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

Hello. Good morning. This is the operator of Chorus Call. Welcome to the presentation of the financial results as at 30 September, 2022, of Ascopiave. [Operator Instructions] Now I would like to give the word to Mr. Nicola Cecconato; Chairman and CEO of Ascopiave.

Thank you. Good morning, everybody. I'll start with the summary of the economic and financial results as of 30 September, 2022. Slide -- on Page 4, it starts with Ascopiave Group as at 30 September 2022. The slide shows the group's corporate structure as at 30 September, 2022. It should be noted that in December 2021, the first half of '22, the group finalized a number of company acquisitions, entering the renewable energy sector and centering its presence in the gas distribution sector. Specifically, at the end of December 21, Ascopiave acquired 100% of the capital of a special purpose vehicle, Ascopiave 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 megawatts. In January 2022, Ascopiave acquired through the company, Asco Renewables S.p.A., 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 the capital 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 56.1% of the capital of Adistribuzione S.r.l., 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 consists of concession in 15 ATEMs in Veneto, Friuli Venezia Giulia and Lombardy, for a total of about 114,300 PDRs. In September 2022, Ascopiave increased the stake in Asco EG S.p.A from 79.74% to 84.17% to our share capital increase. Slide on Page 5, consolidated income statement for the first 9 months of 2022. In the first 10 months of 2022, the group realized revenues of EUR 120 million, achieving an EBITDA of EUR 53.6 million and EBIT of EUR 22.2 million. The balance of financial income and expenses shows a positive value of EUR 0.8 million, of which EUR 4.3 million related to dividends received from the investees Hera Comm, Acsm-Agam. Income from companies consolidated using the equity method amounted to EUR 10.5 million, is representative of the pro rata result of Ascopiave's shareholding in EstEnergy Group and in Cogeide. Taxes weighed on the income statement by EUR 57.1 million and include the amount of the extraordinary contribution on energy extra profits, enacted in Decree Law 21 of 21 March, 2022 and amounts to EUR 1.5 million. The tax rate calculated by normalizing the pretax result of effects of the consolidation of the companies consolidated using the equity method and dividends received on the equity investments, held an extraordinary contribution on extra profits is 33.4%. The result of the assets held for sale equal to EUR 0.9 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 EUR 1.6 billion investments as follows: EUR 120.4 million from tangible fixed assets, EUR 749.1 billion from intangible assets, EUR 550.7 million from the value of minority interest held in Estenergy, EUR 463.4 million; Hera, EUR 54 million; Acsm-Agam, EUR 24.9 million and Cogeide EUR 8.3 million. EUR 77.8 million from other fixed assets. EUR 36.5 million from the negative balance of working capital items and provisions. The intangible assets shown under assets equal to EUR 749.1 million, mainly consisted of gas distribution networks and plants owned by the group, EUR 653.1 million; and goodwill recognized following business combinations, EUR 76.7 million. Property, plant and equipment consists mainly of real estate and the value of renewable energy production facilities. Equity as of 30 September, 2022 amounted to EUR 942.1 million, of which EUR 41.8 million was attributable to minority changes. Net financial position amount to EUR 519.4 million, and increase by EUR 171.9 million compared to 31 December, 2021, mainly as a result of the company acquisition in the first 9 months. The debt to net equity ratio is 0.55. Companies consolidated using the line-by-line method. Slide Page 8, operating data, gas distribution. As at 30 September, 2022, the group's distribution companies handled approximately 889,000 customers, an increase of 14%, substantially due to the expansion of the consolidation area. In the first 9 months of 2022, the group distributed 1,041 million cubic meters of gas through its networks, minus 3%. Slide Page 9, operational data - renewable energy. As at 30 September, 2022, the group had 28 plants for the production of electricity from renewable energies with an installed capacity of 62.5 megawatts. In the first 10 months of 2022, the electricity produced amounted to 61.1 gigawatts due to the drought production was lower than the historical average of recent years. Slide on Page 10, revenue development. Revenues of EUR 120 million showed an increase of EUR 20.3 million determined by the enlargement of the scope of consolidation to the newly acquired companies for EUR 15.8 million, reduction of gas distribution tariff revenues, EUR 3.7 million, an increase of EUR 2.4 million in revenues from energy efficiency certificates change mainly explained to the higher target for the financial year 2022. Increased in other revenue, EUR 6.5 million, mainly due to the combination of some service contracts with EstEnergy Group and Amgas Blu. Development of the operating result, operating profit at EUR 20.2 million decreased