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

Good morning. This is Chorus Call operator. Welcome to the presentation of the financial results as of June 30, 2022, of Ascopiave. [Operator Instructions]. The Chairman and Managing Director of Ascopiave will now speak to you.

Good morning, everyone. I would like to give you the summary of the economic and financial results as of June 30, 2022. We'll start with Slide Page 4, structure of the Ascopiave Group as at June 30, 2022. The slide shows the group corporate structure as at June 30, 2022. It should be noted that in December 2021, in the first half of 2022, the group finalized a number of company positions entering the renewable energy sector and strengthening its presence in the gas distribution sector. Specifically, at the end of December 2021, Ascopiave acquired 100% of the capital of special purpose vehicle of EVA Group, the company now called Asco Renewables S.p.A., operates 6 hydroelectric plants in Lombardy and Piedmont with an installed nominal capacity of 4.6 megawatt. In January 2022, Ascopiave acquired, through the company Asco Renewables S.p.A., 60% stake in the capital of Salinella Eolico S.r.l., owned by Renco S.p.A. The company plans to build a wind farm in Calabria. Some plants are already under construction, others are at an advanced authorization stage. At the end of January '22, Ascopiave acquired 79.74% of Eusebio Energia, now called Asco EG S.p.A. The company has 22 plants for the production of electricity from renewable sources, of which 21 hydroelectric power plants in Lombardy and Veneto and a wind farm in Campania with a total installed capacity of 57.9 megawatts. In April 2022, the consortium formed by Ascopiave, ACEA and Iren, completed the closing of the acquisition from A2A Group of the management of certain concessions for the natural gas distribution service. The sales of the operation were merged by the A2A Group into a newly formed company called Romeo Gas S.p.A., whose shares acquired by Ascopiave S.p.A. for 56.101% of the capital by [indiscernible], Iren S.p.A., companies belonging, respectively to ACEA Group and the Iren Group. Romeo Gas SPA, in addition to being a direct holder of concessions, holds a controlling interest of 78.44% in Serenissima Gas S.p.A., a company that also operates in the gas distribution sector. Ascopiave's perimeter of interest of concession in 15 ATEMs in Veneto, Friuli Venezia Giulia and Lombardy, for a total of about 134,300 (sic) [ 114,300 ] PDR. Slide, Page 5, consolidated income statement first half 2022. In the first half of 2022, the group realized revenues of EUR 81.4 million, achieving an EBITDA of EUR 36 million and an EBIT of EUR 144.4 million. The balance of financial income and expenses shows a positive value of EUR 2.3 million, of which [ EUR 4.3 million ] related to dividends received from the investees Hera Comm Acsm S.p.A. Income from companies consolidated using the equity method amounted to EUR 11.4 million, is representative of the poor capital result of Ascopiave's shareholding in EstEnergy Group and in Cogeide. Taxes weighed on the income statement by EUR 5.4 million and include the amount of the extraordinary contribution on energy extra profits, which was enacted in Decree Law 21 of 21st March 2022 and amounts to EUR 1.5 million. The tax rate calculated by normalizing the pretax result of the consolidation effects of the company with the equity method and dividends received on the investments, held an extraordinary contribution on extra profits amounted to 31.8%. The result of the assets held for sale equal to EUR 0.6 million, refers to the business parameters of Romeo Gas, which based on the agreements entered with Ascopiave and other shareholders will be spun off to the benefit within 12 months of the closing of the acquisition. Slide on Page 6, consolidated balance sheet, as at June 30, 2022. As at June 30, 2022, the group had an invested capital of EUR 1.4 billion investments, consists of EUR 119.9 million from tangible fixed assets, EUR 745.8 billion (sic) [ EUR 745.8 million ] from intangible assets, EUR 528.3 million from the value of minority interest held in various companies to various amounts [indiscernible], EUR 24.9 million and Cogeide EUR 8.5 million. EUR 78.7 million from other fixed assets, EUR 52.9 million from the negative balance of working capital items and provisions. The intangible assets show a net debt equal to EUR 745.8 million, mainly consists of gas distribution networks and plants owned by the group to the tune of EUR 648.7 million and goodwill recognized following business combinations, EUR 77.5 million. Intangible assets mainly consist of real estate and the value of renewable energy production facilities. Equity as of June 30, 2022, amounted to EUR 918.6 million, of which EUR 42.7 million was attributable to minority interest. The net financial position amounted EUR 501.3 million, an increase by EUR 153.8 million compared to the same result at December 31, 2021. During the first half year, the debt net equity ratio, 0.55. Companies consolidated using the line-by-line method, slide on Page 8, operating data gas distribution. As at June 30, 2022, the group's distribution companies managed more than 890,000 customers, an increase of 15%, substantially due to the enlargement of the consolidation area. In the first half of 2022, the group distributed 885 million cubic meters of gas to networks, minus 4%. Slide Page 9, operational data, Renewable energy. As of June 30, 2022, the group had 28 plants for the products of electricity from renewable energies with an installed capacity of 62.5 megawatts. In the first half of 2022, the electricity produced amounted to 43.1 gigawatt hour. Due to the drought, production was lower than the historical average of recent years. Slide Page 10, revenue development. Revenues of EUR 81.4 million showed an increase of EUR 15.3 million determined by the enlargement of the scope of consolidation to the newly acquired