's performance in specific ESG indicators. Thank you for your attention, and we are now ready for the Q&A session.

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