ACEA S.p.A. (ACE) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon. This is the Chorus Call operator. Welcome to the presentation of the results for the first part of 2025 of the ACEA Group. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Michi, Head of IR. Thank you.

Thank you, and good afternoon, and welcome to the conference call for the presentation of the ACEA Group for the first half of 2025. Fabrizio Palermo, CEO; the Deputy General Manager and CFO, Pier Francesco Ragni, will outline the results obtained in the first half of 2025 and the guidance for 2025. As usual, at the end of the presentation, there will be a Q&A session. I'll leave the floor now to the CEO, Mr. Palermo, who will make comments about the first slide of the presentation. Fabrizio, you have the floor.

Thank you, Dario, and good afternoon to you all. Thank you very much for being here for the presentation of the results of the first half of 2025. I'm glad to announce that the ACEA Group is among the leading companies for the water service in Italy. And I will start the presentation of the results as usual by making an analysis of the regulatory and market environment. Now as to the Water business, I'd like to outline the approval of ARERA tariffs. And as you know, we have received a technical quality and contractual -- technical and contractual quality incentive that was recognized to our share for an amount of EUR 36 million as to distribution of electricity tariffs, provisional tariffs of rating were published in May last and ARERA has adjusted the evaluation of RAB by following and adopting the Italian IPCA and calculated by Eurostat Italy. Now let's move to commodity prices and inflation. Gas and electricity power in the first half of 2025 recorded an increase of plus 28% for electricity and plus 12% of gas versus last year same period. Now on Page 3, we have listed all of the main events and operations carried out by the group in the first half of 2025, which follow up the strategy that is outlined in the business plan for 2028. First of all, the WTE in Rome, where we expect to start work very soon. And then the binding offer received from Eni Plenitude for the acquisition of ACEA Energia S.p.A., which is part of a strategy that was contained in the business plan. Now this deal will help the group to strengthen the group as an infrastructural operator as we shall then be able to do presentation. And then I'd like to point out the setting up of a new company, a.Gas, that was established to help the group grow in the gas distribution sector, confirming our focus on infrastructure businesses. Moreover, I'd like to tell that Moody's on the 28th of May improved the rating from stable to positive. Now this reflects the good financial profile of the company, and it also confirms the positioning of the group towards the infrastructure business. Now if we now go to the main terms of the offer that you see on Slide 4. The deal was approved by the Board of Directors. The offer relates to the acquisition of ACEA Energia with the exclusion of energy efficiency, electric mobility and energy management, which are not included and the closing is expected by the end of June 2026. Let me remind you that the disposal of ACEA Energia is in line with the strategy that we have in our business plan, and this will help the group become stronger as an infrastructure operator. This will help us to reach more than 95% of the EBITDA, which will come from regulated businesses. And this will give ACEA better visibility and stability, thus reducing the volatility of the results connected to the market. Now the market of the sale of electricity and gas is characterized by the need of strong economies of scale. And one of the rationale of this deal of this transaction is due to the effect on the market, we have big players that are capable to attract a high number of customers, thus with an increased competition on prices as that has occurred on other markets. For this reason, we decided to accept the binding offer received from Eni Plenitude. If we go to the highlights of the first half of 2025, Slide #6. Now the results show a strong growth of all economic indicators and confirm the soundness of the financial structure of the group. In line with what envisaged from IFRS 5, the economic results with exception of net profit do not include the selling of ACEA Energia. The reported EBITDA EUR 731 million, plus 12% versus the first half of 2024 and the growth of recurring EBITDA corrected for [indiscernible] and one-offs will be seen later on, but it is equal to 19% driven by the business of Water Italy, Grids and Public Lighting and Generation businesses. The contribution of regulated EBITDA is now [ 49%]. Net profit EUR 27 million is up by 32%, 7% organically following the dynamic recorded at operational level. CapEx went up by 18% at EUR 668 million, including grants. Now the operating cash flow EUR 117 million and a net debt/EBITDA pro-forma of 3.36x. Now this ratio takes into account the cash in of the proceeds of the sale of ACEA Energia and the sales of the high-voltage network. I'll leave you the floor to Francesco Ragni, the CFO, who will get into the details of the results.

