Terna Rete Elettrica Adr

Hello and welcome to the Terna nine-month 2022 consolidated results. My name is George. I'll be your coordinator for today's event. Please note, this conference is being recorded and for the duration of the call, your lines will be in a listen-only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. And now the hand of color, which hosts today, Mr. Agostino Scornianchi, Chief Financial Officer to begin today's conference. Thank you.

Good afternoon, everybody, and welcome to Interna 9 Month 2022 Results Presentation. Before starting to analyze the figures, I would like to share with you the latest main achievements of the period. First of all, in line with our institutional role of guaranteeing security of supply, system adequacy and quality of service at the lowest possible cost to the end users, as well as meeting our plan's commitments, we are proud to announce that the East Branch of the Terranean Link has been authorized in October by the Italian Ministry of Ecological Transition. The authorization process was completed in record time. In fact, it took less than one year from the start of the procedure to the definitive approval of the project. Moreover, on the 12th of October, the Ministry of Ecology and Geological Transition also started the authorization procedure for the west branch of the terrestrial link that will connect Sicily and Sardinia. Another step towards the construction of one of the most important infrastructure projects in Italy has been completed. Then, let me highlight our strong ESG commitment. Indeed, Terna has been conferred for the 12th consecutive year in the Succession Global ESG Leaders Index, which selects the best companies globally based on ESG best practices. This international achievement testifies the company's performance in ESG areas. In fact, sustainability is a strategic driver and one of the pillars of Group's operations. 99% of the approximately €10 billion of investment planned by Terna in the 2021-25 Driving Energy Industrial Plan are by their nature sustainable. based on the eligibility criteria introduced by the European taxonomy. Let me say that our ESG commitment is also reflected in Terna's financial structure. Indeed, during the last three months, Terna signed four ESG-linked credit facility agreements for a total amount of €600 million. The credit lines will have a term of three years, with an interest rate linked also to Terna's performance in relation to specific environmental, social and governance indicators. In addition, on the 15th of September, Terna launched a fixed-rate single-trash bond through a private placement procedure for an overall amount of €100 million. The proceeds from the issue are expected to be used by the company to fund the needs of the group's industrial plant and to meet the group ordinary financial needs as well as contribute to optimize internal financial management. I would also like that yesterday we signed a 1.9 billion euro contract with the European Investment Bank for the financing of the TerrenoLink project. Finally, regarding our shareholders remuneration, today's board of directors approved the 2022 interim dividend of 10.61 Eurocent per share, up by 8% compared to the previous year, and fully aligned with the dividend policy communicated to the market. After this 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 nine months of 22, national demand was about 241 TWh, with an increase of 1.3% versus the same period of last year, when national demand was about 238 TWh. I would like to remark that, despite the current challenging scenario and in line with our institutional role, we continue to guarantee security of supply for families and businesses. Concerning national net total production, they stood at about 210 TWh, 2.2% higher than the same period of 21, with a strong increase in wind and solar production, which grew by 8% and 10% respectively. Moreover, let me also highlight that, in the first nine months of 22, Renewable sources scored about 32% of the demand and about 37% of national net total production. Now, let me introduce the main figures of the period, moving to slide number 6. In the first 9 months of 22, group revenues in the BDA were up by 5% and 3% respectively versus last year. which means 142 and 47 million higher than the same period of 21, while group net income was 587 million, about 1% more versus last year. Group capex exceeded 1 billion euro for the first time ever in 9 months, with an increase of 12% versus the first 9 months of last year, reconfirming our solid capex acceleration to deal with the current energy scenario. Despite such capex acceleration, at the end of September, net debt was well below 9 billion at about 8.7 billion versus about 10 billion at 21 EUR. Now, let me make a deeper analysis of the figures of the period turning to slide number 8. Let's start with revenues analysis. Total revenues in the first nine months of 2022 increased by 5.4%, reaching 1,992 million, up by 102 million versus last year. The growth was attributable both to regulated and non-regulated activities, which contributed for 77 million and 26 million, respectively. For the details of the revenues evolution, let's move to the next slide. Regulated revenues reached 1,720 million, 77 million better than last year. The increase was mainly due to high output-based incentives effects related to the higher benefits generated for the system, net of the WAC reduction recognized in 2022. Non-regulated and international revenues reached 272 million, 10.5% higher than last year. Non-regulated growth was mainly attributable to the increase in revenues of the energy solution, mostly related to LT Group and to the increased contribution coming from Temini. International revenues were set to zero, in accordance with the IFRS 5 accounting standard, referred to asset health for sale. Now, let's go through operating cost analysis at slide number 10. As you can appreciate from this chart, Total operating