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

Good morning. This is from Chorus Call speaking. Welcome to the presentation of the consolidated results as at 30 June 2024 of Ascopiave. [Operator Instructions] Now the CEO -- Dr. Nicola Cecconato, Chairman and CEO of Ascopiave is going to talk to you.

Thank you very much. Good morning. Welcome. I'll start with the slide on Page 4. Consolidated results 2024. Let's start with the slide on Page 4. Structure of Ascopiave Group as at 30 June 2024. The pyramid of consolidation has had some variations relating to the 2023 first 6 months due to the -- some extraordinary transactions. In March 2023, Ascopiave acquired some stake in the Asco TLC company. In June 2023, the company's Board of Directors approved the plan for its merger by incorporation into Acantho, which was subsequently approved by the shareholders' meeting of the companies involved with the effect from 1st October 2023. Following the transaction, the group holds 11.25% of Acantho's Capital. In November 2023, Ascopiave partial exercise put option on EstEnergy shareholding selling 15% of the company's capital to Hera Comm and thus reducing its shareholding from 40% to 25%. In the same month, the group acquired a minority interest held by third parties in Salinella Eolico S.r.l. 40%, Serenissima Gas S.p.A., thereby becoming the sole shareholder of these companies. Effective 1st December 2023, for statutory purposes and 1st January 2023 for accounting fiscal purposes, the companies: Eosforo, Sangineto Energie, Morina and Asco Energy were merged into Asco Renewables. Slide Page 5, consolidated income statement. In the first half of 2024, the group realized revenues of EUR 99.1 million, achieving an EBITDA of EUR 48.7 million and EBIT of EUR 23.7 million. The balance of financial income and expenses showed a negative value of EUR 4 million. In particular, financial income equal to EUR 3.8 million, decreased by EUR 2 million compared to the first half of 2023. The change was caused by lower income received from investee companies, in particular, by the lack of income received by the investee, Acinque for EUR 0.8 million and lower interest income for EUR 1.2 million. Financial expenses, on the other hand, amounting to EUR 7.8 million increased by EUR 2.5 million compared to the same period of 2023, a change mainly due to the increase in interest rates on loans. Income from companies consolidated using the equity method amounting to $4.8 million is representative of the pro rata result of Ascopiave's holdings in the EstEnergy Group and Cogeide and increased by EUR 4.1 million. Taxes weighed by EUR 6 million on the income statement, the tax rate calculated by normalizing the pretax result of the effects of the consolidation of companies consolidated using the equity method and dividends received from investees increased from 32% to 36.9% as of 30 June 2024. Slide Page 6. As at 30 June 2024, consolidated balance sheet. The invested capital was EUR 1.248 billion. Investments consist of $155.4 million from tangible fixed assets, EUR 773.9 million from intangible fixed assets, EUR 305 million from the value of minority interest held in EstEnergy EUR 199.3 million, Hera Comm EUR 3.3 million, Acinque 21.6 million, Cogeide $8.4 million and Acantho EUR 22.3 million, EUR 41.9 million from other fixed assets, EUR 28.4 million from the negative balance of working capital items and provisions. The intangible assets shown under assets were EUR 773.9 million mainly consists of gas distribution networks and plants owned by the group EUR 697.1 million and goodwill recognized following business combinations EUR 61.7 million. Tangible assets consist mainly of real estate and the value of renewable energy production facilities. Shareholders' equity as at 30 June 2024 amounted to EUR 842.2 million of which EUR 10.1 million was attributable to minority interests. The net financial position, EUR 405.6 million, an increase of EUR 16.2 million compared to 31 December 2023. The debt net equity ratio of 0.48. Company's consolidated line-by-line method operating data as at 30 June 2024, the group distribution companies managed approximately 871,700 customers, a decrease of 0.3% compared to 31 December 2023. For the first half of 2024, the group distributed 16 million cubic meters of gas through its networks, plus 0.3%. Slide Page 9, operational data, Renewable Energy. The group has 29 plants for the production of electricity from renewable hydro and wind power with an installed capacity of 84.1 megawatt. In the first half of 2024, electricity production amounted to 127 gigawatt to which regular rainfall and the commissioning of a new wind farm in Calabria contributed. Slide Page 10, revenue development. Revenues amounted to EUR 99.1 million, an increase of EUR 15.2 million, determined by the increase in gas distribution tariff revenues, EUR 8.5 million. The growth in revenue from the sale