Terna Rete Elettrica Adr

Good afternoon, ladies and gentlemen, and welcome to Turner's nine-month 2024 Consolidated Results presentation. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would like to hand the conference over to our host speaker today, Mr. Stefano Gamberini, Head of Investor Relations. Please go ahead, sir.

Good afternoon. and welcome to Ternas' nine-month 2024 results presentation. My name is Stefano Gamberini and I'm proud to be here today as Ternas' new head of investor relations. After 30 years as a financial analyst, I'm very excited about this new challenge. Together with the IR team, I hope to continue and improve the excellent relationship that has been built with the financial community supporting our company's growth. The call will be hosted by our CFO, Francesco Beccali. Following the presentation, we will have the Q&A session. So we kindly ask you to send any questions you might have to our email address, investors.relations, sorry, at terna.it. Francesco. Please, the floor is yours.

Thank you, Stefano, and welcome on board. Thank you. Good afternoon, everybody. Before starting to analyze the figures, I would like to share with you the main highlights of the period. First, I remind you that at the end of July, the Authority published three documents regarding out-of-date incentive schemes, three new ones. The out-of-date update of the allowed WAC and the plethora test. More in details, the resolution 326 of 2024 provides for the start of the new ancillary services market incentive scheme for two periods of three years each, 2025-2027 and 2028-2030. According to the resolution, for each year of the period 2025-2030, Terna will receive 12% of the overall MSB cost reduction. For each year of the period 2025-2027, the baseline will be represented by 2023 actual MSD cost, increased by an extra component to take into account the expected changes coming from energy scenario evolution. Then, as part of the definition of the work for the period 2025-2027, in addition to updating market parameters based on a predefined route, The consultation document 342 of 2024 addresses different themes, including the update of the beta parameter and the recognized corporate tax rate. The regulator is also evaluating to confirm the trigger mechanism to adjust the work to material changes in market conditions, as done in the period 2022-2024. Finally, with the consultation document 340 of 2024, The Authority initiates the process for evaluating possible revisions of the capital cost revaluation criteria for electricity and gas infrastructure services in relation to the use of the deflator. The Authority is consulting on the possibility of continuing to use the deflator with corrective measures or replacing the deflator with other inflation indicators. Moreover, for what concerns the Italian transmission grid, I would like to announce that Terna signed a term sheet with the Chair for the acquisition of a portion of the high-voltage grid in Rome and suburban Agra. We are going to talk about it more in depth in the next slide. From a financial standpoint, We put a lot of effort on ensuring a balanced and solid financial structure. In this regard, let me remind you about the agreement signed on October 24th with the European Investment Bank for a 400 million euros loan for the renewal of the Italian transmission network. Let's now talk about our sustainability commitment. As already stated in the past, for us, sustainability is not only in what we do, but also in how we operate. This commitment is reflected in our financial structure. Indeed, besides the ESG credit facilities already publicly disclosed to the stakeholders with the second quarter results and financial statements, in July and October, Tern assigned two ESG-linked credit facilities for a total amount of 800 million euros. The credit line will have a maturity of five years with financial charges linked to Terna's performance in relation to specific environmental, social and governance indicators. Finally, regarding our shareholders' remunerations, today's Board of Directors approved a 2024 interim dividend of 11.92 cents per share. Up by 4% compared to the previous year, in line with the baseline dividend policy communicated to the market. Let me now spend a few words regarding the new deal. Moving to the next slide. As mentioned before, Tecna signed a term sheet with the Chair for the acquisition of a portion of the high voltage grid in Rome and suburban areas. This deal is driven by several key factors that are aligned with our long-term goals. By consolidating our high voltage operations, we can greatly reduce operational complexity, including congestion resolution and the improvement of quality of service. This simplification allows us to respond more swiftly to challenges and enhances our overall service delivery. Another crucial aspect of this acquisition is the centralization of high voltage management activities under the control of the transmission system operator. It is worth to underline that this process is aligned to ARERA Resolution 616 of 2023, which introduced an incentive mechanism aimed at promoting the transfer of the high-voltage grid assets from distributors to terminal. The purchase price of 224 million euros represents a 10% premium on the estimated 2024 calendar wrap. and in this subject to some adjustments, including the 2025 CAP expending. Moreover, the deal includes the purchase