FNM S.p.A. (0EHB.L) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome to the presentation of the FNM Group 2025 first year half consolidated results. [Operator Instructions] And now I would like to turn the conference over to Mrs. Valeria Minazzi, Head of Investor Relations at FNM Group.

Good afternoon. Welcome you all. Thank you very much for attending our conference call on the FNM Group 2025 results after the 30th of June. I would like to introduce you, Monica Giugliano, the new General Director of the FNM Group, who's here with us together with Mr. Eugenio Giavatto. CFO. Ms. Giugliano will start the presentation with a brief presentation of the results and the performance. And then Mr. Giavatto will take over and illustrate the financial highlights of the first year half. As customary, at the end of the presentation, you'll have the opportunity to ask questions. And now I would like to leave the floor to Ms. Giugliano.

Thank you very much, and good morning, everyone. I think we can start showing the presentation. So as far as the first year half results -- first year half 2025 results, revenues increased by 7%. We recorded equally profit result with the adjusted EBITDA that increased by 7.8%, and the same applies to the group net result where we recorded an increase of 38.3%. As for the adjusted net financial position, as you can see in this time frame, we reported an increase of 7.8%. But in fact, the net financial position improved because if you compare the figure with the figure after the 30th of June 2024, you see that the figure on that date was EUR 875 million. So you see now the slight increase vis-a-vis the 31st of December '24, but this is due to the seasonal nature of the business of the FNM Group. In the first year half, there is generally a slight deterioration of the net debt that then tends to improve towards the end of the year. Moving on to the operating highlights in mobility. Here, again, we recorded positive results. If you look at the motorway traffic, you see that we've seen an increase in terms of million per vehicle kilometer by 2.2%, up to 1.6 million, and this applies both to light and heavy vehicles. As for the railway transportation, here again, we recorded an increase in the first year half of '25. As for the bus transport, the slight decrease of 1.7% that you see on the slide is certainly the consequence of the withdrawal of the transport bonus that applied in the first year half 2024 as well as the use of remote work. Remote work inevitably has an impact on the sale of subscriptions. And since the subscriptions do account in the calculation of traffic since the subscription number dropped because more people are now working remotely. These people tend to buy tickets instead of subscriptions when they have to go to the workplace. So these 2 factors, the transport bonus and the remote working that has an impact on subscription has led to the slight decrease reported on Page 3. Moving on to renewable energy. In terms of installed capacity as well as in terms of energy production, we see 2 positive results. In terms of installed capacity, installed capacity grew 23.8 in terms of megawatt hour, and this applies both to solar and biogas energy production. Then moving on to energy production vis-a-vis installed capacity, energy production grew by 51.3%, again, in terms of a megawatt hour. Clearly, the growth of installed capacity has increased the energy production of photovoltaic plants, and substantially so also because of the abundant sun irradiation that was witnessed in the first year half, and this inevitably has an impact on the energy production. Looking at biogas energy production, the slight decrease is due to an extraordinary maintenance work that was carried out in the first year half of '25.