of electricity generated from renewable sources, EUR 7.7 million. The growth from energy efficiency certificates EUR 0.3 million. The decrease in other revenues, EUR 1.3 million. Development of the operating profit. Operating result, EUR 23.7 million due to effect increase in gas distribution EUR 8.5 million, $7.7 million growth in revenues from the sale of electricity generated from renewable sources. Increase in depreciation and provisions of EUR 1.3 million growth in net operating costs of EUR 5.7 million. Tariff revenues from the distribution and sale of renewable energy, gas distribution tariff revenues amount to EUR 68.6 million, ensure an increase of EUR 8.5 million compared to the same period of the previous year. Due for EUR 3.7 million to the change in the rate of remuneration of the regulatory invested capital and EUR 3.2 million from the monetary adjustments of the various tariff components. Revenues from sales of energy, EUR 15.7 million increased by EUR 7.7 million, mainly due to the growth in production. Revenues realized in the segment in the first quarter of 2023 were affected by the government ordered price containment measures, which is to take effect on the 1st of July 2023. Slide Page 13, other net operating costs. Net operating expenses, EUR 35.6 million increased by EUR 5.7 million due to the change in the following revenue and cost item, increased license fees to municipalities EUR 1.4 million, higher-margin energy efficiency bonds, EUR 1 million, lower consulting costs of EUR 0.2 million, low gas and electricity utility costs, EUR 0.03 million, lower personnel costs, $0.8 million, lower revenue costs from service contracts, EUR 1.1 million. higher meter reading cost, EUR 0.3 million, lower capital gains from the sale of assets and participations, $4.1 million, lower other nonrecurring costs, EUR 0.6 million. Other changes with a negative impact, EUR 0.8 million. Number of employees, Slide Page 14. At 30 June 2024, the group had 495 employees, a decrease of 8 compared to 31 December 2023. Personnel costs, Slide Page 15, EUR 10.4 million decreased by EUR 0.8 million, determined by higher capitalized labor costs, $0.3 million; lower current personnel costs, $0.5 million. Investments, Slide Page 16. Capital expenditure, intangible and intangible assets realized during the year amounting to $30.5 million, decreased by EUR 1.6 million. Most of the technical investments considered the development of maintenance and modernization of gas distribution networks and plants amounting to EUR 20.9 million, of which EUR 8.2 million in connections, EUR 11.6 million in expansion upgrades and EUR 1.1 million in reduction. Investments in measuring equipment amounting to EUR 6.5 million, while investments in the renewable energy sector mainly related to costs incurred in the completion of wind farm in amount of EUR 1.1 million, for the maintenance and upgrading of hydroelectric plants in the amount of EUR 0.7 million, for the construction of photovoltaic plants in the amount of EUR 0.8 million. for the construction of other green energy plants, hydrogen production plant and electric charging station and a hydrogen filling station to the amount of EUR 1.3 million. Net financial position and cash flow, Slide Page 17. The net financial position as at 30 June 2024 was EUR 405.6 million, an increase of EUR 16.2 million compared to 31 December 2023. During the semester, cash flow generated financial resources of EUR 35.3 million. Net investments in tangible and intangible assets resulted in cash outflows of $32.5 million. Net working capital management absorbed resources of EUR 1.1 million. The group received dividends of 12.4 million from investee companies. Not consolidated on a line-by-line basis, the management net assets resulted in cash outflows of $30.3 million, net financial position and cash flows. Slide Page 18, financial debt as of 30 June 2024, amount to EUR 402.6 million. Financing is 52% variable rate and the weighted average cost of debt in the half year was 3.42%. EstEnergy, income statement and balance sheet, the slide shows the income statement for the first half of 2024 and the balance sheet as at 30 June 2024 of EstEnergy Group comparative income statement figures for the first half of 2023 and balance sheet figures as of 31 December 2023, are also shown. In the 6-month period, EstEnergy realized revenues of $598.5 million with an EBITDA of EUR 51.2 million and EBIT of EUR 26 million. As of 30 June 2024, EstEnergy has an invested capital of EUR 408.7 million. This consists of EUR 5.5 million intangible assets, EUR 622 million in intangible assets, EUR 17.4 million in the value of participation, EUR 0.7 million in other fixed assets, $436.9 million in the negative balance of working capital items and provisions. Net financial position was positive in cash by EUR 216.9 million. I have finished the presentation, and now we can start the Q&A session.

