Hello, and welcome to A2A's Q1 2025 Results Conference. My name is George, and I'll be coordinating today's event. Please note this conference is being recorded, and for the duration of the call, your lines will be in a listen-only mode. However, towards the end of the presentation, you'll be able to ask questions, and this can be done by pressing star zero on your telephone keypad to register for questions. If you require assistance at any point, please press star zero, and you will be connected to an operator. I'd like to turn the call over to your host today, Mr. Marco Porro, having the best of his wishes to begin today's conference. Please go ahead, sir.
Good afternoon, everyone. Thank you for taking the time to participate in our first-quarter results call. Today, as usual, the presentation will be driven and commented by our CEO, Renato Mazzoncini, and the CFO, Luca Moroni. I immediately give the floor to Renato for the first comments.
Okay, thanks, Marco. Good afternoon, everyone. Thanks to be here with us. Let's say it was not a trivial quarter, considering the geopolitical situation, but we are happy with the results. I start from slide number two. As usual, we would like to begin by highlighting the achievements we have reached in this quarter. In particular, it is a quarter that confirms our commitment to the pillars of our strategic plan, with a renewed focus on our organization, we see, and an expansion of our regulated activities perimeter. The news in these slides is the new business unit, Circular Economy. I remember it is the integration of our waste cycle, distributing and water, aims to fully leverage the existing integration advantages among these three businesses that are in our pillar circular economy.
This organizational change, I remember that distributing and water before was inside the smart infrastructure business unit. This new organization now perfectly aligns our managerial decision-making process with our two strategic pillars, circular economy and energy transition, respectively. Going more in deep in our two pillars, starting from the energy transition, our integrated business units of generation and supply are both growing in a balanced and direct manner to secure visible results over the planned horizon. In particular, some highlights of this quarter, we were awarded 4.6 GW in the capacity market for 2027 delivery, with an increased premium, but providing additional visibility to our targets of EBITDA. Looking at our green energy platform, it is gradually gaining scale with an overall PPA contracts for around 800 GWhs , either by or self-signed.
That means that we are really working to become a platform also for other players in generation, renewable generation, with our supply and customer base. On the three sides, let me underline that we reached more or less 100,000 subscriptions in our PPA's mass market. You remember our offer, Noi2 hai? We launched it more or less one year ago, and it's working very well. Our target, I remember, is to arrive at more than 2 TWhs of energy with this kind of PPA's mass market. Looking at our business unit's smart infrastructure, of course, the big news is the consolidation of the electricity network in Lombardy, in particular in the province of Milan, Monotoli, acquired from Enel. We are also growing, making progress in mobility infrastructure. In particular, in this quarter, we signed an agreement with MetroItalia for the installation of 150 charging points.
In particular, we received the approval from the municipality of Milan to install around 1,500 charging points in the center of Milan, our so-called City Plug, solo charge charging point that is our formula to increase the mobility in the center town. Returning to our business unit, new business unit, Circular Economy, we want to highlight that we were awarded a new authorization to convert two biogas plants to biomethane. You remember is our portfolio, AgriPower, in which we are working more and more to convert these plants from biogas to biomethane. The startup of a new water treatment plant in Calvisano, in the province of Brescia, is a plant that works for more or less 12,000 inhabitants. In addition, we also completed the acquisition from EDIZON of the Sesto San Giovanni cogeneration plant with an installed capacity of 110 MW.
That in our strategy can be very interesting, not only because it's connected with the distributing in Sesto San Giovanni, that is, let's say, the main strategical rationale for why we bought this plant, but also because if you imagine the development in data center in the region of Lombardy, in particular in Milan, there are not so many plants able to give base load energy with a night power in the center of a city like this one. It can be a future development of integration between supply and data center. I also remind you that overall, we are now managing a company with 31% of EBITDA generated from regulated activities, growing from 26-25 in Q1 2024, thanks to both organic investment, so the huge investment, in particular in electrical distribution in our historical asset in Balestier, and due to the acquisition of the new company, Dueriti.
