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

[Audio Gap] Consolidated data as of 31st December 2022 and compare that consolidated data 31st December 2021. So let's speak of the balance sheet, Slide Page 4, starts with Ascopiave Group as of 31 December 2022. The slide shows the group's corporate structure as at 31 December 2022, it should be noted back in December 2021. And in the first half of 2022, the group finalized a number of company acquisitions 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 a special purpose vehicle of the 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 a 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 2022, Asco 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 were acquired by Ascopiave S.p.A. for 56.1% of the capital by [ Adistribuzione S.r.l. ], and Ireti S.p.A., companies belonging, respectively to ACEA Group and the Iren Group. Romeo Gas S.p.A., in addition to being a direct holder of the concessions, holds a controlling interest of 78.4% 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. In October 2022, a branch of Romeo Gas S.p.A was demerged in ACEA Group. With this transaction, Ascopiave S.p.A. shareholding in Romeo Gas S.p.A increased from 56.1% to the current 80.2%. In November 2022, Ascopiave and Iren entered into a binding agreement finalized at the end of January 2023 for the rationalization of certain assets of the natural gas distribution service. The transaction mainly provided for the transfer by Ascopiave Group to the Iren Group of the entire share capital of Romeo 2, the company newly incorporated by the Ascopiave Group into which the branches of business relating to the management of certain concessions to Liguria and Piedmont owned by Edigas was previously transferred, the sale by the Iren Group in favor of Ascopiave of its 19.7% shareholding in Romeo Gas. Slide, Page 5, consolidated profit -- profit and loss account of 2022. Financial year 2022, the group realized revenues of EUR 163.7 million, achieving an EBITDA of EUR 77.9 million and an EBIT of EUR 31.9 million. The balance of financial income and expenses shows a negative value of EUR 1.8 million. Financial expenses were EUR 6.2 million, while financial income amounted to EUR 4.4 million. The latter include EUR 4.3 million in dividends, receiving income from the company was consolidated during the equity method amounting to EUR 7.9 million represents the pro rata result of Ascopiave Holdings, in the Estenergy Group and Cogeide. Taxes weigh on the income statement by EUR 7.0 million include the amount of extraordinary contribution on energy extra profits enacted in Decree Law 21 of 21 March, 2022 in the amount of EUR 1.5 million. The tax rate calculated by normalizing the pretax result of the effects of the consolidation of the company's consolidating using equity method, the dividends received under equity investments, the capital gain on the -- on the profit and the extraordinary contribution on extra profits was around 33.6%. The results of assets held for sale equal to EUR 1.5 million refers to the business perimeters of Romeo Gas and Edigas Esercizio Distribuzione Gas, which will be subject to disposal as a result of the finalization of the agreement to rationalize the natural gas distribution concessions between Ascopiave and Iren. Slide Page 6, consolidated balance sheet as of 31st December 2022. As at 31st December 2022, the group had an invested capital of EUR 1.2 billion investments consists of EUR 138.4 million from tangible fixed assets, EUR 759.7 million from intangible assets, EUR 436.3 million value of minority interest held in Estenergy, EUR 349.5 million, Hera Comm, EUR 54 million, Acinque EUR 24.3 million and Cogeide EUR 8.5 million. EUR 43.9 million from other fixed assets, EUR 95.9 million from the negative balance of working capital items and provisions. EUR 15.8 million from the net invested capital of assets held for sale relating to the assets and liabilities associated with Romeo Gas and Edigas Esercizio Distribuzione Gas that will be sold as a result of the finalization of the agreement to rationalize natural gas distribution concessions between Ascopiave and Iren. The intangible assets shown under assets equal to EUR 759.7 million mainly consists of gas distribution networks and plants owned by the group, which is an EUR 81.8 million and goodwill recognized foreign business combinations, EUR 61.3 million. Property, plant and equipment consists mainly of real estate and the value of renewable energy production facilities. Shareholders' equity as at 31st December 2022 amount to EUR 886.4 million, of which EUR 20.1 million was attributable to minority interest. Net financial position was EUR 411.9 million and increased by EUR 64.4 million compared to 31st December 2021, mainly due to the business acquisitions realized in the first 9 months of the financial year 2022. The debt-to-equity ratio is 0.46. Companies consolidated using line-by-line method, Slide Page 8. As of 31st December, gas distribution 31 December 2022 the group's distributed companies handled approximately 902,000 customers, an increase of 16%, substantially due to the expansion of the consolidated area. In the financial year 2022, the group distributed 1,472 million cubic meters of gas, minus 8% to its networks. Slide Page 9, operational data, renewable energy. As at 31 December 2022, the group had 28 plants for the production of electricity from renewable energies with a new installed capacity of 62.5 megawatts. In the financial year 2022, the electricity produced was 89.2 gigawatts due to the drought production was lower than the historical average in recent years. Slide Page 10, revenue development. Revenues amounted to EUR 163.7 million, an increase of EUR 28.7 million determined by the enlargement of the scope of consolidation of newly acquired companies, EUR 24.9 million, a reduction of EUR 6.5 million in gas distribution tariff revenues due to the revision of rate of return on invested capital from 6.3% to 5.6%. The increase of EUR 6.3 million in revenues from energy efficiency certificates, a change mainly explained by higher targets for the financial year 2022, an increase in other