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

You have sent a press release with all the negotiations with A2A and the other assets, can you give us some details of your interactions with A2A about RAB about qualitative comment and how your assets can be used in the negotiations? Second question is about gas. There have been press articles, press statements that the government has been trying to finalize to relax the procedures on gas and electricity regulations. What impact can it have on your business. Regarding renewable energy, can you give us some quality -- qualitative comments on how things can work over the next 6 months in the gas field relating to how the situation was last year?

Thank you for your questions. Relating to the press release that we published a few minutes ago, we cannot give you other guidance except that there's been an exclusive negotiation deal with A2A for the acquisition of 490,000 PDR in Lombardy, which are side by side of what we have in Bergamo. So it's very near what Ascopiave has in Bergamo, Brescia, Pavia and Lodi. So these are assets which are adjacent to what Ascopiave has. So we hope that this can create important efficiency for the Ascopiave Group from the gas distribution. As you have seen, as you may have noticed we look forward, A2A, ARERA and Ascopiave, we look forward to signing an agreement by the 15th of December. And surely, if we can do the signing, we will manage subsequently to -- within the first quarter of 2025, we can reach a closing with A2A. But now it would be premature to disclose any figure because it's too early. Because we're too specialized operators, and we are still in a premature stage of the negotiations. As relating to your second question. We have heard about this initial announcements from the government, but there has been just some announcements from some political figure, some political operator but nothing significant has come out yet. We're of the opinion there's surely a need for rendering the network more efficient. In Italy, there are 187 gas distributors and 138 of these gas distributors are very tiny. The size is very tiny. So we have to think of parties with referring to the energy scenario, which is involved in the reduction of emissions GHG. So we have to find operators winning to bear the investments, the financial outlay in 2023 for Hera and media proposals. And ARERA had approved at the end of 2023 and for electric power. So ARERA had taken some steps in order to find some mergers -- in order to make some mergers possible. But regarding gas distributors, this was not possible because, as I said, most of the distributors are very small and they like to be -- prefer to be independent. So when we think of reformulating a reform of the guest tenders and ATEMs, we hope that we can find the right trade-off between the size of the company and the competitive level of the company. We cannot think of reducing attempts from 177 to just 7 or 8, which means there will be no competition at all. So we have to find the right size, the right balance to favor the investments in the field. And so this is for the good of everyone. If we eliminate -- if you get rid of competition, this won't help the sector very much. Regarding the outlook for the second half of 2024 in the renewable energy, we should see how the rainfall can be. The first 6 months of rainfall was very intense. So let's see if there is -- how the rainfall is in the first 6 months -- in the last 6 months of 2024 compared to 2023.

A follow-up -- a quick follow-up. In the press release, you said that you go to exercise another put option. This could depend on the outcome of your negotiations with A2A. Is it true?

Yes. As you know, we have this agreement to exercise put option that we -- that was decided in 2019, until 2026, and we always said in each of our announcements and interviews that the put option is functional to the investments in assets. It is taken for granted. If this deal with A2A should be concluded, we could conclude this investment with the put option.