by EUR 2.7 million as a result of the extension of the scope of consolidation; newly acquired companies in the amount of EUR 0.7 million; reduction of gas distribution tariff revenues, EUR 3.8 million; the increase in depreciation, EUR 0.2 million; decrease in net operating expenses, EUR 1.9 million. The result of the renewable energy sector was decisively influenced by the adverse weather conditions with volumes produced well below normal levels of producibility as well as the negative impact of the support degree measures, which affected all companies in the sector. The contribution of activities required in the gas distribution sector was positive and in line with expectations. Tariff revenue, slide Page 12, and other net operating costs. Cash distribution tariff revenues amounted to EUR 84.5 million and show an increase of EUR 2.9 million compared to the same period of the previous year. This net increase is due to the effects of 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 EUR 30.9 million decreased by EUR 1.2 million due to the change in the following revenue and cost items. Alignment of the scope of consolidation to include newly acquired companies in the amount of EUR 0.8 million; low transaction fees to municipalities, EUR 0.3 million; lower margin on the management of energy efficiency obligations, EUR 0.4 million; higher consulting costs, EUR 1.1 million of a nonrecurring nature as they are related to recently completed extraordinary transactions; higher cost for gas and electricity utilities, EUR 1.2 million related to the increased cost of energy used in business processes; higher revenues from EstEnergy Group and Amgas Blu for the early termination of some service contracts for EUR 6.5 million; increased provisions for risk by EUR 0.5 million; higher extraordinary expenses, EUR 1.5 million; other changes of EUR 0.2 million. Slide Page 13, number of employees. As at 30 September, 2022, the group had 518 employees, increase of 47 compared to 31 December, 2021. The changes is been explained but the expansion of the scope of consolidation to include the newly acquired companies. Slide Page 14, personnel costs, EUR 14.8 million, personnel costs increased by EUR 1.2 million determined by the alignment of the scope of consolidation of the newly acquired companies EUR 1.1 million; lower capitalized labor costs, EUR 0.1 million; higher current personnel costs, EUR 0.1 million. Slide Page 15, investments. Capital expenditure in the first 9 months of 2020 amounted to EUR 41.4 million, an increase of EUR 7.6 million. The enlargement of the scope of consolidation, which include the newly acquired companies resulted in EUR 7.6 million, of which EUR 4.1 million related mainly to the ongoing construction of the wind farm of the subsidiary Salinella. On a like-to-like basis, most technical investments concerned the development, maintenance and modernization of gas distribution networks and plants for EUR 24.8 million, of which EUR 9.7 million in connections; EUR 14.2 million in network expansions and upgrades; EUR 0.9 million in reduction plans. Investments in metering equipment amounted to EUR 7.8 million. Slide Page 16, net financial position and cash flow. The net financial position as at 30 September, 2022 is EUR 519.4 million, increase of EUR 171.9 million compared to 31 December, 2021. During the first 9 months of 2022, cash flow generated financial resources of EUR 58.7 million. Net investments resulted in a cash outflow of EUR 35.2 million. Net working capital management absorbed resources of favorable EUR 25.6 million. The group received dividends of EUR 25.3 million from invested companies, not consolidated. Net asset management results in cash outflow of EUR 35.8 million, business acquisitions of companies active in the hydroelectric and wind power sectors result in a financial outlay of EUR 110.1 million; increase in the consolidated net financial position of EUR 39.1 million. Net financial position and cash flow, Slide Page 17. Bank debt as of 30 September, 2022, have an EUR 518.2 million, financing is 58%. Variable rate and the weighted average cost of debt in the first 9 months of 2022 was 0.86%. Estenergy, Slide Page 19, income statement and balance sheet data. This slide shows the consolidated income statement for the first 9 months of 2022, the consolidated balance sheet as of 30th September, 2022 of EstEnergy with data weighted for Ascopiave stake in the company. Comparative income statement figures for the first 9 months of 2021 and balance sheet figures as of December 31, 2021, are also shown. In the first 9 months of 2022, EstEnergy realized revenues of EUR 531.3 million, achieving an EBITDA of EUR 27 million and an EBIT of EUR 14.7 million. As of 30th September 2022, Estenergy held an invested capital of EUR 345.7 million that consists of EUR 2 million tangible assets; EUR 306.5 million intangible assets; EUR 8.4 million value of participation; minus EUR 5.9 million of other fixed assets and EUR 34.6 million of the positive balance working capital items and provisions. The net financial position is positive, cash, EUR 35.6 million. So I have finished here the presentation. So now there is a question-and-answer session. If you have any questions, please ask.