cost $2,580 million, 10.5% 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 mainly by healthy group contribution. Let me now analyze EBDA, moving to the next slide. Due to the previously mentioned effects, Nine months 22 group EBDA reached 1,412,047 million better than last year. This increase was mainly attributable to regulated activities which contributed for about 49 million, showing an EBDA of 1,376 million in the first nine months of 22. Let's now have a look to the lower part of the P&L at page 12. The precision and amortization amounted to 516 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 896 million, 2.6% higher versus September 21. We reported net financial expenses at 56 million, substantially in line with the same period of last year. as a proof of our resiliency in cost of debt management. Taxes stood at 237 million, 8 million higher versus last year, essentially due to increased profits. Consequently, our tax rate stood at 28.2%. As a result, group net income reached 587 million, 1.1% higher versus the same period of last year. Moving to CAPEX analysis, and now at page 13. In the period, total CAPEX amounted to 1,033 million, about 12% higher than last year, showing a double-digit acceleration despite the challenging scenario. Indeed, we invested about 985 million in regulated activities. Among the main projects of the period, It's worth mentioning the Terrain Link, the Paternò Pantano Criollo in Eastern Italy, the Elba Mainland Link and investment in Staptoms, Reactors and Synchronous Compensator for the grid security. Among CapEx categories, Development CapEx represented 41% of total regulated CapEx, Defense stood at 14%, while Asset Renewal and Efficiency was the residual 45%. Non Regulated and other CapEx stood at 48 millions. This includes capitalized financial charges and other investments. Regarding net debt and cash flow analysis, net debt at the end of September 22 stood at about 8,651 million, about 1.4 billion lower than 21 year-end level. mainly due to the hybrid issuance made in February and to the cash generation of the period. Current debt structures allow us to be comfortable in serving investment needs for the next future. Let's now make a deeper analysis of our debt profile, moving to page 15. Thanks to our long-term debt management approach of the latest years, at the end of September, fixed overfloating ratio on gross debt stood at about 87% and the average duration was about 5 years. With the aim of confirming our leadership in sustainable finance markets and to meet our financial needs, let me just remind you that in February 2022, Terna launched its first ever hybrid bond for a nominal amount of 1 billion euro. Successfully accepted by the market with an order book at peak of over 4 billion euro. This is proof that in recent years we took advantage of favorable market conditions, carrying out a pre-financing activity and extending the average maturity of our debt. This allowed us to have enough flexibility for the coming months. In the short-medium term, we are able to look at the bond market more as an opportunity rather than as a need. In this context, let me remind you that in September, Terna launched a fixed-rate single-clutch bond through a private placement procedure for an overall amount of €100 million. The notes, with a duration of five years and a maturity date falling On September 27, we'll pay a coupon of 3.44%. As already anticipated, just yesterday, November 8, we signed a 1.9 billion contract with the European Investment Bank for the financing of the Tyrellian Link project. This loan will be brought down for a first statement of 500 million euro that will be the first tranche of the total 1.9 approved by the European Investment Bank for the project. The 22-year loan has a longer maturity and more competitive costs than those generally available on the market, fully aligned with Ternas policies to optimize the financial structure. Thank you very much for your attention. But now, before the Q&A session, let me conclude this presentation with some closing remarks. First of all, I would like to underline that, as previously said, our net debt and our cost of debt are fully under control. As you have seen, our net debt stood at about 8,651 million, about 1.4 billion lower than the 21 year end level. I would like to underline that the Terna CAPEX plan is strong, solid and safe. Indeed, almost all the CAPEX plans was already authorized. As already said, we have had an important step forward on the Iranian link, one of Italy's most important infrastructure projects aimed at ensuring the development and security of the national electricity system, in which Sterna will invest around 3.7 billion euro. For what concerns procurement, despite the extremely challenging scenario, Potential shortages of raw materials do not represent a risk for us, also thanks to Brook's contribution. So, I can say that we are on the right path regarding the authorization process, construction activities and procurement, in line with the milestones set in the updated industrial plan and in the 10-year development plan of the company. Concerning international activities, just two days ago we completed the first closing for the sale of Latin American assets in execution of the agreement signed in April and was already announced with the update of our 21-25 industrial plan last March. And finally, regarding 2022 guidance, thanks to the initiative aimed at further increasing benefits for the system and efficiency, Terna expects an EBDA of 2 billion euros, and an earning per share of 0.42 euro. Thank you very much for your attention. We are now ready for the Q&A session.

Thank you much, sir. Ladies and gentlemen, as a reminder, if you'd like to ask any questions, please press star 1 on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing star 2. So once again, please press star 1. First question today will be coming from Mr Enrico Bartoli calling from Mediobanca. Please go ahead.