revenues of EUR 4.0 million, mainly due to no revenues to revenues from early termination of some service contracts with Estenergy Group and Amgas Blu for a total of EUR 6.5 million. Slide, Page 11, development of operating results. The operating result, EUR 31.9 million decreased by EUR 1.9 million as a result of the extension of the scope of consolidation to the newly acquired companies by EUR 0.9 million. The reduction of gas distribution tariff revenues to the tune of EUR 6.5 million increase in depreciation of EUR 3.6 million, a decrease in net operating expenses, EUR 9.1 million. The result of the renewable energy sector will decisively influenced by adverse weather conditions with volumes produced well below normal levels of producibility as well as the negative impact of the support decree measures, which affected all companies in the sector. The contribution of activities acquired in the gas distribution sector was positive and in line with expectations. Slide 12, tariff revenues, gas distribution tariff revenues was EUR 113.6 million and show a decrease of EUR 4.7 million compared to the previous year. This net increase is due to the effects of the enlarged consolidation perimeter, EUR 11.2 million, which more than offset the drop in tariff levels due mainly to the revision of the rate of remuneration on invested capital by the sector authorities, starting from the current financial year, minus EUR 6.5 million. Slide Page 13, other net operating costs. Net operating expenses, EUR 35.6 million decreased by EUR 6.8 million due to the change in the following revenue and cost items, expansion of the scope of consolidation to include newly acquired companies in the amount of in EUR 2.3 million low license fees, demonstrating positive EUR 0.4 million, lower margin on the management of energy efficiency obligations, EUR 0.8 million, higher personnel costs, EUR 2.0 million, higher consulting costs, EUR 1.2 million of nonrecurring nature as they are related to the extraordinary transaction recently concluded. 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 the Estenergy Group and Amgas Blu for the early termination of some services of contracts, EUR 6.5 million is the amount. Capital gains from the sale of equity investment, 8% of Estenergy and Hera Group for EUR 9.5 million, increase of other nonrecurring costs, EUR 2.4 million; other changes, EUR 0.3 million. Slide Page 14 number of employees. As at 31st December 2022, the group had 513 employees, increase of 42 compared to 31 December 2021. The change is mainly explained with the content of this scope of consolidation to include the newly acquired companies. Personnel costs, Slide Page 15. Cost of personnel, EUR 20.6 million increased by EUR 3.5 million, determined by the alignment of the scope of consolidation to the newly acquired companies by EUR 1.6 million, lower capitalized labor costs, EUR 0.8 million, high current personnel costs, EUR 1.2 million. Investments capital expenditure in the financial year 2022 amounted to EUR 87 million, an increase of EUR 33.2 million. The enlargement of the scope of consolidation to include the newly acquired companies entailed investments, EUR 30.9 million, probably EUR 25.1 million related mainly to the ongoing construction of the wind farm in Calabria and the subsidiary, Salinella Eolico. On a like-for-like basis, mostly technical investments concerned the development, maintenance and modernization of cash distribution networks and plans for EUR 41.5 million, of which EUR 14.8 million linked connections, EUR 23.7 million in network expansion and upgrade and EUR 3.0 million in reduction plans. Investments in measuring equipment amounted to EUR 11.5 million. Slide Page 17, net financial position and cash flow. The net financial position as at 31st December 2022, EUR 411.9 million, an increase of EUR 64.4 million compared to 31 December 2021. During the financial year 2022 cash flow generated financial resources of EUR 78.5 million. Net investments resulted in cash outflows of EUR 86.9 million. Net working capital management generated resources of EUR 103.6 million. The group received dividends of EUR 25.5 million from invested companies, not consolidated on a line-by-line basis. Net asset management resulted in cash outflows EUR 35.8 million. The company acquisitions realized during the year resulted in financial outflows of EUR 110.1 million and an increase in the consolidated net financial provision of EUR 39.1 million. Net financial position, Slide Page 18. Financial debt, 31st December 2022 was EUR 378.9 million, borrowings, 23% at variable rate and the weighted average cost of debt in the financial year 2022 was 1.13%. Estenergy, Slide Page 20, income statement, balance sheet data. The slide shows the consolidated income statement for the financial year 2022 and the consolidated balance sheet at 31 December 2022. Company's income statement figures for the financial year are also shown along with the balance sheet figures. In the financial year 2022, Estenergy realized revenues were [ EUR 1,657.4 million ] achieving an EBITDA of EUR 59.2 million and an EBIT of EUR 23.2 million. As of 31 December 2022, Estenergy had an invested capital of EUR 1,023.6 million. Investments consist of EUR 4.1 million, intangible assets, EUR 634.1 million, intangible fixed assets, EUR 17.7 million in the value of participation, minus EUR 19.7 million in other fixed liabilities, EUR 387.4 million from the positive balance of working capital items and provisions. Net financial debt amounted to EUR 321.8 million. Last Slide Page 20, proposed dividend. The Board of Directors of Ascopiave shared consideration of the results of the year and the solidity of the group's equity and financial structure will propose to the shareholders' meeting the distribution of dividend of EUR 0.13 for a total of EUR 28.2 million, an amount calculated on the basis of the shares in circulation and the closing date of the financial year. If approved by the shareholders meeting, the dividend will be paid on 4th May 2023, with ex-dividend date on 2 May 2023. Thank you so much. I finished. This is the presentation of the results. Now we can start the Q&A section.