Last but not least, we are maintaining a firm commitment to sustainability. One evidence is that we were the first issuer of an EU Green Bond compliant with the EU regulation and achieved an NZ-3 score in Moody's Net Zero assessment. Looking at the slides, slide number two, number three, sorry. In this slide, you can see our number. The consolidation of a new company, Dueriti, and the increase in energy prices, energy and gas in turn, led to a growth in revenues of about 16%. The reported EBITDA slightly decreased to EUR 703 million, that is completely aligned or better than our forecast in our industrial plan presented two years ago. Net to the extraordinary effects deriving from the hydroelectric production during 2024, that is the single element more disruptive between one year and the other, the EBITDA grew by 1%.
The net profit before ordinary transaction, for example, excluding special items, for example, in the first quarter of the current year, EUR 5 million, referring to the price adjustment relating to the acquisition of the stake in TecnoA, TecnoA is the company in Crotone, where it is the waste-to-energy plant for industrial waste in Crotone. It amounts to EUR 257 million, registering a 13% increase compared to the first quarter of the previous year. If we look at the extraordinary effect deriving from the hydro production, I remember that last year was 1.1 TWh, more than the average level of the last five years. The net profit before ordinary transaction is 5%. The net profit, including special items, reached an amount of EUR 252 million.
The focus on financial discipline continues, allowing us to maintain a solid financial ratio, thanks to an operating cash flow that guaranteed coverage of CapEx for a period and a decrease in net financial position in the ratio between the net financial position and EBITDA to 2.4, compared with 2.5 of 2024, so a little bit better compared to what we closed last December, the acquisition, the big acquisition of Dueriti. In slide number four, we're at the CapEx. You see the organic CapEx in this quarter amounted to EUR 300 million, up to 32% compared with the same period of 2024.
Development CapEx that for us is, let's say, the result of our 10 years in the industrial plan, amounted to EUR 174 million, mainly aimed at strengthening and improving the efficiency of networks, because if you look on the right side, you can see that EUR 123 million is in the smart infrastructure, mainly in electrical grid to support the carbonization, the development of photovoltaic plants, increasing the flexibility of generation plants. That means, for example, the new plant in Monfalcone, the recovery of materials and energy, and the digitalization of the group. I leave the floor to Luca to go more in detail with the single business unit.
Thank you, Renato. Good afternoon, everyone. We are quite happy about the result of the first quarter. A few reasons at the base of our satisfaction, the fact that we continue to manage a differentiated portfolio of businesses, which give us reliability and resiliency in terms of trend of growth for the EBITDA. As you know, we were very, we knew very well about what to expect from generation, taking into consideration the normalization of production in hydro. This is what happened and what we expected to have. As you see in slide five, we have nice news on the other business, in particular smart infrastructure, taking into consideration the opportunity coming from the consolidation of the new company, Dueriti, and the positive result of the circular economy.
Also the supply business gave us some positive trend, and it confirmed the consistency of the business, taking into consideration the fact that we have lost the marginality of the safeguarded market, and we offset with the positive effect of the marginality in the retail business. Switching on slide six, we have here the analysis coming from the different pillars of the generation and trade business. As I said, renewable business has been affected by hydro production. We counted the effect out of the total amount of 1 TWh , of the entire year of 2024, which need to take into account for a sort of restatement of the result of this year. 31- in flexibility, which is completely related to an effect we had last year quarter, considering the amount of devaluation of the gas stock, which has not been there anymore.
We can see and appreciate the fact that, as we always say, the different technology we manage gives us the opportunity to compensate the less production in hydro with a huge result in terms of volumes of the thermal production, 66% more than last year, which completely offset the -18% in production of hydro. Slide seven, the market business, as I said and anticipated, there has been a very positive result in retail business, in the retail segment, both in power market and in gas market. We also invest, and this is the increase of costs, invest in the new point of sales, physical point of sales, which gives us the opportunity to increase customer in a more resilient way. The customer base increased by 3%, and the free market customer increased by 5% compared to last year.
We had a positive result on the electricity sales, which are 6.5% more last year, whilst the gas sales decreased by 6% to 1.1 billion m³ . Slide eight, we have the result of the circular economy business unit, as Renato introduced. This is the new business unit in which we count not only the waste management business, but also distributing and water cycle. Waste was positive, considering the collection, which suffered a little bit from the result of the tender we gained in Milan, on which we elaborated a recovery plan for the incoming years. We continue to have a very positive result in treatment business, also taking into consideration the new plant in Trezzo will take place in this year. Distributing very positive with lead by the high volumes sold, + 6% with an increase of EBITDA of EUR 7 million.