companies for EUR 9.2 million. The reduction of gas distribution tariff revenues, EUR 2.7 million, the increase of EUR 2.3 million in revenues from energy efficiency certificates, a change mainly explained by higher rates for the financial year 2022. An increase in other revenues of EUR 6.5 million, mainly due to the termination of some service contracts with EstEnergy Group and Amgas Blu. Slide on Page 11, development of the operating result. At EUR 14.4 million, the operating result increased by EUR 0.5 million as a result of the extension of the scope of consolidation to the newly acquired companies to the amount of EUR 0.2 million, the reduction of gas distribution tariff revenues by EUR 2.6 million, the reduction of depreciation by EUR 0.1 million, a decrease in net operating expenses, EUR 3.2 million. The performance of the renewable energy sector was decisively influenced by adverse weather conditions with volumes produced by well below normal levels of productibility as well as the negative impact of the support of the degree measures which affected all companies in the sector. The contribution of the activities acquired in the gas distribution sector was positive and in line with expectations. Slide on Page 12, tariff revenues and other net operating costs. Gas distribution tariff revenues amounted to EUR 54.9 million and increase of EUR 0.7 million compared to the same period of the previous year. This net increase is due to the effects of the enlargement of the consolidation perimeter, which more than offset the drop in tariff levels due to the revision of the rate of remuneration on invested capital by the sector authority starting from the current financial year. Net operating expenses of EUR 18.9 million decreased by EUR 3.7 million due to the change in the following revenue and cost items, which are the enlargement of the scope of consolidation to include newly acquired companies to the tune of EUR 0.5 million; higher personnel costs, EUR 0.5 million; lower license fees to municipalities, EUR 0.2 million; higher margin on the management of energy efficiency obligations, EUR 0.2 million; increased contributions for safety incentives, EUR 1.2 million; higher consulting costs, EUR 1.4 million, of a nonrecurring nature as they are related to the extraordinary transaction recently concluded; higher revenues from EstEnergy Group and Amgas Blu for the early termination of some service contracts, EUR 6.5 million; increased provision for risks, EUR 0.3 million; low extraordinary income, EUR 1.6 million; other changes of EUR 1.1 million, negative, partly related to increased cost of energy used in business processes. Slide on Page 13, number of employees. As at June 30, 2022, the group had 42 compared to 31st December 2021. The change is mainly explained by the expansion of the scope of consolidation to include the newly acquired companies. Slide, Page 14, personnel costs at EUR 10 million. Personnel costs increased by EUR 0.9 million, determined by the expansion of the scope of consolidation to include newly acquired companies for EUR 0.4 million; lower capitalized labor costs, EUR 0.1 million; higher current personnel costs, EUR 0.4 million. Slide on Page 15, investments. Capital expenditure in the first half of 2022 amounted to EUR 26.8 million, an increase of EUR 4.2 million. The enlargement of the scope of consolidation to include the newly acquired companies resulted in investments of EUR 3.9 million, of which EUR 2.6 million related to the ongoing construction of the wind farm of the subsidiary Salinella. On a like-for-like basis, most tactical investments concerned the development, maintenance and modernization of gas distribution networks and plants for EUR 16.7 million, of which EUR 6.9 million in connections, EUR 9.2 million in network expansion and upgrades, EUR 0.7 million in reduction plans. Investments in measuring equipment amounted to EUR 5.3 million. Slide on Page 16, net financial position and cash flow. First part, net financial position as at June 30, '22 was EUR 501.3 million, an increase of EUR 153.8 million compared to 31st December 2021. During the first half of 2022, cash flow generated financial resources of EUR 44.8 million. Net investments resulted in cash outflows of EUR 26.8 million. Net working capital management absorbed resources of EUR 9.7 million. Group received dividends of EUR 25.3 million from invested companies, not consolidated on a line-by-line basis. Debt asset management, EUR 35.8 million. Business acquisition of companies active in the hydroelectric and wind power sector resulting in financial outflows of EUR 112.6 million, an increase in the consolidated net financial position of EUR 39.1 million. Slide on Page 17, net financial position and cash flow. Bank debt as of June 30, 2022, was EUR 499.1 million. Loans are 24% variable rate. And the weighted average cost of debt in the first half of 2022 was 0.5%. Estenergy slide on Page 19, income statement and balance sheet data. The slide shows the consolidated income statement for the first half of 2022 and the consolidated balance sheet as of June 30, 2022 of EstEnergy with data weighted for Ascopiave shareholding in the company. Comparative income statement figures for the first half of 2021 and balance sheet figures as of December 31, 2021, are also shown. In the first half of 2022, EstEnergy realized revenues of EUR 400.3 million, achieving an EBITDA of EUR 22.8 million and an EBIT of EUR 14.3 million. As of June 30, '22, EstEnergy has an invested capital of EUR 323 million. Investment consists of EUR 2.1 million intangible assets, EUR 308.5 million in intangible assets, EUR 8.2 million in the value of participation, EUR 0.5 million in other fixed assets and EUR 3.7 million in the positive balance of working capital items and provisions. Net financial position was positive cash by EUR 35.4 million. So I finished the presentation here. If you have any questions, you can ask us, this is the Q&A session, can start here.

