Terna Rete Elettrica Adr

Good day ladies and gentlemen and welcome to Tarana's first quarter 2023 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 have been listed only in mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star one on your telephone keypad to answer your question. If you require assistance at any point, please press star zero and you will be connected to an operator. And I'd like to hand it over to your host today, Mr. Agostino Svrayenko, to begin today's conference. Please go ahead, sir.

Good afternoon, everybody, and welcome to Tarana's first quarter 2023 result presentation. This was the last set of results released before the next week's AGM. Let me remind you that its agenda includes, among our items, the renewal of the Board of Directors. As usual, before starting to analyze the figures, I would like to share with you the latest main achievements of the company. Regarding regulated activities, let me remind you that on the 15th of March we published the new 10-year National Development Plan, which foresees more than 21 billion of investment. Confirming our key role as energy transition enabler, the investment foreseen in this new National Development Plan aims at continuing the integration of renewable sources in the progressive phase-out of coal-fired power plants in line with the targets set at national and international level. Moreover, in March, Terma signed agreements with the European Investment Bank for the second and the third tranches of the 1.9 billion loan for the Tyrannian Link, the submarine cable connecting the Italian peninsula with Sicily and then to Sardinia. The contract signed established a further two tranches totaling 900 million euros for the construction and the commissioning of the east and west sections of the Tyrannian Link, For this infrastructure, which will be fully operational in its entirety by 2028, Terna plans an overall investment of around 3.7 billion. Finally, regarding Terna's financial structure, on the 14th of April, the company successfully launched a fixed-rate single-trans bond issue for a total amount of 750 million euros. This issuing, which received a great market response with demand outstripping supply by almost four times the offered amount, represents a part of the 9 billion euro medium-term notes program. The bond has a duration of six years and will pay a coupon of 3.625%, well below the market standard for this period. The proceeds will be allocated to meet the ordinary financial requirements and to fund the needs of the groups in that cell plan. After this brief introduction, let me give you the usual overview of the Italian electricity market, turning to the next slide. I'm now at page five. As you can see from this chart, in the first three months of 2023, national demand was about 77 terabyte power. The reduction in electricity demand observed in the first three months of the year shows a decrease in trend compared to the same period of last year. This is mainly due to the increase in average temperatures and to the reduction in industrial consumptions. In the first quarter of 2023, renewable sources covered about 30% of national demand, with a slight increase respect to last year. Regarding national net total production, this stood at 64% of the power, 10% lower than the same period of 2022. Despite that, let me highlight the increase in solar generation, which grew by 4% versus 2022. Let me also say that in this first quarter, renewable sources covered about 36% of the national net total generation. Now, let's move to the main figures of the period. The first three months of the year continue to be characterized by a complex scenario. Despite the challenging and very volatile context, Terna recorded a significant improvement in all economic and financial indicators. Indeed, group revenues and EBITDA were up by 11 and 8% respectively versus last year, which means 68 million and 39 million higher than the first quarter 22, while group net income was 200 million euro and with an increase of 4% versus last year. Group CAPEX stood at 315 million, 7% more than first quarter 22, confirming once again Terna's CAPEX acceleration driven by increasing system needs to ensure efficiency, resiliency, and security of supply in line with Terna's institutional role for the country. At the end of March 23, net debt was 8.8 billion, versus about 8.6 billion at 2022 year-end and fully aligned with our internal expectations. Now, let me make a deeper analysis of the first quarter 23 figures, turning to the next slide. And I am now at page eight. Total revenues in the first quarter of 2023 increased by 10.6%, reaching $713 million, up by $68 million versus last year. As you can see, we registered positive results both from regulated and non-regulated activities, which contributed $452 million and $16 million, respectively. For the details of the revenues evolution, let's move to slide number 9. Regulated revenues reached 614 million, 52 million better than last year, which means about 9.2% more than the same period of 2022. The increase was mainly due to higher output-based incentives effect related to the higher benefits generated for the system. Non-regulated revenues reached 99 million, 19.7% higher versus last year. Non-regulated growth was mainly attributable to