Last but not least, water cycle, which gave us a +1 . Last but not least, smart infrastructure, in which we have not only the very positive result of the first consolidation of the new company, Dueriti, for more than EUR 20 million, but also EUR 10 million related to the like-for-like perimeter, given the effect of the regulated revenues, which is a very positive consideration taking to the aspect that we continue to invest, in particular in the electrical distribution, and this is the result of our investments. At page 10, our profit and loss, which start with EUR 675 million EBITDA, EUR 374 million EBT, and EUR 257 million in terms of net income. The increase in terms of the DNA is led by the effect of the investment of the last year. We have risk position aligned with the same period of the last year.
Some increase in the net financial expenses due to the fact that we issue the green bond at the beginning of the quarter in January, and the effect of the bridge loan in place for the financing of the new asset coming from NL. The taxes with the same tax rate of last year, 29%, and we arrive to the net result. In terms of cash flows, we are pretty satisfied, considering the fact that the change in networking capital is completely under control, and the result of the seasonality of the period.
I want to remember to everybody that last year, due to the fact that we managed in a way to offset completely the extraordinary effect of the financial difficulties we managed in the previous year, we had the movement of some contracts back into the stock exchange platform, and we absorbed EUR 500 million in terms of networking capital. Nowadays, we are in line with the normal seasonality with the absorption of only EUR 100 million. The operative cash flow is EUR 554 million, which self-funded led us to self-fund completely the CapEx plan, leaving the opportunity to decrease our net financial position by EUR 220 million, with a very nice cash conversion rate above 60%, which is higher than the one we set in the target of our business plan.
We are in the position to confirm completely and fully our guidance with an EBITDA, which is at the upper boundary of EUR 2.2 billion, and the ordinary net income in the mid of EUR 680 million and EUR 700 million. I switch again to Renato for the last comments.
Thanks, Luca. Only to close, only to say with recap in the last slides that once again, I want to underline that our business plan is working very well, even in a market context a little bit different once again than expected for the surging political tension, of course, especially related to the fears of a tariff war.
In the context in which we were working, we are able to size opportunities arising from imbalances in the generation supply mix, the fact that we have all the sources of energy, and so that we are developing both the production with renewable than the flexibility with our hydro production and the investment in the thermal plant with capacity market brings an incredible flexible fleet able to meet the demand during periods of weak wind availability, for example, and normalizing it or CTDC. It is easy to see what happened with the wind, with the flow that arrives more in Germany from France than in Italy, and this is the reason for why, for example, our thermal plant works more than the quarter last year. We maintain a sizable supply customer base, leveraging our strong brand awareness that is growing more and more.
We reiterated our commitment to provide concrete solutions for our country in order to enable the achievement of 25 AU targets in the treatment market, sorry, 25, the target 2035. You remember that we have to reduce no more than 10% of the landfill, and in this moment, our country is in a good position considering AU, but it's 20%, so we have to work more. Deploy CapEx in electricity network. This is very important. In particular, we are very happy that Dueriti started immediately with the high volume of CapEx, EUR 54 million only in Dueriti in the quarter, so high level of investment also in the new network starting from January, and increased financial flexibility that for us enables the management of both tailwinds and winds. It is another element very important. We confirm our CapEx plan with a structure resilient supply chain.
Also, the supply chain is very important with a CapEx plan with EUR 22 billion in the horizon of the plan, and also the supply chain is working well, and also the procurement cost risk is under control. Thanks. We can open to the Q&A session. The floor is yours.
Thank you very much, sir. Ladies and gentlemen, as a reminder, if you have any audio questions, please press star one on your double keypad at this time, and just make sure your line is not muted to allow you to reach your equipment. Our very first question is coming from Javier Suárez of Mediobanca. Please go ahead.
Hi all, and thank you for the presentation. Three questions. The first one is a question that has to do with the context. We have seen a significant blackout in one of the largest economies in the Eurozone recently.