of optical fiber network, part of which, for the portion exceeding the national transmission grid needs, is commercialized to third parties. The acquisition will simplify the investment decision process and increase the basket of potential projects on high-voltage green in the Rome area and central Italy. It should also be pointed out that the acquisition of existing assets, as compared to the development of a greenfield project, allows for an immediate recognition of the full-time, which, together with the expected contribution from optical fiber network commercialization, allows the deal to be EPS-accretive from the first year. In conclusion, let me remark that the transaction is fully aligned with the objectives outlined in our 2024-2028 strategy plan, with neutral effects as far as our credit rating is concerned, and aimed at reinforcing our commitment to growth. Now, let me give you the usual overview of the Italian electricity market, turning to the next slide. As you can see from this chart, In the first nine months of 2024, national demand was about 236 terabytes, with an increase of 2.1% versus last year, when national demand was about 231 terabyte hour. The increase mainly concerns the first quarter of the year. Indeed, as you can appreciate from the graph, also due to the high temperature registered during the summer, national demand in the third quarter was about 84 TWh, almost 4% more versus the same period of last year, when demand was about 81 TWh. In the first nine months of 2024, Renewable sources covered about 43% of national demand, 6 percentage points higher than last year. Regarding national net total production, this stood at 199 TWh, 2% higher than the same period of 2023, with a remarkable increase in hydro production, which grew by 45% compared to the same period of last year. Let me also highlight that in the period renewable sources covered more than half of the national net total production. The increase versus last year is also due to the contribution of solar production, which grew by 17% compared to the first nine months of 2023. To conclude, let me share with you that in 2024 the operating renewable capacity increased of 5.3 gigawatts. This value is 33% higher compared to the same period of the previous year. Now let's move to the main figures of the period. In the first nine months of 2024, we registered a double-digit growth in all P&L lines and categories. Indeed, group revenues and EBITDA increased by 18 and 22% respectively versus last year, resulting 400 million and 336 million euros higher than the first nine months of 2023. We also reported a group net income of 813 million euros, up by 27% compared to the same period of last year. Group CapEx was about 1.7 billion euros in the first nine months, with an increase of 19% versus the first nine months of 2023. This confirms, once again, our effort to accelerate investments to fulfill the needs of the Italian energy system and enable the clean transition. To support these accelerations, at the end of September, net debt stood at around 10 billion euros versus about 10.5 billion at 2023 year-end, as described in the upcoming slide. Now, let's make a deeper analysis of the results turning to the next slide. Let's start with revenue analysis. Total revenues in the first nine months of 2024 reached 2 billion 647 million euros, increasing by 18% up by 400 million euros versus last year. Such increase was attributable both to regulated and non-regulated activities, which contributed for 317 million and 83 million euros respectively. Let's now go into the details of the revenues evolution moving to the next slide. Regulated revenues in the first nine months were 2 billion 222 million euros, 317 million higher than last year, which means an increase of about 17% compared to the same period of 2023. The increase was mainly driven by the increase in RAB and the update value of regulatory work. Non-regulated and international revenues reached 426 million euros, 24% higher than last year. Non-regulated growth was mainly attributable to the increase in revenues coming from the equipment business related to Tamini, plus 32 million, and to the higher contribution of LFC Groups Energy Services, with a contribution of 37 million euros. International revenues were set to zero. Given that the requirements of FRS 5 have been met, the total results for the first nine months of 2024 and 2023 attributable to the South American subsidiaries included in the planned sales of assets initiated at the end of 2021 have been classified in the item Profit and Loss for the period from assets as foreseen in the group's reclassified income statement. Now, let's go to the operating cost analysis. As you can see from the chart, total operating costs were 755 million euros, 9.3% higher than last year. Regarding regulated activities, the difference year on year is almost flat. The impact on personal expenses resulting from the growth in the workforce for the implementation of the group's investment plan was offset by a corresponding increase in capitalized costs. Non-regulated activities were mainly impacted by higher costs for the purchasing of raw materials and services related to the LC group and families. These includes were driven by higher volume of activities, reflected also in revenue growth. Let me now analyze a bit that, moving to the next slide. Due to a previously mentioned effect, 9 months 24 group EBITDA reached 