Thank you very much, Monica. And so I now will report on the consolidated financial results. As you can see on Page 6, there is an evolution of the group net results that increased from EUR 30 million to EUR 41.9 million, growing 38.3%, and this is a number -- the result of a number of factors. So first of all, adjusted EBITDA amounted to EUR 8.3 million, and we'll see it in more detail in a minute. We have nonrecurring expenses due to the acquisition of Viridis in '24, that had an impact on '25. Then we see a much more burdensome amortization and depreciation in '25 due to the consolidation of Viridis and Nordcom, which, however, was offset by lower interest paid on part of the Ministry of Economic Development and bank loans as well as a positive impact of the TE fair value adjustment. So through TEM and then MISE, the fair value was adjusted, and then taxes are simply closely related to the results reported. And as for the difference between '24 and '25 in terms of affiliates and minorities, we'll see this in more detail on the following slide. Here, you see a substantial contribution by the company's, particularly the external ring road Milano TEM, and this is because of the transfer of a stake and the changes in the shareholding, then Pedemontana Lombarda highway contributed positively too as a consequence of the building of the highway itself that makes it possible to capitalize on financial interest. Then we have a negative impact due to a train order that we're going to see in more detail in a minute, whereas all the other associates and group companies are more or less in line with the previous year, just the difference of the minus EUR 1 million. Moving to the next slide, you see the 2 tables illustrating the changes, both in the reported and the pro forma EBITDA. The pro forma EBITDA is less meaningful and is becoming less and less meaningful because of the fact that the acquisitions have been consolidated over time. If you look at the differences at the delta values only, you see that all the segments are growing. And then again, we see why RoSCo contributed then negatively, but this is also justified by a number of reasons. This is a one-off effect that we'll be seeing in more detail in a minute. However, all in all, we can say that our EBITDA is still substantially supported by the Motorway business. Energy, that is the dark green part of the pie, is in line now with the railway infrastructure, and RoSCo is now contributing as expected. Now moving on to the breakdown by segment. Motorways increased from EUR 80 million to EUR 83.1 million. There's been no tariff increase, not even the tariff increase that we have factored in, in our budget, nor the tariff increases that was actually generated by the rumors circulating early this year. So the increase that we reported is strictly due to traffic volumes increase. Then here you see the evolution of the maintenance cost. We made provisions that are then released and had an impact on the P&L. And this leads to the changes year-on-year. However, this is a maintenance activity that is carried out as planned. As you can see, we reported personnel cost increase, mainly due to a higher head count as well as the renewal of the national contract -- labor contract. And then under other, there are a number of factors. I would like to highlight 2 of them. First of all, we have received damage compensation by the insurance company for thefts that have occurred during the months. So cables that were stolen and that have been compensated for by the insurance and then less design costs. Moving on to Railways. Here, you see substantial growth of the adjusted EBITDA, mainly driven by the one-off transactions, one of which was, as I already pointed out, the insurer compensation for the flood that occurred 2 years ago, if I'm not wrong, at Iseo, in the Iseo Lake area. And then the second factor is the process that followed the winding up of a customer company, and we managed to recover part of the unpaid receivables amounted to EUR 1.1 million. So net of this EUR 3.8 million that are just one-off impact. The first act of the insurance compensation was expected, and it was part of our plan, whereas the collection of the unpaid receivables was as a bit unexpected, at least this year. So it came as a surprise. As for the other items, we have a higher track maintenance costs and higher material costs that, however, are offset by lower use of external technical services for design activities. This is in line with the new way of performing maintenance works. And then we have a positive impact based on higher gains from inventory disposal, I mean obsolete inventory disposal. This is part of the circular economy strategy of the FNM group that aims at using in a virtuous way the material left over after maintenance work. As for Energy, you see an increase from EUR 7 million to EUR 7.5 million, adjusted EBITDA I'm commenting on. So EUR 2 million comes from the new capacity installed. So we are proceeding in installing new capacity. And over the past few days, we actually -- a new 12-megawatt plant that became operational, and the EUR 0.5 million difference is the price -- the energy price reduction. So all the energy funds, including the one that we joined earlier this year provided for a merchant share. Viridis at this time of the year fixes prices for the following year, and the prices that were fixed in July '23 for July '24 were higher than the prices fixed in July '24 for '25. But this is actually the consequence of the market evolution and the -- as you know, the energy prices are dropping. We reported a slightly higher costs mainly related to biomass consumption, but also related to provisions linked to employee incentive plans and other overhead costs. As for our RoSCo, as I've already pointed out for infrastructure that we experienced a one-off event, an exceptional event. That is to say the reduction in lease payments for train sets leased to Trenord. This was already planned, but we are now accounting for lease payments differently. So the lease payments are simply postponed, and the negative impact is then offset in the following years. A positive impact is provided by Nordcom consolidation that starting from the 15th of July '24, Nordcom was fully consolidated. So the impact will be confined only to the first year half of '25. And then we have a higher headcount, and this is due to