I was interested in your view on the implication that this blackout has, or the lesson to be learned from this blackout in the structure of the future European energy market, and implications for the design of the future Italian electricity system as well. That would be the first question. The second question is on the generation business. I could be interested in having details on your forward selling strategy for 2025 and 2026 in terms of volumes and prices, and the level of contribution from the MSD market during the first quarter of the year. The third and final question is on the supply business. It has been stable during the first quarter of the year. You can give us a little bit more color on the dynamics behind this stable performance and what we should expect in the next quarters to come. Thank you.
Okay Javier, good afternoon. Talking about the blackout in Spain, you know it is not so easy to discuss about this topic, also because official news from the TSO from Spain have not already arrived. I can only say that our analysis in this moment is that to have a resilient system is key, is completely key to have the TSO and all the TSO that works well, and in particular, that knows very well all the generation plants that you have in the country. Only to remember to all in this moment in Italy, we have more or less 1.5 million of generation plants, considering, for example, all the roof solar plants.
The reason for why sometimes, or let's say every day, there are some customers that say that the TSO or the TSO, depending from the size of the plant, takes too much time, weeks, months to connect the plant to the grid, is the proof of that in Italy, we are working well to be sure to know everything about every single plant, because it's the only way to be sure to match completely the demand and the generation. I think that is not a topic of renewable, to understand, it is a topic of how you manage the renewable. Last Sunday, I was in our hydro plant in Grosio and Valtellina. You remember it because you visited.
To understand how millimetric the management is, how our guys received the dispatch from Terna to reduce in one of the plants the generation from 200 kW, so let's say nothing, to 100. It is only to understand that it is really millimetric the management, but it is absolutely fundamental because, for example, on Sunday, in which the demand was limited, let's say, till 6:00 P.M., our hydro plant was stopped because there was the generation from sun. I think that in Italy, we are working well. The investment in electrical grid is huge, both in Terna and in our TSO. You saw what A2A did in the last four years with triple CapEx in grid compared with 2020. The way is simply to be able to well manage the total plant.
There is also a problem of alternative generation or generation in direct current. In this case, once again, you have to compensate the generation with the so-called synchronous compensator. In Italy, we installed 27. You remember that A2A for Terna in Brindisi installed a couple of machines able not to produce energy, but to maintain the frequency that the grid has. In Italy, we installed 27 of these machines exactly to be able to compensate the development of the production in direct current. Surely the lesson learned is that the world is not easy, but comparing what we did in Italy compared with Spain seems that we are in a better position. There are not activities in emergency that we decided to do after the blackout in Spain, to be clear. Talking about generation MSD, I leave the floor to Luca.
Yeah. Hi, Javier. As we already discussed in the past about our hedging level, we can confirm that for this year, we are fully hedged, taking into consideration our internal policy. That means to exceed 70%, we are still in the area of 75-120, so fully hedged for the remaining part of the year. Looking at 2026, 30% of the hedging levels in terms of volumes at 114, which is above the level of the energy scenario we set in the business plan for 2026. MSD has been positive in the first quarter compared to the target level in line with last year, which was for the entire year 85. We are targeting something in the region between 85-90, taking into consideration the, let's say, 2 million-3 million more we get in the first quarter.
Answering to the supply, the supply is stable, as you have seen. The dynamics, the most interesting dynamics are B2B that is working very well. The marginality in B2B and the growth in absolute value, consider that our forecast for this year is more or less 20 TWhs-25 TWhs . Consider that in Italy, the total consumption of the industry is 110, more or less. 20% of the total market share is not bad. From the other side, as I underlined during the presentation, it is working well also the 10-year contract, the PPAs. Our churn is slightly worse than our budget, but many points better than the average level indicated by ARERA from all the suppliers. In this case, it is working well.
Our shop, physical shop that we opened, you remember during the presentation in our industry plan, we are investing a lot in shops, physical shops. Of course, the cost to acquire grow a little bit, but the result is really interesting. These are the two main dynamics.
Many thanks.
Thank you very much, Mr. Suárez. The next question today coming from Francesco Sala. Sorry about that. Yes, Francesco Sala of Banco Anglo. Please go ahead.
Good afternoon. Thank you for taking my questions. Two or three. The first one is an update on your expectations for hydropower production for 2025. We are still in line with what you guided a couple of months ago, and what are the latest, the latest news in April and May in terms of hydroelectric production? The second one is on hydroelectric concessions.