1 billion 892 million euros, 22% higher than the same period of last year. The increase was mainly attributable to regulated activities, which contributed for about 316 million euros more versus the same period of last year. showing an EBITDA of €1,824,000,000 in the first 9 months of 2024. Also non-regulated activities contributed to the EBITDA improvement with a 42% growth versus the first 9 months of last year showing an EBITDA of €68,000,000. Let's now have a look to the lower part of the P&L moving to the following slide. DNA amounted to 635 million euros. The increase versus last year was mainly due to the entry into operation of new assets. As a consequence, EBIT reached 1,257,000,000 euros, 28% higher versus the first three quarters of 2023. We reported net financial expenses at 105 million euros. The increase versus last year was mainly attributable to the subscription of new financing and the increase of interest rates, partially mitigated by higher financial income on available liquidity and higher capitalized financial expenses. Taxes stood at 339 million euros and our tax rate stood at 29.4%. As a result, group net income reached 813 million euros, 26.6% higher versus the same period of last year. Moving to capex analysis. In the first nine months, total capex amounted to 1,699,000,000 euros, 19% higher than the same period of last year. Confirming the robust acceleration in line with our institutional role for the country. Indeed, we invested about 1,625,000,000 euros in regulated activities. Among the main projects of the period, it is worth mentioning the Terrania Link, the Adriatic Link, the Sakhoi 3, the modernization of the high-voltage grid in the locations due towards the Winter Olympics in 2026, and the investment in stabilization devices for grid security, including synchronous compensators. Among CAPEX categories, development CAPEX registered an increase in the contribution on total CAPEX, representing the 61% of the total versus 56% in the first nine months of 2023. For the remaining categories, asset renewal and efficiency accounted for 29%, while defense CAPEX stood at 10%. Non-regulated and other capes stood at 75 million euros. This includes capitalized financial charges for 52 million and other investments. Regarding the debt and cash flow analysis, net debt at the end of September 2004 was about 10 billion euros, almost 500 million lower than 2023 year-end level, mainly thanks to the positive impact of the hybrid green bond issuance recognized as an equity instrument Partially mitigated by the dividend payment in June. During the period, we generated an operating cash flow of 1,388,000,000 euros, thanks to which we were able to cover more than 80% of the capital spending of the period. Let's now make a deeper analysis on our debt profile, moving to page 16. In line with our cautious and proactive debt management approach aimed at maintaining a low-risk profile and a solid financial structure, at the end of this first nine months of 2024, we registered a fixed floating ratio on gross debt of about 86% and an average duration of about six years. In line with our strategy of combining sustainability and growth to promote the energy transition, as said at the beginning of the presentation in October, Terna signed an agreement for 400 million euros loan with the European Investment Bank at a very competitive commission. This is a 22-year loan to support investments for the renewal of the electricity transmission grid in Italy aimed at improving resiliency and reliability. Moreover, besides ESG credit facilities already publicly disclosed to the stakeholders with the second quarter results and financial statements, in July and October, CERN assigned two ESG-linked credit facilities for a total amount of €600 million. The lines will have a total term of five years and will be linked to TELA's performance in relation to specific environmental, social and government indicators. Thank you for your attention. Now, before moving to the Q&A session, let me share with you some closing remarks. First of all, I would like to underline that we are well on track in the execution of our CAPES plan and accelerating on 2028 plan targets through the term sheet signed for the acquisition of a portion of From High Voltage Grid. This represents a solid ground for the future, especially regarding the integration of renewable energy sources into our grid. By enhancing our infrastructure, we are not only increasing efficiency, but also having the way for a more sustainable energy future. Moreover, As you appreciated from the presentations, we were able to deliver a very strong set of results for the first nine months of the year, with a double-digit increase in all PNL lines. To conclude, Thanks to the increased contributions from the output-based incentives related to the current MSV scheme, which will finish at the end of this year, a low internal dispatching cost and related charges for end-customer reduction, we are now able to improve our 2024 guidance. We expect revenues of 3 billion and 610 million euros, almost 2% more compared to the previous guidance. Maintaining regulated revenues from the tariff in line will be estimated. We will also improve 2024 EBITDA guidance, now set at 2.5 billion euros, as well as EPS guidance, which rises to 52 cents per share, 6% higher compared to the previous one. Thank you for your attention. We are now ready for the Q&A session.