[Operator Instructions] First question is from [indiscernible] of Mediobanca.

First of all, I would like some details, if you can give me some information on the contracts that you have, which have generated profits for you? What it is about? Do you think it's going -- there are going to be other nonrecurring profits during the year? Other questions is on renewable energy. Are you looking for some short-term opportunities and further growth, mergers and acquisitions, which may lead to a rise in your payroll? And then I would like -- about EstEnergy. Are you going to sell other assets as you have sold the assets from EstEnergy? The last question I want to ask you is about the inflation. At the macro level, about the inflation, has it got any effect on your prices during the second half of the year?

Can you please repeat the last question?

It was about the inflation. What was the impact of inflation on the first half of the year?

I'm Paggiaro, CFO. So regarding the services that we provide, as you must have seen in our presentation, we have maintained the same contracts, the same level of services with all our customers. So there's not going to be any raise in prices. So even though we have a strategy as anticipatedly canceled a part of the contract because anyway, they were entitled to do so. But all other contracts that we have with other companies will go on. But anyway, please remember that whenever a company withdraws from a contract, they have to pay a penalty. So -- and this is what was done in the course of the year. So EstEnergy will register this penalty that has paid us. Anyway, this is some of the profits that we have had, has been nonrecurring profits. And where we have had profits surely, we will be investing on it -- we will be investing. And so with these investments, we will surely offset -- we will try to offset any increase in prices. Regarding operating costs, your question actually -- regarding operating costs that we have checked, anyway some of the costs -- one of the highest cost that we have surely is in the production of electric energy and in the upkeep, maintenance and upgrade of the electric equipment. So this is the item where we have to spend the most. In the first 6 months of 2022, we have had EUR 1.2 million in the upkeep of our equipment network. And we think that the same amount of money will be spent in the second half of the year. And the material that we use for the upkeep, development and upgrade of our electric equipment for the meters, automatic meters and so on.

I'm Cecconato, the Chairman, relating to the investment in renewables. We have not planned any investments in any merger and acquisition operations. So any growth that we have in our companies will be an organic growth, something that comes automatically but we have not planned any mergers and acquisitions. Well, there will be -- where the number of employees will shoot up. There are some wind farms where we have spent some money, but that's normal. We had already expected it. There will be an expansion in the wind farm. So -- but these are investments that we had already envisaged in our plans. In addition, we are developing for the voltaic plant in Northern Italy for the production of hydrogen and clean electric energy for transport of goods. So -- but whatever M&A that we are studying will be carefully planned operations. So this is as far as our investments are concerned. On EstEnergy, we exercised the put option. We are evaluating if we can exercise a small part of that put option on our stake in EstEnergy. But this is an evaluation that we are doing now. And this relates anyway to a very tiny portion of our investment in EstEnergy.

Next question is from Roberto Letizia, Equita.

I would like to know about Hera, about the interruption of service. I would like to know that this has nothing to do with inflation, with the costs in rise. So I would like to know if the interruption of the contract from EstEnergy can have any adverse effects on your contract with Hera. This morning, there is a news article that renewable energies, there will be an expansion -- in the field of renewable energies in early 2023. What has Ascopiave got to do with this? Can you give us an EBITDA target at the end of the year? I can understand that the put option has been exercised on a part of the investment. But I would like to know if you can give us any EBITDA target notwithstanding this. Please give us an EBITDA target for the end of the year.