I wonder whether there are updates in terms of extensions, both in Lombardy and in the other regions. The last one in terms of networking capital, what do you expect for the rest of the year in terms of if we are going to see an absorption or a generation compared to the level we reached at the end of March? Thank you.
Okay. For the first question, Francesco, our hydro production this year is expected to come back exactly to the average level of the last 10 years. That is 4.1. Also, if you look at the situation, 2022, 22.7, 2023, 3.7, 2024, 5.1, the average level is once again 4. In this moment, we have the evidence that we are able to maintain our budget. Every time it is built considering this average level. It is not amazing, but not bad.
That means 30% less than last year, but more or less in their average level considering the previous years. It is raining every week, so the level of our basins is not good. The extension, you are talking about grid or concession of the hydro plants?
I was referring to hydro concessions, but electricity distribution is also interesting.
Exactly, exactly. Okay. Hydro plant, surely you read Minister Fitto that in the last weeks, more times communicated about the deal with EU for extracting from PNRR commitment, the hydro concession tenders. We are fully confident that this will be the end of the film. Also because at a government level, all understood that the reassigning to the actual incumbent is the more sure way to increase the CapEx immediately, not waiting 2029 for the end of the concession, but starting tomorrow.
Because if we want really to not only to maintain, but to increase a little bit of the hydro production, that is key to face the challenge of the PNIEC, we cannot stay quiet for three or four years waiting tenders and so on. There are EUR 15 billion on the table of CapEx that we are able to move. I think that really this extension will be a reality during this summer, let's say.
About profit capital, Luca?
Networking capital, the trend we are going to expect is positive. We are expecting at the end of the year the normalization of our networking capital and also some positive effect coming from the XEA, which is the body which gives us the money for the collection of those customers belonging to safeguarded market.
We are pretty comfortable to have a positive performance during all this year and in particular at the end of the year.
Thank you.
Thank you. What's your question, sir? The next question will be coming from Emanuele Oggioni of Capriccio. Please go ahead, sir.
Good afternoon. Thank you for taking my questions. The first one is more on the strategy and the acquisitions. Considering you are on a EBITDA level on a rolling basis, only 2.4x . I think there is room to re-leverage. First of all, what is the maximum target? Then secondly, what are you interested in buying, in which sectors? Or if there is also room to increase further the organic CapEx? The second question is on market supply.
The classical question is if you are seeing an increased competition in the energy supply or in your outlook for 2025, 2026, some competitive pressure could start to arise from mid or smaller players like before the energy crisis. If you are feeling this or not. Thank you.
Okay, Emanuele. Talking about acquisition M&A, you know that it is impossible to answer to your question. Because when some opportunities, some train will pass, of course, we are able to look and surely to stay in a correct, let's say, situation. Also if I underline that the ratio between a net financial position and the EBITDA is one of the elements, the other is the FFO is an adept. We have to maintain both. Only to say that we have a flexibility, but we are in this moment in a situation, in a perfect situation like financial position.
Surely I imagine that in the future, not in the grid, of course, but in the generation, some consolidation can be necessary because the market is very disaggregated and every time seems not so efficient, let's say. Talking about the market supply competition, the dynamics more interesting in this moment is that the fixed contract comes back. We stayed for a couple of years only with variable contract. That was the son of the incredible situation of the price in 2022, 2023. Now, more or less 60%-70% of the new contracts with householders are once again fixed for one year or two years. That protects the customers and works for us. Also the fact that the 10-year contract, both in HVAC energy, then in NEN, are working well is the proof that people, customers, want to stay protected.
It can be also a change of paradigm if you think the fact that people sign contract for 10 years is exactly what the renewable can do. A complete change of paradigm that works. Competition, yes, there is some competition, not for the little players, that is not a topic, but for players like Poste Italiane, Octopus, or some new player that are working on the market. Let's say it's normal, a normal competitive arena. If we look at our churn, how our capacity to acquire customers and so on, there is not a disruption or something strange compared with the last years. We expect also for 2025, 2026, a situation more or less stable. I remember that in our industry plan, we introduced a reduction of profitability of 3% every year exactly due to the competition.
