Acea SpA

MIL:ACE

Q1-2025 Earnings Call

[Operator]

Ladies and gentlemen, good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining our conference call of ACEA Group for the presentation of results as at the 31st of March 2025. [Operator Instructions]. I would like to give the floor to Mr. Dario Michi, Head of Investor Relations of ACEA.

[Dario Michi, executive]

Ladies and gentlemen, good afternoon, and welcome to the presentation of the results of the first quarter of 2025 of ACEA. Now I have here with me the CFO Mr. Francesco Ragni, and I have the Head of Control. They will go through the presentation with me. At the end of the presentation, there will be a Q&A session. I'll give the floor to Mr. Pier Francesco Ragni, CFO of the Group.

[Pier Ragni, executive]

Ladies and gentlemen, good afternoon to you all. We'll start the presentation by starting with an overview of the regulatory and market environment versus what we said in March. Let me highlight that in the Water business over and above the approval of the ARERA hirings, we also have the approval of the integrated system of tariffs as to grade set provision of tariffs will be approved or are expected to be approved by the end of this month. And then again, for the Electricity Production, now ARERA has re-evaluated RAB. There is from 2025 tariffs, it is possible to adopt the Italian IPCA which has been calculated for Italy and the review of tariffs for 2024, because of the review of tariffs 2022 of IPCA as to commodity prices.

Now the price of electricity and gas in Q1 2025 have recorded a strong increase versus the previous year. There is a plus 5% and plus 6% respectively at the end of March, of 2025, the long-term rates are about 2.5%, which are going down versus the previous year. Now the dynamic is due to the decrease of rates of the ECB that started in June last year and which proceeded in the first quarter of this year.

Let me now go on to present the rates of 2025. Revenues, EUR 344 million, up 8% versus the first quarter of Q1 and plus 6%, 7% versus the current results of last year. Now the result has been adjusted because of the approvals of the [ MTI-4 ] tariffs, also because of the downside of the Terni, WTE and then the EBITDA contribution is due to all of the business units. Now EBITDA up to 19%, and 3% versus the previous quarter -- of the quarter of the -- the first quarter of 2024.

Now the cash flow is negative by EUR 127 million, which has allowed us to maintain a solid financial structure with a net debt to EBITDA which is stable versus the EBITDA of 2024. As to the overview of Q1 2025 results, the next slide, let me point out that the EBITDA in Q1 2025, grew by 7% versus 2024 adjusted by one-offs and perimeter changes. CapEx, EUR 142 million equal to those of last year, and investments overall go up to EUR 262 million in the quarter. Net profit up 3% versus Q1 2024, thanks to the operating performance, and the amortization of the regulated business because of the growth of RAB. The net financial position up EUR 123 million versus 2024. The net debt-to-EBITDA ratio is stable at 2x.

Now thanks to the results obtained in Q1, we confirmed the guidance of 2025 that we announced in May last when we presented the results of 2024. Now let me go on to show you the EBITDA for Q1. Now in Q1 we had an organic growth of EUR 24 million versus the 2024 recurring data because of four items. The growth of Water tariffs, the improving of the Commercial margin, which is due to the improvement of unit margins and the growth of Public Lighting because of the investments that we have made and the operating efficiency and then the contribution of the production, because of increase of volume produced hydroelectric and photovoltaic.

Now let's see only right of the slide, you see the one-offs and the change of perimeter in -- versus 2024, which amounted to EUR 3 million, three factors. Now EUR 15 million positive, the retroactive application of the tariff update relating to the MTI-4 regulation, which were accounted for in Q3 2024.

The consolidation at equity of Acquedotto del Fiora, minus EUR 59 million and the shutdown for revamping of the Terni WTE, EUR 3 million. As to the net profit, the net profit went up by EUR 3 million versus the same period of last year. This is due to the growth of EBITDA, which accounted for the amortizations made in the years. Now as for, the EBITDA on the right of the slide, you see the details of nonrecurring events in Q1 2024, which amounted to EUR 12 million, which is related to the retroactive application of tariff update related to the MIT-4 regulation, EUR 10 million and EUR 2 million positive downtime for revamping of the Terin WTE plant. As to CapEx, now in Q1 as I said before, we invested EUR 262 million, 6% up versus 2024 such investments, 92% are accounted for by the regulated businesses of Water Grids and Environment.

Now out of EUR 262 million of CapEx, EUR 20 million are financed by public interventions. All of them in the Water business, without such contributions, the CapEx would have been EUR 242 million stable versus last year. In the slide, you see the different initiatives taken in the different sectors. For instance, in the Water business the interventions of purification system and in the grid, the strengthening and the upgrade of the grid.