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

My first question is about Estenergy. You have mentioned the results of 2022 to the EBITDA that has dropped which has reflected on the contribution of Estenergy on your profit and loss. So what are the reasons of the performance of Estenergy? And what do you expect about the contribution of Estenergy in 2023? Second question is about the cash flow. You have highlighted the positive contribution of EUR 104 million from working capital. Can you give us a guidance of the reasons of the significant contribution and what we can expect in 2023? Third question. What do you think of the traditional payment of the group? Looks like EBITDA has dropped by [ EUR 30 ] million because you say there has been a drop in revenues by EUR 7 million, so which has affected the operating costs. Can you tell us something about the evolution of the operating costs and how you can recoup this from EBITDA?

Cecconato speaking. Regarding your first question. There has been a drop in the results of Estenergy. This is because mainly about the volatility or volatility of the market prices and about the fact that the group -- Hera Group, Estenergy has done provisions storage of gas at high prices. So a part of this quantity of gas is also of the fact that mild climate hasn't helped. So a lot of users didn't spend on gas because of the mild climate. So a lot of gas was unsold. So which has hampered, which has had a negative effect on the prices. Also the quantities that we stored that Estenergy stored was not sold. So because of this [ EUR 30 million] there has been a drop of [ EUR 30 million ] in EBITDA and also on the net profit. For 2023, we expect more or less the same performance with the forecast that results will be better in 2024. So this is more or less the trend that we can expect. So we have only participation of [ 40% ] in Estenergy. So we are not involved in the management. We are just spectators. The CFO is going to talk to you now.

About the cash flow, it is said that a positive evolution for EUR 800 million. There have been some modifications for the normalities that we introduced at the end of the financial year. So there were some components that favored the companies that sell gas. So instead of having the credits, we had debt for the companies that sell. As of 31st December, was Saturday and Sunday, so the payment of the deals was, let's say, to January 2023. So we couldn't collect money in December. So there hasn't been any anomaly about, absolutely no, it just happened because of a problem of dates. Relating to 2023, we don't expect any drastic changes. Everything should be normal, everything should return to normal. Even though the authority has introduced some extraordinary measures in order to safeguard the end user and also about M&A. That's for the third question. Actually, EBITDA had an impact of a negative impact of EUR 5 million, EUR 6 million because of the changes in the tariffs. So the EBITDA has had a negative impact. Obviously, this impact was had also because of the evolution of the prices. So the user prices were also affected because Ascopiave had to buy gas and electric power in order to operate its plants. And then we had a negative impact also from works that were carried out outside of the company. So now we have to see what happens in 2023. But anyway, the revenues are until now in line with what was happening in 2022. So the investments that we have made in the past years should bear fruit in 2023. We only have to see how inflation will perform over the next few months. Amount of debt, If I'm not mistaken, the EUR 103 million positive you think will be sort in 2023. So, I just want to see the evolution of the debt in 2023, we have to start with EUR 100 million extra. Is what I'm saying right, not necessarily EUR 100 million extra because we have to see when the tariff modifications will enter into both. So in the first quarter, the situation will be exactly like in 2022, then we've got to see what happens towards the end of the year [indiscernible]. We are already geared up to face any adverse effects from any decision by the authority, but there was nothing. Thank you.

