Ascopiave S.p.A. (ASC) Earnings Call Transcript & Summary

Welcome to the presentation of the results as of 31st March 2021, Ascopiave. [Operator Instructions] Now the Chairman of Ascopiave, Dr. Nicola Cecconato, is going to deliver his speech.

Good morning, everyone. I'm going to illustrate to you the consolidated results as of 31st of March 2022 and a comparison with the year before. Let's start with the slide on Page 4, the structure of the group. The slide illustrates the corporate structure of the group as of 31st March 2022. In particular, at December 2021, the group -- some corporate acquisitions, making its entry to the renewable energy sector in implementation of its strategic plan. In particular, at the end of December 2021, Ascopiave acquired 100% of the capital of the vehicle company of EVA Group. The company now called Asco Renewables, S.p.A., manages 6 hydroelectric plants in Lombardy and Piedmont with a nominal installed power of 4.6 megawatts. In January 2022, Ascopiave acquired, through the company, Asco Renewable S.p.A., a 60% stake in the capital of Salinella Eolico S.r.l., belonging to Renco S.p.A. The company is planning to build a wind farm in [ Calabria ]. Some plants are already under construction. Others are in advanced authorization stage. Finally, in the end of January 2022, Ascopiave acquired 79.74% of the capital of Eusebio Energia. The company has a lot of renewable services, of which 21 hydroelectric plants in Lombardy and Veneto and a wind farm in Campania for a total installed power of 57.9 megawatt. Slide on Page 5. In the first -- consolidated income statement. In the first quarter of 2022, the group achieved revenues of EUR 34.1 million, achieving EBITDA of EUR 13.2 million and an operating result of EUR 2.9 million. The income derived from companies consolidated using the equity method, EUR 10.8 million is representative of the pro quarter result of the equity investments held by EstEnergy Group. Taxes weigh on the income statement, EUR 0.9 million, resulting in a tax rate of 44.7. The value calculated by normalizing the pretax result of the effects of the consolidation of the consolidated companies using the equity method. Slide on Page 6, consolidated balance sheet as of 31st March 2022. The company has investment capital of EUR 32.1 million. It's [ 111.7 ] (sic) [ 119.7 ] million from property, plant and equipment, EUR 659.4 million from intangible fixed assets, EUR 534.8 million from the value of the minority interest in Estenergy, Hera Comm EUR 54 million and Cogeide EUR 8.1 million. EUR 38.8 million from other fixed assets, EUR 54.9 million from the negative balance of working capital items and provisions set aside. The intangible fixed asset shown in the assets equal to EUR 659.4 million mainly consists of gas distribution networks and plants owned by the company, EUR 508.1 million, and goodwill recognized following business combinations, EUR 56 million. Intangible expenses mainly consist of properties and the value of renewable energy production plants. The net financial position is equal to EUR 403.3 million, a record increase of EUR 55.8 million compared to 31st December 2021. The debt-to-equity ratio of March 31, '22 was 0.45. Company's consolidated on a line-by-line basis, Page 8. Operating data on March 31, 2022, the Group's distribution companies manage approximately 777,600 users. In the first quarter of 2022, the group distributed 641 million cubic meters of gas, minus 4%. Slide, Page 9, operating data. As of March 31, 2022, the group has 28 plants for the production of electricity from the renewable energy with an installed power of 62.5 megawatt. In the first quarter of 2022, electricity produced amounted to 14-gigawatt hour, which is less 50% compared to the average, which was estimated in the last 8 years. The evolution of revenues. Revenues equal to EUR 34.1 million show a decrease of EUR 4.3 million due to the expansion of consolidation perimeter to the new companies acquired for EUR 2 million, a reduction of tariff revenues from cash distribution, EUR 0.9 million, the reduction in revenues from energy efficiency certificates of EUR 4.8 million, a change, mainly explained by the lower targets of the year 2022, the reduction in other revenue of EUR 0.7 million. The evolution of operating profit. The operating profit, EUR 2.9 million, shows a decrease of EUR 4.1 million due to expansion of the consolidation perimeter to the new companies acquired for less than EUR 1 million. The reduction of tariff revenues, gas distribution, EUR 0.9 million, the increase in net operating costs, EUR 2.2 million, the result of the renewable energy sector was significantly influenced by the adverse climatic conditions with volumes produced well below the normal levels of producibility as well as the negative impact of the provisions of the sustaining decree, which also affected all companies of the sector. Tariff revenues and other net operating costs. Tariff revenues from gas distribution amounted to EUR 25.8 million and showed a reduction EUR 0.9 million compared to the same period of the previous year. This decrease is mainly due to the revision of the rate of return on invested capital by the sector authority from the current year. Net operating costs equal to EUR 12.7 million, recording an increase of EUR 1.7 million determined by the change in the following revenue and cost items. Expansion of consolidation perimeter to include new companies, EUR 0.5 million; higher personnel costs, EUR 0.6 million; higher concession fees to municipalities, EUR 0.1 million; higher contributions for safety incentives, EUR 0.1 million; higher costs for consultancy, EUR 0.6 million, nonrecurring nature as it relates to the extraordinary transactions recently concluded; lower provisions for risks, EUR 0.1 million; lower extraordinary income, EUR 0.4 million. Other changes EUR 0.7 million, partly linked to the increase in the cost of energy used in business processes. Slide on Page 13, number of employees. As of March 31, 2022, the group had 481 employees, an increase of 10 units compared to December 31, 2021. The change is mainly explained by the expansion of the consolidation perimeter to the new companies acquired. Cost of personnel, slide on Page 14. Personnel cost, EUR 5.1 million, recorded an increase of EUR 0.8 million determined from the expansion of the consolidation perimeter to the new companies for EUR 0.2 million, higher cost of capitalized labor, EUR 0.2 million, the higher cost of current personnel, EUR 0.8 million. Investments, Page 15. The investments made in the first quarter of 2022, EUR 13.1 million, recorded an increase of EUR 2.1 million. The expansion of the consolidation perimeter to the newly acquired companies involved investments of EUR 1.9 million relating to the ongoing construction of the wind farm of the subsidiary, Salinella. On a like-for-like basis, most of the technical investments concerned the development, maintenance and modernization of gas distribution networks and plants for EUR 8.2 million, of which EUR 3.6 million in connections, EUR 4.3 million in expansion and upgrade of the network, and EUR 0.4 million in reduction plants. Investments in measuring the equipment amounted to EUR 2.6 million. Net financial position and cash flow, slide, Page 16. Net financial position as of 31st March 2022, EUR 403.3 million, increase of EUR 55.8 million compared to 31st December. In the first quarter of 2022, the cash flow generated financial resources of EUR 22.3 million, net investments, cash outflows for EUR 13.1 million. Management of net working capital generated resources for EUR 8.4 million. The corporate acquisitions of companies operating in the hydroelectric and wind power sectors involved financial outflows of EUR 45.4 million, and an increase in consolidated net financial position of EUR 28.1 million. Slide, Page 17, net financial position and cash flow. Bank debt as of 31st March 2022 amounted to EUR 400.8 million. The loans are 16% at a variable rate, and the weighted average cost of debt in the first quarter of 2022 was 0.49%. EstEnergy, economic and balance sheet data, slide on Page 19. The slide illustrates the consolidated income statement, first quarter 2022, and the consolidated balance sheet, 31st March 2022, with a weighted data, Ascopiave's stake in the company. The comparative economic data for the first quarter of 2021 and the balance sheet 31st December 2021 are also illustrated. In the first quarter of 2022, EstEnergy achieved revenues for EUR 269 million, achieving a gross operating margin of EUR 18.7 million and an operating result of EUR 13.8 million. As of 31st March 2022, EstEnergy holds invested capital of EUR 306.2 million. Loans consist of EUR 2.2 million from tangible fixed assets, EUR 309.6 million from intangible fixed assets, EUR 8.8 million from the value of equity investments, EUR 0.4 million from other fixed assets, and EUR 14.9 million from the negative balance of the items of working capital and the provision set aside. The net financial position is positive, so cash, EUR 59.4 million. So I have finished the illustration. So now we can offer a possible Q&A session. Thank you.