As to the cash flow of Q1. Now the cash absorption in the quarter amounted to EUR 163 million. Now, which is affected then negatively to the working capital relating to commercial events, related to CapEx which went up in Q4 2024. As we have said in the presentation of March. Moreover, we recorded an increase of long-term credits, regulatory credits in Water business and Grids.

And then, let's move on to the financial structure. Next slide, the average cost of debt as at the 31st of March this year is at 2.10%, which is in line with the period of 2024, which was related also to the consolidation at the equity of Acquedotto del Fiora. And then variable floating rate is 11% of our debt exposure, and this is made up for the interest rate on the debt, which is lower than -- which is maturing in 2024. We reimbursed EUR 300 million within the [ EMTM ] program. And in February this year, we reimbursed a loan, which was issued in March 2010.

Moreover, now within the financing that we had in 2024, EUR 10 million in February this year, we subscribe that to long-term financing with the European Investment Bank. EUR 180 million one direct financing, EUR 120 million and one with such a guarantee for the remaining EUR 55 million.

Let me now move on to give you the overview of the different business lines. The business of -- the Water business in Italy Q1 2024 were recalculated to get the tariffs adjusted. Now in Q1 2024, the data did not include the adjustment of tariffs, and then also didn't include the Acquedotto del Fiora that is now posted equity. So you can see Water business revenues plus 6%, which is due to tariff growth and investments that we made net of the public contribution [indiscernible] go down by EUR 22 million. And this is due to different interventions planned versus last year. We intend to recover what was done in Q1 going forward.

Asset Grids and Public Lighting, despite the reduction of WACC by 40 basis points. The EBITDA grows by 2% to EUR 107 million, and this is mainly due to investments made and therefore, to the growth of the RAB and two, because of the improvement of RAB starting in 2025. Now for the movement from the [indiscernible] index to the EBITDA index CapEx growing by EUR 27 million, plus 47%, thanks to the upgrade of the Grid.

As to the Environment, net of one-offs due to the nonavailability of the Terni WTE because of the shutdown for revamping. The EBITDA is growing by EUR 1 million which is 6% versus Q1 2024, thanks to the increase in margins of WTE, CapEx are going down by EUR 2 million, because of the revamping operations on the WTE of Terni in Q1 2024.

As to the Generation, Slide #14. EBITDA is growing by EUR 7 million, which is due to the more favorable energy scenario and greater production of the hydroelectric and photovoltaic business. Let me remind you that last year, we exploit the decrease of volumes, because of the lack of raining in [indiscernible]. Now energy produced has grown by 18% from 174 to 200 gigawatt hour, thanks to the greater hydroelectric output and photovoltaic output. Now as to the photovoltaic energy versus the same quarter last year, we have 155 megawatts versus 102 megawatts. CapEx going down by EUR 2 million versus the same quarter of last year, because of the change in intervention program versus same period last year.

As to the Commercial business, the EBITDA in Q1 2025 went up by EUR 7 million, plus 16%. And this is due to the greater margins on the free market and the growth of customers, and 90,000 customers more in the Electric business and 65,000 customers more in the Gas business. CapEx are stable year-on-year, that is EUR 15 million. Now this is the end of the presentation. Thank you very much for your attention. We can now open the Q&A session.

[Operator]

[Operator Instructions] The first question is from Javier Suarez from Mediobanca.

[Javier Suarez Hernandez, analyst]

I have two or three questions to ask. First of all, a context related slide, increase the share with us your expectations about the process related to extending the useful life of concessions for electricity distribution in Italy. I would like to know what are your latest information you have on the processing impact on ACEA? I would like to know what kind of expectations also you have about the future concessions in Italy for electricity and what implications this might have?

The second question about the working capital absorption that we have seen in Q1, EUR 200 million. Would you please tell us, give us an indication about the [ CapEx ] by the end of year and how the dynamic went compare to Q1 last year?

Last question about the [indiscernible] that you say in March 2%, 3% would be on EBITDA growth in Q1 are much higher than that. Now you [indiscernible] the guidance is conservative even or are there factors [indiscernible] that we need to take into account that might [indiscernible] you give us for Q1?

[Pier Ragni, executive]

Let's start with your question about the concessions play in the electricity business. Now we, as all operators in the industry, we are waiting for the indications of ARERA and from the Ministry. If we are [indiscernible] give us indications about the concession related process, on the process that should come to an end in June this year. And then we will understand how we can access [indiscernible]. Now certainly for ACEA the expansion to 20 years [indiscernible] recession of nearly low to middle [indiscernible] networks is very important. This is the business, which half of the [indiscernible] business is the most important one.

