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

Good morning. This is Chorus Call. Welcome to the presentation of the results for the financial results as of 30 June 2023 Ascopiave. [Operator Instructions] Now the Chairman of Ascopiave, Dr. Nicola Cecconato is going to give you his speech. Dr. Cecconato, please start.

Thanks a lot. Good morning. Let me start with by illustrating the results as of 30 June 2023 and a comparison with the results a year earlier. So let's start with Slide -- Page 4, the group's corporate structure. It should be noted that scope of consolidation has undergone some changes compared to the first half of last year as a result of the extraordinary transaction finalized in recent months. In January 2023, as part of an overall territorial rationalization of its portfolio of concessions, certain company assets relating to the management of several concessions were sold to the Iren Group. With the same transaction, the Ascopiave Group acquired the residual 19.7% share of Romeo Gas, thus holding 100% of the company. In March 2023, Ascopiave acquired a majority stake in Asco TLC, a company operating in Information and Communication Technologies. In June 2023, the company's Board of Directors approved the plan for its merger by incorporation into Acantho with the consequence that if approved, the Ascopiave Group would hold a minority stake in Acantho. For this reason, Asco TLC's income statement and balance sheet figures are represented in the consolidated financial statements as relating to assets held for sale. In April 2023, Ascopiave became the sole shareholder of Morina, a company active in the renewable energy sector. Slide Page 5, consolidated income statement for the first half of 2023. In the first half of 2023, the group realized revenues of EUR 83.9 million, achieving an EBITDA of EUR 38.2 million and an EBIT of EUR 14.5 million. The balance of financial income and expenses showed a positive value of EUR 0.5 million. In particular, financial income amounting to EUR 5.8 million, increased by EUR 1.3 million compared to the first half of 2022. The change was mainly due to the recognition of the income received by the subsidiary, Asco TLC for EUR 0.7 million. Financial expenses, on the other hand, amounting to EUR 5.3 million were up by EUR 3.1 million compared to the same period in 2022. The change due both to the increase in financial debt and interest rates payable. Income from companies consolidated using the equity method amounting to EUR 0.8 million represents the pro rata result of Ascopiave's Holdings, EstEnergy Group and Cogeide. Taxes weigh on the income statement by EUR 2.3 million. The tax rate calculated by normalizing the pretax result of the effects of the consolidation of companies, consolidated using the equity method, dividends received from investee companies and the capital gain within the operation of cash distribution concessions and relative tax effects goes from 31.8%, 30 June 2022 to 32%, 30 June 2023. Consolidated balance sheet on Page 6. As of 30 June 2023, the group had an invested capital of EUR 1.35 billion. The use consists of EUR 143.1 million from tangible fixed assets, EUR 753 million from intangible fixed assets, EUR 407.5 million from the value of minority interest held in EstEnergy, EUR 321.2 million; Hera Comm, EUR 54 million; Acinque, EUR 24.3 million; and Cogeide, EUR 8.1 million. EUR 43.2 million from other fixed assets, EUR 25.2 million from the negative balance of working capital items and provisions, EUR 27.2 million from the net invested capital of assets held for sale related to the assets and liabilities of Ascopiave S.p.A. that will be merged into Acantho S.p.A. The intangible assets shown as asset equal to EUR 755. 3 million, mainly consists of gas distribution networks and plants owned by the group, EUR 678 million and goodwill recognized following business combination, EUR 61.3 million. Tangible assets consist mainly of real estate and the value of renewable energy production plants and telecommunications infrastructure. Equity as of 30 June 2023 amounted to EUR 850.6 million, of which EUR 22.5 million was attributable to minority interest. Net financial position amounted to EUR 500.6 million and increased by EUR 8.7 million compared to 31 December 2022. Debt equity is 0.59. Slide or Page 8, companies consolidated using line-by-line method, operating data, gas distribution. The group distribution companies managed approximately 874,500 customers, a decrease of 2% compared to 31 December 2022. The change was mainly driven by sales of concessions in Piedmont, Liguria and Emilia-Romagna to the Iren Group, 10,200 users. We also have [indiscernible] concessions, 4,200 users. In the first half of 2023, the group distributed 813.5 million cubic meters of gas through its network minus 8%, [ 82.6 ] million cubic meters related to enlargement of the scope of consolidation companies Romeo Gas, Serenissima Gas and consolidated on 1st April, 2022. Slide Page 9 operational data for renewable energy. As of 30 June 2023, the group had 28 plants for the products of electricity from renewable sources with installed capacity of 62.5 megawatts in the first half of the year. Electricity production amounted to 71.2 gigawatts. Although the volume generated was higher in the same period of the previous year was plus 65%. It was still lower than the historical average recorded in recent years due to the drought that characterized the period. Slide Page 10, revenue development. Revenues EUR 83.9 million showed an increase of EUR 2.5 million determined by the extension of the scope of consolidation, newly acquired companies, EUR 4.5 million. The increase in gas distribution tariff revenues was EUR 1.7 million, growth in revenue from the sale of electricity generated and renewable sources by EUR 2.8 million. From the growth in revenue, energy efficiency facilitates EUR 3.1 million, a reduction of other revenues, EUR 