an extraordinary situation. And then we've signed a contractor -- a sponsorship contractor for the Milano Cortina 2026 Olympics partnerships. And here, you see the contribution of this agreement to the higher RoSCo costs. Coming to Mobility & Services, again, we have a one-off impact related to the additional compensation for reduced tariffs revenues to the COVID pandemic. We had actually factored this compensation in, but we were not sure about the timing of such compensation. So the compensation was due, but we didn't know when it was going to materialize. It did materialize mid-June. Hence, this positive impact. That, of course, will not materialize again in the second year half. Then you see growing revenues from ticket sales, especially in the Verona area where we actually increased the mileage. But we reported a negative impact incurred in train replacements due to the interruptions on the regional railways due to maintenance works on the infrastructure, both Ferrovienord and RFI infrastructure. So Ferrovienord was asked to take care of higher volumes, but with limited planning. So the average cost of those train service was slightly higher than the previous year. And then you see a greater impact of other items. So the main impact is related to the persistent shortage of bus drivers, and this is why we are incurring in higher costs. Coming to the final slide on cash flow generation. As you can see, in the first year half of '25, gross CapEx grew substantially, especially as far as Motorways are concerned, mainly driven by substantial volumes at the hydrogen plants. One of them was already opened. The remaining 4 will be completed by the end of the year. These plants are all funded with the Natural Recovery Plan funds. And you see also Mobility & Services growing. I mean the CapEx in Mobility & Services is growing because we renewed a part of our bus fleet. Looking at the cash flow that stems from the CapEx. So as you can see, FFO, EUR 112 million, was absorbed by the delta in net working capital by the net CapEx that are reported on the left. So you see that number. Then a negative impact due to the difference between the CapEx and the funds received. So these are the funds that finance works that are carried out on behalf of the Lombardia region. And then we see the difference between the dividends paid and the dividends cashed in. So the net result is net cash flow of EUR 31.5 million. Looking at the impact on the net debt, and I'd like to start from the adjusted net financial position at the 31st of December '24, that includes a EUR 51.8 million that is the debt going forward of the put option earn out. This value has not been changed also because only the discounting rate could change this figure, but discounting rate hasn't changed at the time. Then looking at the adjusted net financial position at December '24, we -- it was then impacted on by negative net cash flow and by the IFRS 16 and other effects. That leads to a net financial position adjusted at the 30th of June '25 of EUR 720 million. If you compare this net financial position to the net financial position of 1 year ago, a year ago, the number was EUR 875 million as our General Manager already pointed out. So in 6 months, the net financial position dropped by -- in excess of EUR 150 million. Moving on to the gross debt to next page. So the net financial position is accounted for by cash of EUR 372 million, of which EUR 135 million are the advances paid by the Lombardia region for the rail infrastructure investment. So net to debt -- gross net debt -- sorry, the gross debt is therefore EUR 957 million compared to EUR 1.020 billion on the 30th of June '25. So the debt dropped -- gross debt dropped by more than EUR 60 million in a year. 80% of the debt is fixed rate, 20% variable rate and the fixed rate is mainly accounted for by the bond that is going to mature in 2026. And I would like to grasp this opportunity to provide you with some more -- with more color after the closing of the 30th of June. So first of all, we signed EUR 1 billion of refinancing with the 2 leading banks -- Italian banks and with following syndication that involved 5 additional banks. The syndication was very successful, and we collected a commitment that is 60% above what we had planned, so EUR 1.6 billion. Here, you see the breakdown by instrument. EUR 500 million facility, maturity 6 years; then a CapEx facility, EUR 450 million, again, maturity 6 years; and then extension possible up to 2 years; and then a rolling credit facility, EUR 50 million with 6 years of maturity and 2 years of extension option. The rate that was negotiated is a variable rate 6 months Euribor plus 1.5%1.9%. And this will lead us to maturity up to 2031, so beyond the contractual expiration of the MISE concession and well beyond the maturity of the bond. This is the first facility negotiated by FNM, sustainability linked and the plan that we illustrated last year provided for a large number of green investments on top of investments of renewable energy. Please remember that this facility is accompanied by a SACE guarantee that amounts to half of the amount involved. And then we also signed a loan agreement with Finlombarda for EUR 40 million, 12-year maturity that is consistent with the useful life of the rolling stock. The rate applied is variable rate, 3 months Euribor plus 1.25% supported by SACE guarantee. In the previous slide, and I didn't mention this, but I tell you now. On the previous slide, you see what was published yesterday, namely our long-term credit ratings were confirmed by Moody's yesterday. And so their judgment is now stable. So there's been a shift from negative to stable. And this was announced yesterday. We are very pleased because our dialogue with Moody's started a year ago when Moody's had issued kind of warning. In our dialogue with them, they suggested the path to follow, and we followed their suggestions in the negotiations with banks, which led to what I just reported, and this satisfied Moody's completely. Hence, the improvement of Moody's rating and outlook. So today, you see a large share accounted for by the bond maturing in 2026, but we are absolutely [indiscernible] because we have renegotiated our financing as described. So this is the full picture at the 30th of June '25. I'd like to hand you back to Mrs. Giugliano, who will be commenting on the full year outlook.