Let me also remind you what happened in Spain. The electricity account, which has more than 1 day [indiscernible] And we sure had a strong impact on 2, if not 3 tariffs. And it is quite clear that investing in electric networks can no longer wait. We are in a situation now, where electricity consumption are going to increase. Therefore, [indiscernible]. So as far as ACEA is concerned, [indiscernible] the methods used to extend by 20 years the concession and the amounts as far as ACEA is concerned, we see no problem to be part of such important program, so as to be able to guarantee something which gains important, the efficiency and resiliency of the group.

But as I told, we are waiting for a further details from the authorities, and another point, we shall tell you how we are going to approach that opportunity, which is an opportunity.

As for hydroelectric concessions. Look, now let's start from -- there has been recently 3 tenders for hydroelectric concessions, and we submitted our bid to these. Now a few months [indiscernible] we have a bidding to the second stage. We are still waiting for the service conference for all the technical details. These are usually very long processes. Now the hydroelectric business, it is an area where we are present although in a limited manner our plants. But if there opportunities we shall assess opportunities, as we always do [indiscernible] to investments in infrastructure, for the production of energy.

Let's now move on to the question about the net working capital for now through the end of year. Going forward in the next quarters that we expect a further absorption of net working capital to make up of all the improvement that we've seen in the last quarter of 2024, but there will be a normalization by the end of the year, when we expect a new Terni dynamic. There is a neutral change in the net working capital, as to the peak of absorption of [indiscernible] in Q1 2025, this is related mainly to two factors.

First of all, the payment of CapEx were accounted for in Q1 2024 which generated a positive networking capital which we [indiscernible] in March. And then a greater commercial receivables, and however, the monetary effect [indiscernible] going forward. As to the question about the guidance, now today, we are disclosing the EBITDA normalize at 7%, which is versus [indiscernible] share 3%. In this moment, we are not going to [indiscernible] are going to end this in the next quarter of the year. There will be effects that will negatively affect the rest of the year.

First of all, all the permission of [indiscernible] have seen in Q1 that will be reabsorbed in going forward in May, which will real [indiscernible] in Q1. There is also usual [indiscernible] margins for the commercial business. It has made clear that our results are very good results in what we see on the market, there is strong and increasing competitive pressure, the entry for instance of new [indiscernible], which are acquiring quite large customer base, and then you need to take into account our operating costs related to operations and do not have a linear dynamics. So in the next quarters of the year, there will be higher operating costs. I think I answered the all questions.

[Operator]

And the next question from Francesco Sala with Banca Akros.

[Francesco Sala, analyst]

I have a question about margins, you said that there is a pressure on margins. Can we see a [indiscernible] at least guide in the next months it stays in line with the Q1 or whether we are going to see a reduction of the margins in Q2 already?

Second question about the WTE. Now the tender has been awarded. Can you give us an update about the simulator and what we can expect going forward, that is when the WTE is going to be completed? And an update of the mark-to-market; of WACC for the Water and Electricity business. What are you seeing in this moment? And do you expect any variation going forward? Any change going forward.

[Pier Ragni, executive]

Now as to commercial margins, question was about commercial margins. We [indiscernible] Q2 exact, but we expect, as I said before, we expect a reduction of margins or a [indiscernible]. As to the WTE in Rome, the tender was awarded on the 5th of May to a number of companies, including ACEA. Now the concession was awarded -- as we said -- with an investment of around EUR 1 billion is a concession after 33 years. Now we have started the preliminary bid [indiscernible] supplier by the works which should be completed by the end of this year.

Now the project is going to be financed by project financing. And as we said different times, the WTE is not going to be consolidated within ACEA numbers, because we do not have the controlled exclusivity. There's going to be a joint control with the other parties, that would like -- together with us when we do concession. As the [indiscernible], as showed is a [ 3 basis point ] which is not being [indiscernible] there our estimate we will add [indiscernible].

As for the WACC [indiscernible] at the moment we [indiscernible] any forecast or give you any focus about the outlook of WACC because there are [indiscernible] water risk premium which are not related to measurable parameters.

[Operator]

Now the next question by Emanuele Oggioni with Kepler Cheuvreux.

[Emanuele Oggioni, analyst]

I have a question about the process related to the renewal of concession itself for electricity distribution [indiscernible] Antitrust Authority yesterday gave a negative opinion on the automatic renewal. I'd like to know your opinion about this opinion on the part of the Antitrust Authority and what kind of implications this has? Or do you believe that this has no risk related to this and will the government is going to extend. And nonetheless, [indiscernible] by 20 years.

Second question is about gas distribution. You are not very much present in this field. And I'd like the effort to know whether you might be interested in acquiring the assets of gas distribution? I am referring to those assets that [indiscernible] going to be sold following the merger [indiscernible] or conceptually speaking [indiscernible]. Are you open to any opportunity conceptually speaking, are you open to make investments in the gas distribution business? Or are you not interested in this?