9.6 million of which EUR 6.5 million due to the diminution of the penalty recognized by EstEnergy Group and Amgas Blu in the first half of 2022 for the early termination of certain service contracts. Slide on Page 11, development of the operating result. Operating result, EUR 14.5 million increased EUR 0.1 million due to the effect of the extension of the scope of consolidation to the newly acquired companies to June of EUR 0.1 million, increase of EUR 1.7 million Gas distribution, growth in revenue from the sale of electricity generated from renewable services EUR 2.8 million, increase in depreciation of EUR 0.9 million, an increase in net operating costs EUR 3.6 million. Slide Page 12, tariff revenues from the distribution and sale of renewable energy, gas distribution tariff revenues amounted to EUR 60 million and showed an increase of EUR 5.2 million compared to the first half of the previous year due to the enlargement of the scope of consolidation EUR 1.7 million, increase of EUR 3.5 million in tariff revenues on a like-for-like basis. Revenues from sales of energy from visable sources amounting to EUR 8 million, increased mainly due to the increase in production, revenue generated in the segment affected by the government's price containment measures which will cease to take effect for the second half of the year. Other net operating costs, Slide Page 13. Net operating expenses of EUR 29.9 million increased by EUR 5.7 million due to the change in the following revenue and cost items. Expansion of the scope of consolidation to include newly acquired companies EUR 2.1 million, increased concession fees to municipalities EUR 0.9 million, lower margins on energy efficiency bonds EUR 0.3 million, higher personnel costs EUR 0.8 million, low consulting costs EUR 2.4 million, lower gas and elective utility costs EUR 1 million, lower revenues EUR 6.5 million due to elimination of penalty recognized by EstEnergy Group and Amgas Blu in the first half of 2022 for the early termination of some service contracts, low contribution for safety incentives EUR 1.3 million, gains on disposal of assets and participation EUR 4.0 million, other changes in the negative impact on income EUR 1.2 million. Slide Page 14, number of employees. As of 30 June 2023, the group had 508 employees, a decrease of 5 compared to 31 December 2022. Slide Page 15, personnel costs. It was EUR 11.2 million, it increased by EUR 1.2 million determined by the expansion of the scope of consolidation into newly acquired companies for EUR 0.3 million, lower capitalized labor cost EUR 0.5 million, higher current personnel costs EUR 0.4 million. Slide Page 16, investments, capital expenditure in the first half of 2023 amounted EUR 34.2 million an increase of EUR 7.4 million. The expansion of the scope of consolidation led to investments from EUR 0.7 million in the gas distribution sector. On a like-for-like basis, most technical investments concern the development, maintenance and modernization of cash distribution networks and plants for EUR 18.2 million, of which EUR 7.8 million in connection, EUR 9.2 million in network expansion and upgrade and EUR 1.1 million in reduction plans. Investments in measuring equipment amounted to EUR 6.2 million, while investments in renewable energy sector, mainly related to the development of new wind farm in Colombia, the construction of photovoltaic plants and the purchase of land by the company during factory amounted to EUR 8.4 million. Slide Page 17, net financial position and cash flow. The net financial position as of 30 June 2023 was EUR 506 million, an increase of EUR 88.7 million compared to 31 December 2022. During the first half of 2023, cash flow generated was EUR 28.1 million. Net investments in tangible and intangible assets resulted in cash outflows of EUR 34.5 million. Net working capital management, absorbed resources, EUR 68.7 million. The group received dividends from investee companies, not consolidated on a line-by-line basis in EUR 23.2 million. Equity management had cash outflows of EUR 29.1 million. The sale of debt distribution activities to the Iren Group finalized in January 2023 resulted in the realization of EUR 19.8 million. The termination of some municipal gas distribution concessions resulted in the realization of the redemption value of the plants acquired by the success operator for EUR 9.4 million. Company acquisitions made during the first half of the year resulting in financial outlays of EUR 38.5 million and a reduction of EUR 1.6 million in the consolidated net financial position. The outlays refer to the acquisition of 19.7% in minority stake in Romeo Gas from Iren Group and a 55.2% stake in Asco TLC. Net financial position, Slide Page 18. Financial debt at 30 June 2023 was EUR 497.6 million. 46% of the loans are variable rate and the weighted average cost of debt in the first half of the year was 2.32%. EstEnergy, Slide on Page 20, income statement and balance sheet data. The slide shows income statement for the first half of 2023 and the balance sheet as of 30 June 2023 of the EstEnergy Group. Competitive income statement figures have also been presented for the same period. As of 31 December 2022. In the first half of '23, EstEnergy Group realized revenues of EUR 623.1 million, achieving an EBITDA of EUR 30.1 million and EBIT of EUR 10.5 million. As of 30 June 2023, EstEnergy Group had an invested capital of EUR 628.5 million. Investment consists of EUR 4 million in tangible assets, EUR 632.6 million in intangible assets, EUR 17.1 million in the value of participation, EUR 0.9 million in other fixed assets, and EUR 36 million in the negative balance sheet of capital items and provisions. Net financial position was positive in cash for EUR 2.7 million. So now I'm finished with my presentation with the illustration of the figures and the data for the first 6 months of 30 June 2023. So now you can ask -- this is a Q&A session.