Well, as for the full year outlook, considering the results achieved in the first year half of '25, we can say that the adjusted EBITDA is in line with our guidance. So we confirm our guidance. As for gross CapEx, compared with the range that was included in our quarterly report and following what has already been invested, the gross CapEx range has been reviewed at EUR 170 million to EUR 210 million. As for the adjusted net financial position, we have reduced the range at EUR 700 million to EUR 760 million. So this is the new guidance. The presentation is over. You now have the opportunity to ask questions, and we'll be happy to take your questions.

[Operator Instructions] The first question is by Chiara Pampurini at Intermonte.

I've got a question about your EBITDA guidance for '25. The first year half results show a substantial growth year-on-year, 11% growth, compared with the guidance for the full year that provides single-digit growth, which would imply a second year half flat. The first year half included, of course, the 2 acquisitions that, probably this is also an impact. But anyway, if I made the calculations correctly, it would grow by 5%. So I would like to know what were the extraordinary factors that impacted last year on the second year half like the COVID pandemic compensation. So what were the factors, and why the second year half should report a weaker growth than the first year half?

Chiara, I'm sorry, we couldn't hear you very well, honestly. I think I understood your question. You said that considering that the first year half '25 performed well, why are we confirming the same guidance that we announced when the -- do you confirm this was your question?

Yes, this is correctly -- yes, that's correct. That's my question.

So if this is the question, you are absolutely right. We actually asked the same question ourselves. Well, some of the positive factors and also some of the negative factors of the first year half are all one-off factors. And so that cannot be repeated in the second year half. So if we do not consider these one-off effects, the results of the first year half and the second year half are perfectly in line. So we do not expect results in the secondary year half to be worser than the first year half, simply that in the first year half, we benefited from some one-off factors or events that had a positive impact.

Next question by Milo Silvestre, Equita.

I've got 3 questions, if I may. First question. In the press release, you mentioned the price of [ ART ]. Can you elaborate a little bit on this? Can you then comment on the leverage that led you to review your estimate -- the full year estimate for the debt? And then can you explain why Moody's improved its outlook? Can you elaborate a little bit more on this.

So Milo, I can start with your first question. As for the [ ART ] decisions, well, the [ ART ] decisions or resolutions are well under scrutiny on our side. But as you know, consultations are still ongoing. We also made our remarks on top of the remarks made by [ APL and ICAP ]. So we definitely devoted our attention to this. But I have nothing new and nothing official to tell you now. I can simply make a personal comment. That resolution is still very vague, very general in some parts at least. And you know that the remarks were made are all public, and so you can find all the remarks made. So this is what I can tell you about this. As for the debt. Well, first of all, we reduced our debt by repaying part of the MISE financing. Then we -- towards the end of the previous year, we had received some contributions for the service plans and by the Lombardia region. We had advanced payments, and we received these funds in the first quarter of '25. The second quarter '25 performed well in terms of cash flow. So we had some doubts about the highways, but there, the growth of traffic helped. Then there was another factor, namely the payment of the COVID compensation that generated an additional cash flow. So in the light of all these events and also considering what is happening at the local government, namely the Regione Lombardia, we have reviewed our full year net financial position. As for Moody's decision to change its outlook, Moody's appreciated -- first of all, the fact that a maturity that exceeds the concession expiry date shifts the risk to banks in practice. And so in other words, it's banks that are taking up the risk of refinancing EUR 650 million debt based on the assumptions that were factored in, in our business plan as well. Then a second factor that had a positive impact was that syndication was more successful than expected. This means that it was not just the 2 leading banks, but the whole banking system, also foreign banks because there is also a foreign involved on top of BNL, which is, in fact, a foreign bank. But there is a syndication bank that is Spanish. And so syndication was successful. And then we, of course, had the backup of SACE that was substantial. These 3 factors together must be considered on top of a good performance of the group, both in the first quarter and in the first year half of '25. And this makes it possible for the group to fuel the growth that we have planned.