And then a question on the business update. When are you going to update your business plan? And then if I may, I'd like to ask a question about the Aqueduct of this year. In the press release, you mentioned that Aqueduct has -- has received the head within the current business plan line. You have invested EUR [indiscernible] million of CapEx. Was this project is included within your CapEx and what about the project development itself. Can you give us some indications about this?

[Pier Ragni, executive]

Now as to electricity session. I'm not going to make any comments about the opinion of the authority and that's beyond our business. I just concerned what [indiscernible] before the extension of concessions is something which is extremely important to guarantee the resilience of a service which is increasingly important to help support the growth of consumption.

As to the question about gas distribution. In March, this year the same question was asked and i will give the same reply. We are not present in the gas distribution business with the exception of [indiscernible] limited realities. As we said in March, we do not roll out anything by itself [indiscernible]. We shall assess any opportunity case by case and especially we shall assess where these opportunities can provide synergies with our Water and Electricity grids. So we'll see whether any opportunity come up and whether these opportunities to fit within our strategy.

Within our business plan, the focus of ACEA is within -- in infrastructure and the distribution business. As to the update of our business plan. As I said, we are waiting for the development of non-secondary event which is, for instance, the extension of concession on the electricity grid. Now we do not have any figure about the impact of any concession, but this is a significant event with a meaningful impact on our business. [indiscernible] what we said in our conference call in March when we said that we were going to update our business plan in fall this year, we should see perhaps [indiscernible] give you risk arae updates.

And then the Aqueduct in Peschiera. We confirm that we received the go ahead. We need to clarify the dynamics of the Aqueduct of Peschiera. This is the biggest strategic investment for this country. It's a project which provides the modernization and the updating safety of the aqueduct Pescara. There is an extraordinary commissioner appointed by the government itself. The project envisages and growth CapEx of EUR 1.4 billion, EUR 1.5 billion, at EUR 150 million invested by tablet contributions.

As we said during the presentation of our business plan in March last year, the aqueduct of Peschiera will not be -- part will not fit in the business plan horizon of scaling because, first of all, there will be the contribution of public funds and then the net CapEx we need to have, [indiscernible] and by time.

We are in the [indiscernible] preparing, all of the necessary documentation to prepare the tender and start the Aqueduct Peschiera project.

[Operator]

The next question from Davide Candela with Intesa Sanpaolo.

[Davide Candela, analyst]

Now the first question about the leverage -- can you please remind us what for your is a comfortable level of leverage versus EBITDA and whether there any covenants on the debt, which didn't allow you to up to certain levels?

Second question related to the first one. By assuming M&As, there might be a contribution on your part and on the part of companies contribution to electric concessions leverage made up to 3.5%. Now I wonder whether you are going to being about issuing hybrid debt to take care of the leverage, which is not included in your business plan perhaps you have an update about this as well?

[Pier Ragni, executive]

Now in this moment, within our guidance, our leverage is between 3.4%, 3.5%. As usual, we are going to assess that this is one by one and more the ones the issue of expansion of the concession has been mentioned. Well, it all depends on the concession fees, and it depends on the mechanism, which has been thought over. On the basis of this, ACEA can pour the investment. As to the funding means that we certainly are thinking about this because you [indiscernible].

At the moment, we have [indiscernible] which [indiscernible] we can certainly issue bonds or green bonds or blue bonds, as recently, we have updated framework to include also the idea of blue bond [indiscernible] most of our investments are related to the hybrid loan that we have investments around EUR 1.5 billion, and we have [indiscernible] investors to bond itself.

Now blue bonds have not we issued. [indiscernible] and, of course, a weak result to hybrid debt anything. ACEA, as I said, has the possibility to push up to investments, which it has to make for the concession fees for electricity grid.

Let me continue by saying that grids related concession fee is a regulating business. We constantly have a dialogue -- a very consultive dialogue with the agents. Now the greater the EBITDA of its regulated business, of ACEA would be quite normal that our capability, we have a positive discussion with the authority. Now you know that the regulated business have higher EBITDA than ours.

And of course, we will also establish or have established a positive constructive dialogue with the regulatory agencies. [indiscernible]. However, we will give you all the necessary information when time comes.

[Operator]

[Operator Instructions] Ladies and gentlemen, there appears to be no other question from the conference call.

[Pier Ragni, executive]

Well, thank you very much for all taking part in the conference call. I'll remind you that the Investor Relations team is available to answer any questions or any clarification you might have.

[Operator]

This is the chorus call operator. You can now disconnect the phone. The conference is now over. Thank you.