Thank you very much, Fabrizio, and good afternoon to you all. We are now at Slide #7, where we see the main indicators of the dynamic of the first half of 2025, where we see a strong growth. EBITDA in the first half of this year, ACEA has recorded a growth of 9% versus the previous year, adjusted by one-offs and change in scope CapEx, as you can see, EUR 668 million during the first half of the year. The investments have grown by 20% versus the same period of last year. Now net profit, which includes the contribution of ACEA Energia goes up by 7% on a recurrent basis and reflects the good operating performance of the company. The financial position of EUR 1.9 billion to EUR 5.4 billion as at 30 June of 2025. This data do not include the net debt, which is represented by discontinued operations ACEA is subject to the deal. Now the net financial performance pro forma, as you can see in the note, moves from EUR 4.3 billion in December '24 to EUR 4.74 billion. Now here, let me remind you the data at the end of 2024 included 9 months of Acquedotto del Fiora that was still to be integrated. Now let me move on to the next slide, and let's see the EBITDA. In the first half of '25, the EBITDA went up by EUR 59 million, and this is due to Water tariff growth and the contribution of Grids and Public Lighting and also because of the increase in prices of the energy and also increase in volumes. Now on the right, you see the one-offs and change in scope amounting to EUR 9 million for the first half of 2024, which related to the retroactive application of the tariff update relating to MTI-4 that was accounted in the first quarter of 2024. The consolidation of Acquedotto del Fiora and the release of tariff relief fund and the Terni WTE shutdown for revamping. Now as to the first half of 2025, you have the water quality incentives at consolidated level, it was EUR 36 million -- sorry, at group level, EUR 36 million and at consolidated level, EUR 25 million. Let me now move on to the recurring net profit, which goes up versus the first half of 2024, which is related to the operating performance, which contributes EUR 18 million. This is made up for by the financial management with a reduction of financials [indiscernible] because of the reduction of rates. Now for the EBITDA, you see the detail of the one-off for the first half of '24 and 2025. Let me now move to CapEx. And here, you also need to take into account the contribution of ACEA Energia in the first half of 2025, CapEx went up by 18% versus last year. 87% is related to the regulated business, water and environment and grids. Now you see that the contribution of regulated businesses to EBITDA is 96%, EUR 95 million of CapEx are financed by public contributions for the Water Grids and the Grids and Public Lighting. And then you see all the initiatives that were carried out, the intervention on purification systems, the widening of the sewage network. Let me now move on to cash flow. The absorption of cash is around EUR 460 million, and this is related to the change in working capital making greater credits relating to the [indiscernible] of grids, which will be resolved by the end of the year. And then also CapEx, as we remember, it was roughly in the fourth quarter of 2024 and then regulatory receivables long term that are to be absorbed in the second part of the year and an increase of commercial receivables for the accounting of the reward in the Water business that we [ touched ] in the third quarter to a greater transparency. We have represented the effect of the company consolidated equity. For instance, the passage to Acquedotto del Fiora, which has an impact of EUR 18 million in 2025. They were EUR 3 million in 2024. And the presentation here also puts ACEA Energia among discontinued operations. I'm not covering the other items because they are clearly understandable. Let's now move on to the financial structure. The average cost of debt in the first half of the year, 2.7% versus 2024, which was 2.16%. Now of course, this is affected also by the reduction of rates. Nowadays 11% of our debt is at variable rate. Please remember that in February 2025, we reimbursed at maturity the JPY 20 billion private bond issued in March. And then we received EUR 500 million from the EIB, EUR 500 million, and 2 new loans were signed for a total of EUR 180 million, of which a direct of EUR 125 million and the guaranteed loan of EUR 55 million by SACE. Let me also tell you that we have repatriated in Italy the issuing of our bonds on the MOT market, which was approved by CONSOB. Let me now move to the description of the individual business units. Page 12, you have the Water Italy. Now the numbers have been recalculated to take into account the new impact of the new regulatory framework. Now in the first half of last year, we did not have this effect. And also the results include also [indiscernible] now consolidated at equity. The data for 2025 also adjusted for the rewards received for technical and contractual quality. Here, you see the result going up by EUR 32 million, the EBITDA, thanks to tariff growth and high results of companies consolidated at equity. Net of public funds, an increase of 21% versus last year, which is related to maintenance on the network and purification plants. Now Grids and Public Lighting, despite the WACC going down by 40 basis points, the EBITDA goes up by EUR 8 million, plus 4%, EUR 225 million in the first half of the year because of the investments made that of the RAB and the change in the RAB revaluation method starting in 2025. CapEx net of public grants are stable, EUR 150 million. As to the Environment business, net of one-offs due to the revamping of the Terni WTE. Now you can see the stable recurring EBITDA. Investments are going down by some EUR 4 million because of the revamping of the Terni WTE that was carried out in the first half of 2024. Now as to generation, EBITDA is going up by EUR 14 million versus the previous year, thanks to higher prices on the energy markets and greater installed photovoltaic capacity. You see that the photovoltaic capacity has gone up to EUR 412 million, as you can see at the bottom of the slide. Now investments in the year were EUR 11 million. As to the guidance for 2025 because of the results that we achieved in the first half of 2025 and because of the change in scope is the disposal of ACEA Energia, which is among discontinued operations, the guidance has been revised where EBITDA is going to grow in 2025 between plus 6% and plus 8% versus 2024 and CapEx EUR 1.2 billion. Now all of this data revised based on the EBITDA of [ EUR 1.138 billion ], which already includes the sale of ACEA Energia and contribution of EBITDA of [indiscernible] consolidated at equity in 2025. And then you see here the guidance, net debt/EBITDA 3.4x, 3.5x and this includes the price of sales of High Voltage and of ACEA Energia. This is it as far as we are concerned, we can now take your questions.

