Good afternoon, everyone, and welcome to the presentation of our results of the Acea Group as of March 31st. Fabrizio Palermo, CEO, Stefano Songini , Sabrina Di Bartolomeo, CFO of Acea, are going to illustrate this presentation, and at the end we'll have a Q&A session. Please, Fabrizio.
Good afternoon, everyone. First of all, thank you for your time and for your attendance to the conference call. The performance of the group in the Q1 of the year was good. First of all, I would like to spend a couple of words on the regulatory and market environment that has been typical of the beginning of this year. Partially, we have talked about this environment when we presented the business plan a few months ago, and I would anyway like to dwell upon it for a second.
As far as regulation is concerned for water, we have applied the water service tariff method 4 called MTI-4, which is the regulatory period from 2024 till 2029, with an increase in WACC from 4.8%-6.1% and higher tariff caps by around 2%. As far as grids are concerned, which is another very important business for us, the new ROSS tariff rules are being implemented, which is regulating the distribution of electricity, and it's based on the recognition of total spending for the sixth regulatory period from 2024 to 2027, and WACC will increase from 5.2%-6%. Commodity prices and inflation. The energy price spot has decreased in 2024 to EUR 92 per MWh as an average, which is about EUR 65 per MWh less than the Q1 of 2023.
On the other hand, the gas price, well, it also decreased by EUR 29, or better, down to EUR 29/MWh, so it's down EUR 28/MWh versus 2023 same quarter. So prices are actually going down. On the other hand, the inflation in March was 0.1% on a monthly basis, and +1.3% on a trend basis. I'm not going to talk about interest rates, even though it is in this presentation, because I actually think everybody's really familiar with this scenario. Now, let's switch to page 4 and see our results, which we believe are important and positive along the lines that the business plan had been drafted. So results in the Q1 see an increase in terms of both revenues and EBITDA and net profit for the period.
CapEx is in line with our expectations, and operating free cash flow means an improvement of the NFP EBITDA ratio to 3.48x . So this is actually the overall result for the group is about EUR 1 billion, of which 60%, so EUR 600 ,000,000 is from regulated business, which is also growing by 1% versus 2023. As far as EBITDA is concerned, reported EBITDA amounted to EUR 357 ,000,000 +EUR 21 ,000,000 versus the year before, the same period of the year before. Also driven by the growth in the regulated businesses, +6% toward Italy and +13% on grids and public lighting, and by the commercial sector, which also increased. All those increases have more than offset the adverse energy scenario that has been typical of the beginning of this year, and as we saw earlier, there was a sharp turnaround in the overall trends there.
Reported net profit is EUR 83 ,000,000 +14%, +1.4, compared to the same period in 2023. The growth in EBITDA and the containment of financial costs has more than offset the rise in depreciation due to the investments in regulated businesses. To confirm the growing and continuous attention that the group reserves to identifying all possible growth areas for margins and all possible measures to contain financial costs. CapEx is pretty much in line with the year before, and net investments in regulated businesses confirm our trend, which sees a major positioning of the group on regulated businesses, which now account for 90% of the group total. Operating cash flow is negative, -EUR 32 ,000,000 but this makes it possible to maintain a sound financial structure.
As I said earlier, the ratio has improved, and I think this is really relevant because it confirms the trend we actually started late last year because we're actually reversing and improving the group's net financial position. Should we move to page five in the presentation? This is a detailed overview of all the numbers I have summarized in the previous page, so you can actually see the EBITDA is improving, CapEx is pretty much in line, profit is improving, and we actually see the NFP performance too. I think this bears witness to what we indicated at the business plan level. So there's a very carefully managed growth we started in the group, and we aim and obtain in our results during the plan period, and we are actually right on track based on our expectations at the beginning of the year.
The following pages, page 6, shows the EBITDA bridge. What you see on one side is a big weight of regulated businesses that overall account for 85% of EBITDA, plus water, Italy, grids, and public lighting and environment. So this shows that EBITDA improved mainly thanks to organic growth in view of an energy scenario, which was, of course, a big headwind against us, just like for all the other players too at the beginning of this year. Net profit, because of the operating management and unchanged financial management, has allowed us to improve by 17%, which is what page 7 shows. Then CapEx, you see its breakdown here in different businesses. We should actually point out that we do continue on investments. Of course, water is the key business for us. We're investing significantly there on reclamation and expansion of water and sewer pipes.