[Operator Instructions] The first question is from Enrico Bartoli, Mediobanca.

Hydro assets relating to the production of 61 gigawatt hour in this particular condition, difficult conditions. Can you give us -- can you give us an idea of what would have been a normal production? And what are your expectations in terms of production? What are your forecast for the next quarter and for the next year? Another question is contribution of assets. In April, I think you had EUR 3.1 billion of EBITDA. So what do you think will be a full year result over the full 12 months of EBITDA? What is your forecast? On operating costs, can you give me some indication on what will be the impact of inflation on your operating profit unchanged of perimeter if you think there has been a significant change? Do you think you can offset the inflation? And how is the debt situation of the company. Regarding the company's indebtedness comparisons on last year, what do you think your 2003 forecasts are on indebtedness?

So hello, everybody. I'm the Chairman, CEO. Relating to the hydro assets, the expected -- the forecast is 160 gigawatt on an annual basis if there hadn't been a paucity of rain. If there had been the drought, which would have led to -- if it hadn't been for the shortage of rainfall, shortage of rainfall there would have been an increase of EBITDA of EUR 36 million. So this is what the contribution of the hydro asset would have been, an EBITDA of EUR 36 million. So the drought brought the reduction to minus 50%, the lowest in the past 8 years and the introduction of the government law said that of EUR 58 per megawatt hour. Regarding the assets of A2A for the year 2022, so EBITDA from A2A [indiscernible] A2A will be EUR 5 billion. Operating costs have risen as relating to -- relating to the energy field. For the preheating we use elect power supply. So all the distribution cabins need to be preheated. So electric power costs, the operating costs rose significantly -- have risen significantly with an impact on the margins. The inflation to which is creating an increase in costs, this also leads to an increase in procuring -- in the procurement of material for investments, especially in the wind farms. We have seen -- we are noticing a significant increase in costs when we just check our procurement figures. For example, the turbines, the cost of the turbines to be installed in 2023, the cost has gone up dramatically. So all the work that we have, all the construction work that we have has had an adverse impact of cost. Relating to cost of debt, you know already Ascopiave has managed to contain it. It has managed to spread it over the years. It is 0.84%. This is very much kept under check compared to the market rates. As of today, we have enough resources -- we have enough cash to face to manage the investments that we have planned not only in 2022, but also in 2023.

Next question from Roberto Letizia.

I would like to speak about an increase in the current assets. I would like to know how would you manage the increase in current assets and what about expected in renewable energy in 2023? So what the production -- the new production cost, how will it impact the 2023 figures? And what can you say about the put option in 2023 as well?

I'm Paggiaro, CFO. About current assets, the figures that we have stated is of September '22. So our results -- the current assets are considered really a very sturdy figure. It's a good result over the last period. Regarding rates -- regarding the costs we have related -- we have really managed to keep the cost of raw materials low so that the end user couldn't be impacted by the increase in raw material costs, so that the electricity bills, gas bills could be left at a lower rate. So we haven't increased the rates, the prices, the bills for the end user. And we are sure that everybody has made, we don't have outstanding accounts.

[Operator Instructions]

I would like to add, I'm Cecconato, the CEO. I would like to complete the answer regarding the put option. We have all intentions, the plans to exercise the put option by the end of the year. And we will see if there are -- the conditions are ripe to do it. Regarding the plants of renewable energy, we think unless it is stretched, it is extended in 2023, the government has said that it would like to [ incentivate ] the gas production. If we think we're going to have our power plants of at least EUR 10 million in EBITDA. I'm sorry if I interrupted -- and we hope throughout the wind plants we have 14 towers. We think we will have a contribution of at least EUR 3 million. Then if we are efficient with another wind power plant, the new power plant will also give its contribution. Related to hydroelectric, EUR 10 million of further margin. We expect unless, of course, government extends its measures.

Next question is from Enrico Bartoli.

Enrico Bartoli of Mediobanca. I would just like to ask a follow-up question relating to the gas needs. Have you spoken to the government about the gas tenders? Can you give us some -- an update on how the gas tenders are going on? The latest information from the government -- from the new government? Do you think the new government is going to push for the new gas tenders? The government is -- has already decided to approve -- has already decided to give the possibility to the local authorities to decide for themselves whether to hold this -- the gas tenders. So this is going to give an incentive, especially to local organizations.

Of course, there's not been other dynamism in the sectors. There are many, many tenders and suddenly at the last moment, the tenders are canceled, they are postponed. So we are now expecting a new decree which is going to be clearly define all the demand side and the supply side. Let us see what the authority has got to say about it, especially relating to the technological field. So relating to the regulations, so we'll have to wait for some local administrations to see what they draw up. So besides this, there's no other news relating to the government, related to the regulations. The authority has planned to set up a best tariff system for the mechanism to -- that rewards efficiency and a good maintenance. So let's hope there's going to be a new well-defined law, well-structured law. So as for now, the indications are a bit vague. So it's a bit early to understand what the government will do. There have been some promises about efficiency on how efficiency will be measured. But as you know, we, of course, are going on with our remunerating investments, and let's hope we get a positive ramp over the years. There are standard parameters instead for the cover -- to cover our experiences. So there is this dualism, which is the government and the local administrations. So the new regulatory period that will start in '26 will surely have a new regulatory framework. So we are interfacing with the authority.

[Operator Instructions] Dr. Cecconato at this moment, there are no further questions.

Thank you. So we also don't have anything to add. Since there are no questions, we thank you for participating in the conference call and for your questions. Best wishes to you.

This is Chorus Call Operator. The conference is over. So now you can disconnect your telephones. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]