[Operator Instructions] The first question is by Francesco Sala with Banca Akros.

First of all, can you give us an indication of the closing of the sales of the High Voltage network to Terna will be in 2026? And then question on the Water business. We've seen an increase of EBITDA. Is this going to repeat the result in Q3 and Q4? And then the working capital, can you tell us something about the changes or the absorption for the full year 2025? And then can you tell us the impact of the M&As in 2025 after the disposal of ACEA Energia?

Okay. I'll take the first question about the High Voltage network, it will be closed within September of this year. So it will occur in 2025. As to the question about the Water business, the growth of EBITDA in the second quarter of 2025 versus 2024 was around 9%. And this growth was related to linear operating costs/prices. The normalized growth is 6%. As to the impact of M&A, [ D&As ] will be around EUR 140 million, EUR 55 million of these will be related to discontinued operations. Now as to the working capital, as I said, during the first half of the year, we usually have greater receivables for the [indiscernible] items also because of the growth in CapEx in 2024. As we usually say, we expect the working capital back to normal by the end of the year and therefore a stabilization of these items, which we have described when talking about receivables.

The next question by Javier Suarez with Mediobanca.

I have a couple of questions. The first about the guidance. Now you have revised upward your guidance for the EBITDA up to EUR 1,370 million. This may be explained by the quality premium of water and then the High Voltage network sale to Terna will be -- will occur by the end of the year. But then you have some other EUR 30 million more of increase in the guidance, which I cannot understand what is this going to be? And will we have it also in the next following years. So to understand, is it one-off or will it be sustainable in time? Another question about the regulatory framework and the renewal of the electricity distribution networks in Italy. Can you give us your view or something about your conversations with the administration, with the authorities? What can we expect before the end of the summer? And what is the impact that this will have on upfront payments? And then waste-to-energy plant in Rome, can you give us a few details about the timing of the investment? When will you start investing on this plant? And when will this WTE plant be up and running there for operations for ACEA Group?

Well, thank you very much, Javier. Now as to the guidance over and above the Water premiums, well, part of this is related to the application of the [ ICA ] in Italy and then, of course, also to operational efficiency. So the growth is not only related to [ detractors ] but also efficiency. Of course, the one-off is related to premiums and the rest is coming from operational efficiency. Now as to ARERA, we always are asked this question by analysts. We cannot know what ARERA is going to tell the ministries, the relevant ministries then have to decide. For us, the concession of electricity grids is fundamental to guarantee greater CapEx versus the current ones to guarantee the safety and the resilience of the grid themselves. For the ACEA Group, whatever decision is taken, what is important is to have more time than we have now to invest more in the networks to have greater safety and resilience of the network. These investments can no longer be delayed. We are always committed to this and we have always done so, but we are ready to invest more to meet the goals I have just mentioned. The other question is about the WTE in May. Now the authorization process is now ongoing to allow us to get into the building side. Now as to the financial exposure, the first investments will be between the end of this year and the beginning of next year. As we said during the other conference calls, the project will be financed with a project financing scheme. It will be computed and posted within ACEA accounts. We are now finalizing the funding contracts. And I'd like to reassure you all that the project is very important.

Now the next question by Roberto Letizia with Equita SIM.