[Operator Instructions] First question is from [ Enrico Bartoli ] Mediobanca.

As regarding certificates on regarding revenues, could you give us some indications, some guidance, about this EUR 4 million, how you are going to invest it in compliance with the law? The second question is about investments. Can you give us some details about the one-off cost in the next quarter? And could there be any negative impact on your balance sheet? The third question is about renewables. Could there be -- about in the hydro sector. What are your arrangements with companies in the following quarter? And what impact could it have on EBITDA? The last question, if you can give us an update in the fields, which are of your interest?

I'm the CFO of the group. Relating to the technical efficiency. We have had a reduction in revenues about securities because of a decree in 2021, whether energy efficiency certificates have been reduced following a decree. So there has been a consequent reduction in revenues and also in costs regarding the green certificates. The difference is due to the fact that in the first quarter of 2021, this variation was not registered, and it was registered in the following years so -- in the following months. So this is one of the reasons that -- where you can see a variation. But in reality, there has been absolutely no reduction in income in the coming months. Regarding September, and regarding the 31st of 2022, all the costs will be aligned. So this is all -- so these variations are absolutely regular and they're going to have no impact on the income statement. On operating costs, as we said in the income statement, there are one-off components. One is for nonrecurring costs of consulting that we had one-off costs, which was detected in 2021, where we had profits from our plants. So these profits were in 2021, no longer in 2022. But as we said, it was a one-off income. Regarding the third question relating to the reduction of the contribution of renewables. We entered in the hydroelectric sector at the end of 2021. At the beginning of 2022, we made an additional investment with other 22 plants and this is about energy from renewable sources. And as you must have surely realized, we had 2 events -- 2 adverse events on the production. One is about the drought, about the lack of rainfall, has been due to the shortage of rain, where it has been a drastic reduction in 14 gigawatt of hydroelectricity compared to the 28 gigawatt that we had expected of -- an average that we had expected also compared to the results of the last 8 years. And the contribution of these plants would have been around 6 million -- EUR 6.3 million in revenues and EUR 5 million on EBITDA. Instead it became just EUR 500,000, EUR 0.5 million. In addition, I would also like to say there was an impact -- a very significant impact, the introduction of the decree, which reduced by EUR 1 -- EUR 1.3 million, the benefit that we would have had from the renewable energy sector. So these -- all elements put together have had a negative impact on these new plants. Relating to your fourth question related to [indiscernible]. For 2022, there are no deadlines that have been set and so -- where we have a specific interest to participate in bids. The follow-on relating to [indiscernible], so there have been EUR 12 million of EBITDA. So EBITDA obviously has been lower this year. Yes. Yes, I was speaking only of the first quarter. I was not speak of -- speaking about the whole full year, and what we had expected was a prudential forecast. We could have had -- we could have had EUR 11 million, considering the market rates.