the greater contribution coming from BRUC and TAMENI, the increase in revenues of the energy solution most related to LC Group, and the entry into operation of the private section of the interconnector Italy-France. International revenues were set to about zero in accordance with IFRS 5 accounting standards, referring to assets held for sale. Now, let's go through operating cost analysis. Total operating costs stood at $213 million, 16.1% higher than the same period of last year. Regarding regulated activities, the increase was mainly attributable to the insourcing of new competencies and increased level of activity. while non-regulated activities have been impacted mostly by higher costs for the purchase of raw material related to group and to me and by the LT group contribution. Let me now analyze EBDA, moving to slide number 11. Considering the previously mentioned facts, first quarter 23 group EBDA reached 500 million euros. 8.4% higher than the same period of last year. The increase was almost fully attributable to regulated activities, which contributed for about 38 million versus the first three months of last year, showing an EBDA of 486 million in the first quarter of 2023. Let's now have a look to the lower part of the profit and losses, turning to the next slide. Depreciation and amortization amounted to 187 million. The increase versus the same period of the last year was mainly due to the impact of new assets becoming operational in the period. As a consequence, EBIT reached 313 million, 6.7% higher versus the first quarter of 1922. We reported net financial expenses at 32 million. The increase versus last year was mainly due to the rise of inflation registered in the period that impacted our inflation-linked exposure and to the increasing level of interest costs registered on the debt capital market. Taxes stood at 81 million, 5 million higher versus the same period of last year, and essentially as a consequence to increased profit. Tax rates stood at 28.9%. As a result, Group net income reached 200 million euro, 4.4% higher versus the same period of last year. Moving to CapEx analysis at page 13. In the first quarter of 23, total CapEx amounted to 315 million, about 7% higher than last year, and confirming the solid CapEx acceleration fully aligned with the target set in the industrial plan. Indeed, we invested about 288 million in regulated activities. Among the main projects of the period, it's worth mentioning the Terrenian Link, the Elba Malian Link, the Paternò Pantano Triolo in Eastern Sicily, and the investments in stabilization devices such as synchronous compensators for grid security. For what concerns CAPEX categories, development CAPEX represents at 43% of total regulated CAPEX. Defense CapEx stood at 13%, while Asset Renewal and Deficiency was 44%. Neuroregulation and other CapEx stood at 27 million. This includes capitalized financial charges and other investments. Regarding the debt and cash flow analysis, let's now move to the next slide. Net debt at the end of March 2023 stood at 8,847 million, 271 million higher than 22 year-end levels, mainly linked to the progressive settlement of net trade payables related to 2022. During the period, we generated an operating cash flow of 368 million, thanks to which we were able to cover all the capital spending of the period. Let's now make a deeper analysis of our debt profile, moving to page 15. Thanks to our efficient and proactive debt management approach over the last few years, at the end of March 23, fixed silver floating ratio in gross debt stood at about 87%, while the average duration was about five years. As already mentioned, in March, Turner signed contracts with the European Investment Bank for the second and third branches of the 1.9 billion loan for the two annually. After the first branch of 500 million euros signed at the beginning of November, the loan represented the two fourth branches of a total amount of 900 million euros for the construction and commissioning of the east branch and the west branch of the submarine cables. The loans have a duration of approximately 22 years from the first date of disbursement and are characterized by a longer duration and more competitive costs than those currently available on the market. Thus, they are part of Terna's policy focused on optimizing its financial structure. Finally, on April 14, Terna successfully launched a fixed-rate single-trans bond issue for a total amount of 750 million euro. The bond issued at a price of 99.281% with a spread of 70 basis points over the mid-month at a maturity of 60 years and the payment of an annual coupon of 3.625%. Now, before moving to the Q&A session, let me underline that also after the end of this first quarter, We are well in track on the execution of our plan, and we are confident to maintain our strategic path toward the energy transition also for the future. Thank you very much for your attention, and I am now ready for the Q&A session. Thank you.

Thank you very much, sir. Ladies and gentlemen, once again, if you wish to ask any questions, please press star 1 on your tuple keypad. Please also ensure that your new function is activated by signaling to your equipment. Our first question today is coming from Mr. Javier Suarez of Mediobanca. Please go ahead, sir.