That means 30% in the horizon of a plan of reduction of marginality. This is the situation.
We could say this is in line, your expectation already embedded in the business plan.
Yeah, absolutely. Absolutely. Really, what is, let's say, the single best news for me is that our industrial plan also looking 2021, considering that in the meantime, there was the COVID, the war, Russia, Ukraine, and then Trump and so on, but the industrial plan is working well. Our targets are really material, are working, the EBITDA is growing. When like in 2024, we had some extraordinary income, we are able immediately to use this money to do more development and not, for example, to change our financial structure or increase dividends and so on. We are fully committed in our industrial planning, the CapEx in the growth of the company.
Thank you. Very clear.
Thank you. What's your question, sir? Today's next question will be coming from Mr. Davide Candela of Intesa Sanpaolo. Please go ahead, sir.
Hi. Good afternoon, gentlemen. Thank you for taking my question for the presentation. I have three. The first one is close related to what Javier was saying about the implication for the electricity market. I was wondering, you believe that the perception of baseload generation of goodies and so on, so that kind of generation that is predictable will change in future compared to the acceptance of renewables. I believe that renewables will be still there, but if this disruption may bring some news, some positive news flow on WTs and CCGD and so on. The second question is related to gas and power prices. I was looking at the data, looking at the gas storage levels that are actually close to 2021 and 2022 levels.
The replenishment activities of the stocks and the season that we are seeing in the summer is quite close and will be hard to fill, or at least to harch. I was wondering, what are your expectations on short-term prices considering that we need to fill the storage by 90% and also considering what Europe is looking for with regards to the ban of the Russian gas and so on? Your consideration about that will be helpful for us. Thank you. Last question, a clarification on this market infrastructure. I was wondering if you're including there the extraordinary contribution from the resolution allowed OpEx and gas and also the positive impact accumulated from the deflators and the change in the regulation to the new index system. Thank you.
Coming back to Spain, to maintain the equilibrium between demand and generation, surely plants able to produce baseload or with an AIC flexibility can be easier to manage. Once again, I underlined that it is absolutely possible to manage the renewable. From the other side, I remember that when we had in Italy the blackout in 2003, the contribution to our market due to the renewable was approximately to zero. Only to say that the problem of equilibrium is a typical problem. If you look at all the most important economies in the world, more or less every two years, there is one blackout. It is possible that happened. I think that is not correct to say that the problem is renewable. Surely, a system with a night flexibility like in Italy. Two very good examples are from one side, capacity market.
Plants like our plant in Cassano d'Adda, our gas peaker, or the new plant in construction in Monfalcone are examples, or of course, all the hydro production in Italy are examples of incredible flexibility and also speed to change the asset of the network if it is necessary. From the other side, also the interoperability is key. You know that our companies like Steel Plant and not only have the contract for interoperability that sometimes is key. For example, the interoperability not only in Spain, but also in Germany and in France was canceled last year, if I remember. I think that the fact that Terna decided, let's say, to spend some money more, but to maintain a high level of flexibility is the best way to maintain the resilience that we need. In this moment, I do not see a problem.
I think that all the strategy defined in the last years from Terna included, in particular, capacity market is working very well. Talking about gas price.
Yeah. I take the floor. In terms of energy scenario in general, we remain consistent on what we always said regarding the levels of the prices. I do not think that the level of the storage will change the situation, considering also the regulation on the storage in Italy and in Europe, which is very clear. Here, any disruption from time to time considered by the market comes from the additional volumes from Russia. You know better than us that any additional volumes will arrive due to the sanction in place and the difficult situation of the discussion with that country.
Regarding the situation of the smart infrastructure, we have not included in the first quarter the adjustment, but we estimated them in a correct way. We do not expect to have differences compared to the target we set in the budget and in the business plan. We are pretty comfortable with what already issued ARERA. The number being issued is in line with our expectations. Any difference is a major difference in the accounting for the incoming month.
Thank you.
Thank you very much, Mr. Candela. Ladies and gentlemen, as a final reminder, if you have any questions or follow-up questions, please press star one at this time.
If there are no more questions, we will close here the call. If you have any additional requirements in terms of deep dive analysis or data, please contact IR department. Thank you, everyone, and good afternoon.
Thank you.
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