Next question is from Roberto Letizia, Equita SIM.

I would like to have some further details. So the limits on pricing have an impact on all year-round. Relating to the rules on renewables, what do you expect this year -- what results do you expect this year on renewables? So what is the impact that the results of renewables is going to have? Can you give us an indication, a guidance, on the pipelines in the field of renewables, other assets that you have planned for the growth in the coming years? What are the results do you expect for the next 6 to 12 months? And about the current assets, what is your -- about the current assets, what are your -- what is your forecast? Do you think it will improve? Or will it get worse?

Thank you. Referring to the contribution of renewables. It's obvious that if the drought -- if the shortage of rainfall goes on and the sustaining debt decree, which will be valid until the end of the year, so with effect of 1st February 2022 until 31st December 2022, the 2 components put together, the shortage of rainfall. We think that the results will be more or less similar to the first quarter. So we don't think that this year there's going to be any better results, unless the meteorological situation gets changed, unless there can be a better rainfall. So this is what's happening. So the shortage of rainfall has had a negative impact and has altered the results and lowered our expectations. The other thing that you asked about the pipeline. Relating to investments, we have obviously, in mind, we are planning to invest on wind power plants. You know that we are building a wind farm and we would like to continue to develop and invest on the wind farm in South Italy, where there's a lot of wind. Relating to other energy from renewable sources, we are thinking of employing in a photovoltaic farm to produce power for local public transport. So we are planning how to do it. So also in the form of hydrogen, we would like to produce hydrogen. Relating to current assets. Current assets, there's no criticality. Shortly, the data that we have represented are conditioned by the regulations of energy efficiency. And as we said that there has been a reduction in energy efficiency certificates, which in relation to the current assets. As of today, we haven't had any criticalities relating to clients and to our sales companies. So we think there are no impact on assets and liabilities, and we are paying all our suppliers regularly. So nothing to no -- no criticalities to state. So the current assets situation will proceed regularly as over the past years.

[Operator Instructions] Next question is a follow-up from [ Enrico Bartoli ], Mediobanca.

I have a couple of questions. Can you give us some indications on CapEx? You have bought some of A2A. So what guidance can you give us relating to this?

With relating to CapEx, the amount of investments relating to distribution is around EUR 50 million, which is within the standards. So this is a continuation without any variation compared to previous years. So we are investing on our wind farm. So this also will mean a lot of investments. So only around EUR 20 million is what we have been expecting relating to the wind farms. So this investment -- this potential investment of EUR 30 million is going to start over the next month and will terminate -- the work will terminate in the summer of 2023. So the investment will be from - between is EUR 20 million and EUR 30 million. Clearly, obviously, as we said before, we have bought Romeo Gas from A2A, which we did last April, and there has been an investment in stakes that you will see in the -- over the 6 months period, which we have not included now in this report. As for synergies with the companies that we have bought, a business that we know very well, so we will employ all the synergies we have with activities that we already have. The territories where we are present are contingent and they are near the areas where we are already working. So this can help us a lot in enhancing synergies. Also in relation to the acquisitions connect to operating results that surely, this will be offering us a big advantage and it will enhance our critical mass also due to the presence of -- historical presence in the area.

[Operator Instructions] Next question is from Davide Candela, Intesa Sanpaolo.

I have one question with reference to your debt. If considering the acquisition of the A2A acquisition and the lower performance -- the poorer performance of the renewables, do you think it could have an impact on your M&A program -- on your M&A planning?

With relation to our debt position, we had a debt of EUR 400 million. So this was -- this is also because the acquisition of Romeo Gas, also led to a further. We had to expand our loans. Our loan was bigger. So now over the short term, we are not planning to increase our loans or to make acquisitions, a leveraged acquisition. So -- but anyway, so we are very confident about our investments that we have made and the investments that we will make over the short term. So we are very confident about it. Also because we trust that the situation of energy -- renewables energy is transitory and temporary for a few months of 2022, and we are confident we trust that in 2023, no negative situations will impact us, and we're confident, and we hope that no meteorological situation is going to hamper our investments and performance.

[Operator Instructions ] Ladies and gentlemen, we are finished for today as there are no further questions.

Thank you very much. And we look forward, and we wish you have a nice day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]