This is Chorus Call. So now we can start with the Q&A session. [Operator Instructions]. The first question is from Enrico Bartoli of Mediobanca.

I would like to ask you about what the newspapers have said about your interest in purchasing some assets about the strategic purchase of some assets about what could be your level of participation, what you think is appropriate for you to run a profit in such investments? The second question that I'm asking you is about an outlook on hydro. You mentioned about your results as of 30 June. What is your forecast for the second half of the year? Do things your margins can improve in the second half of the year and also about the working capital, about the first half of the year, it was a good result. What is your forecast for the second 6 months of the year? And can you give me a breakdown of your EBITDA?

Hello, everyone. Chairman, Cecconato speaking. What the press has said it is true, we have expressed an interest in storage plant. We are indeed interested. This is a business which is a regulated business. At the end of 2019, our choice was to enter a regulated business. So our interest in regulated business is true. As about the size of the purchase of our investment, we don't have any data. We don't have a teaser in hand. So there is an asset. There are 3 plants [indiscernible]. So they have a rough value of EUR 500 million. We don't have other information, so it's difficult for us to make a further statement. I hope I have given you all the information. About your second question, about your outlook on hydro. We know that as of 30 June, 2023, all government measures, which were in vogue which were enforced, which had put a cap. So would you put a cap on the prices, I see it from the first of July, it is a free market. So since -- even if the climate has been more on the drier side, there has been an improvement regarding the drop in the first half of 2023. So as you must have seen, there's been an increase, so 43 gigawatts to 70 gigawatts. So which has had a positive impact on the turnover and also on our EBITDA on renewable energy. As for the second half of the year, we think that if the climatic conditions should be rainy as it has been in the month of July, there could be a significant recovery on our margins and obviously on the results. So there could be an improvement, a very important improvement in the year 2023 compared to year 2022. So the CFO of our company, Dr. Paggiaro can now give you further information.

As for the working capital, the first half of 2023 is EUR 68 million the second half of 2022. There's been a production of important cash, cash generation, which have helped us to generate cash with mechanism. This mechanism finished in the first half of 2023. So there was some working capital available within the generation of this cash, there's been a tax credit which we had, which we had to face during the first half of 2023. So we had to spend EUR 25 million. So this -- our -- the arrangements have now become normal. The tax credit has also been equaled, there's a perfect parity now. So on working capital. So we don't think there are going to be significant movements from now till the end of the year on the working capital. As for the breakdown of EBITDA, which is EUR 38.2 million. So it has come from gas distribution, EUR 37 million. So renewable energy EUR 4.2 million and EBITDA -- negative EBITDA from the parent company, which also services, which is negative by EUR 3.2 million.

I would like to have a follow-up on the first question about the interest in your asset -- storage assets. I was just wondering since your book value has been EUR 100 million. So what is your level considered the effect of book. Yes. I would also like to know if your desperate plans could have an impact on your M&A acquisitions.

Let's say relating to the entity of the investment. The only thing we know, we are sure about, is that the offer we made is a premium compared to [indiscernible] as to any mergers and acquisitions that could be hampered because of storage. We don't think it's going to be unlimited. It can have an adverse effect also because they're going to act alone, we are not in a partnership. So I understand your questions. Since Ascopiave is relatively small compared to the deal, it becomes very, very accessible. So this is the answer I can give you. Thanks a lot.

Next question is from Emanuelle Oggioni.

On the hydroelectric plants, I would like to know if you can be more precise on guidance on EBITDA 2023. Or if you can clear what can be the expected volumes about the update of the situation, about the materiological situation, about the end of the drought, also about the desiccation of full prices since the price cap is no longer there. The second question is also about EstEnergy. What do you expect as a contribution for the full year about after a difficult situation last year and also in the first 6 months.

Relating to your first question, the power that we have generated with 71 gigawatt hour. It's not so easy for us to know how the second semester will go. If we look at the product of the first 6 months, EUR 4.2 million, this is EUR 58/megawatt hour is the same price. From 1st July it is no longer applicable since market price today, the price today is EUR 120, it is almost double. So if the production of the first 6 months happens in the next 6 months, -- so our -- the number can double from 4.2, we can double to 12 million. This is a mathematical calculation. It depends on how much it's going to rain. July it has been very rainy, perhaps even too much. So let's see how it goes in the next 6 months. We must also see the prices EUR 120/megawatt hour, we can see what revolution it will have in the next 6 months if the price will drop or if it will rise is difficult to make an estimate in the hydroelectric business. This is what I'm saying is mathematics, but we have to crash with reality. Relating to EstEnergy, as you know, EstEnergy has had -- has been affected by the limitations on procurement. We think that waiting to the end of the year waiting for the recovery, I'm sure there could be a better performance in 2024 relating to EstEnergy. So 2024 could still be a tough year. But then I'm sure that EstEnergy could return to the good results of the previous years.