The next question is from Emanuele Oggioni, Kepler Cheuvreux.

I just have 2 or 3 questions. The first one refers, I would like something about the breakdown of EBITDA by division. And about one-off items, positive or negative. Can you just highlight this division? This is the first question. The second question is another acquisition which seems new acquisitions. You want to acquire and enter minority interest in Iren. I would like to know some details about this about your strategy, what return, what synergy you expect with this minority interest. It seems Iren would like to sell related to [ Rub ] its assets. So by holding a minority interest so EUR 125 million, Rub 49% would be for [ EUR 290 ] million, an important effort, it supposes that in 2023 we must exercise the option on Estenergy to buy EUR 400 million of assets to balance what happens on the other side. The third question is about hydroelectric. In some regions of North Italy, a more normally -- I don't know about Veneto. There's been a drought persistent drought with the drop in rainfall, there was no rain. What do you expect in 2023 in terms of product, how it can affect your product, your plans? Can you give us some guidance on EBITDA relating to the asset and about renewable energy in general. Thank you.

[Operator Instructions]

So I will start with answer 2. In a recent interview, I had said there would be an interest to buy a minority interest in Iren, but this was within this year of an industrial operation, in reality this operation didn't take place. So it was just a declaration of buying. So it looks like Iren has found a financial interest, which is funding them. So they are not interested in an industrial type of operation. So it was just an announcement of buying. Even though we have such type of interest, which we have declared in our industrial plan that we have the intention of following the development of partnership and minority interest. Relating to question 3 about drought. Here too, this year too we had a natural calamity, no rainfall, no snow last year, notwithstanding the drought in the few plants that we have. Despite this, we had 90 gigawatts of electric power. Also Piedmont, Lombardy, also Veneto has had the stage of calamity because of drought. So it's obvious the expectations of 2023 are more or less the same. And it looks like nothing is going to change even though we feel that obviously from the forecast that we have looks like there aren't going to be any significant changes, but we don't want to be pessimistic. So we hope this happens. I don't have anything else to add. We cannot expect what can happen. The CFO can answer your first question about breakdown of EBITDA.

So EBITDA relates to EUR 68.9 million for Ascopiave extraordinary contribution has been [ EUR 150 ] million. Then from new companies in cash distribution, Romeo Gas, Serenissima Gas, they contributed for EUR 5 million with available energy is still EUR 28 million.

Can I make a follow-up question about hydroelectric production, energy from renewable sources. So what's the EBITDA of 2022? About the forecast of the gigawatt hour 2022. Since they have a different price gap of 6 months, what EBITDA is going to have on this change that you have reporting your budget.

You have to take into consideration several variable types of energy is dropping the support that we applied until 2026. And that could be 50%, 60% extra increase of EBITDA, but it's obvious that this forecast depends on these 2 factors. And then mostly depends on the prices of electric power, which I said is dropping. Last year, just -- during this period, the price of electricity was higher. It's obvious that we have to take into consideration all these [ weather ] also, it's a bit difficult to precisely give you a sharp figure on EBITDA. Thank you.

[Operator Instructions] The next question is a follow-up from Enrico Bartoli of Mediobanca.

Can you give us an update on the wind farms that you are building in Calabria, how is the situation there as of today.

If all goes well as per plan, we think that will conclude the jobs between November, December this year. And the wind farm should start at the beginning of next year for the wind farm of the 1 megawatt in Calabria.

Next question is a follow-up from Emanuele Oggioni, Kepler Cheuvreux.

I would like to ask you relating to -- related investments in biomethane plants about an update. You still have to present the projects in the tenders. There is a tender of [ SCA NRR]. And this, I'd like to know if you can give us some guidance on CapEx in 2023. And the potential utilization of funds if your tender is addressable the participation will be successful.

Actually, we are still trying to find a partner with other operators. We have plans biomethane production. Furthermore, we also -- it's difficult for us to tell you if in 1 year, we will perform all the investments that we have planned. We would like to invest some tens of millions of euro. Or we can start a process of investments. So we are still evaluating, it's difficult for us to give you a specific answer.

[Operator Instructions]. Dr. Cecconato, there are no more questions. Thank you very much. Let's wait for a minute and then we can close. [Operator Instructions]. So, Dr. Cecconato, confirm there are no more questions, so we can close here. Thank you for participating. I would like to thank each one of you and also for your questions and the interest you have demonstrated for the Ascopiave Group. Thank you. This is chorus call operator. The conference is over. You can disconnect your phones. [Statements in English on this transcript were spoken by an interpreter present on the live call.]