Let me remind you that some of the investments from the PNRR, the National Resilience and Recovery Plan, is actually used in these investments. We co-fund them. It's not just PNRR funds. The grid is actually being upgraded, in particular the Rome grid. So we're actually promoting energy transition in the capital city, and also we're making big investments on the environment. So today we're working on the fourth line of San Vittore and on the Terni plant as well. As to environmental investments, of course, these numbers are not including the waste-to-energy facility, neither did the business plan, by the way. So we are engaged in a tender, and the final bids should be filed within the next few days. So the group is busy working on this, and we do believe it's a really important project for the environment business unit of the company.
Finally, and then I'll give the floor to Sabrina Di Bartolomeo, the CFO. I would also like to point out that as far as cash flow is concerned, a lot of relevant work has been done by the company, and we're still busy working on it to optimize our financial management. And of course, this is also reflected in the two stable outlooks that the company has been receiving from both Fitch and Moody's. For the sake of completeness and fairness, we also showed the breakdown of net financial position, and we can actually notice that leverage is improving throughout. For the deadlines, well, they're pretty much in line with our expectations and pretty well balanced for the future too. Let me now give the floor to Sabrina Di Bartolomeo. She's going to report on the individual performance in 2024. Please.
Thank you, Fabrizio. Welcome, everyone.
So should we move over to water, Italy business? So here again, we see an EBITDA growth of 6%. This is organic growth, driven mainly by the investments we've done so far. Revenues are pretty much in line with last year for dual reasons. So on one side, we have tariff growth, which is connected to investments and more than offset by smaller changes in revenues because of a smaller change in scope. And as far as EBITDA is concerned, EBITDA is also improving here again thanks to organic growth and tariff growth. So despite slight reduction of the results of the companies accounted for at net value. And basically, this includes all depreciation due to the improved and increased investments in the past few years.
CapEx, once again, CapEx is pretty much in line as far as net CapEx is concerned, whereas CapEx growth of funding is slightly lower than the original forecast of the business plan. But this is mainly due to how the recovery plan funds are being paid out. So we confirm RAB at EUR 4.6 billion. Of course, we'll review that as we go, but we confirm it so far. Grids and public lighting, well, in this particular case, once again, revenues do increase mainly thanks to the growth of regulated tariffs. So actually, gas increased from 5.2%-6%. EBITDA also improves also thanks to the positive impact of the increase in tariffs by about EUR 12,000,000 . And CapEx, here again, we see a slight decrease reported, but it's actually due to supply chain disruptions. And so we believe we are going to recover that during the rest of the year.
So CapEx is expected to go back to the foreseen levels. We did actually have some supply problems at the beginning of the year. So once again, the gross RAB is confirmed, and it's EUR 2.8 billion. Environment, here we see a slight decrease in revenues, which is mainly due to two reasons. On one side, we have downtime at the Terni WT plant, which was totally planned for, actually. It's in line with the budget. It's actually even better than the budget, but this planned downtime, maintenance-related downtime, is actually causing a slight decrease. On the other side, compared to last year, we also have a lower price of energy. So let me remind you that we already started about 80% of the energy throughout the year at positive prices, and so we do not expect unless there are some catastrophic events happening. So we do not.
Downtime I was reporting about earlier. So EBITDA sees a reduction, a decrease, which is due to the energy scenario of WT of San Vittore and some delays on the volumes sold and some slower performance than expected. CapEx is increasing versus last year. I'm sure you remember that we're engaged in revamping the WT plant in Terni, and we're also engaged in building the fourth line of San Vittore. So there's a slight decrease of disposal. There has been an improvement versus 2023 of the dumping site and treatment. But as far as electricity sold is concerned, once again, this is actually impacted by the Terni WT downtime. Generation, this is also affected by the energy scenario, of course. Of course, the reduction of 75 EUR per megawatt-hour is actually quite relevant and significant for us. So once again, we have a good hedging level versus budget.
So we do know that as far as prices go, we are pretty much in line with our original expectations. Unfortunately, generation is lower. Energy generation is lower, unlike what happens in many companies in Northern Italy. In Central Italy, rainfall was very scanty, and snowfall was even more scarce. So there were, unfortunately for us, some adverse climate scenarios. We didn't have much rain. We didn't have much snow. And so the catchment basins actually hold 73% less than the years before. And to some extent, this is a very significant decrease for us. As far as CapEx is concerned, it's actually in line with 2023. We have different timing too, but during the rest of the year, we expect to investigate more on photovoltaic. This year, this quarter too, we have reached 103 MW of photovoltaic installed power with the latest plant that has been installed recently.
Now, commercial. Of course, revenues are decreasing here because I'm sure you'll remember that after the energy shock, what our company did was adopt a very cautious, prudential approach. So we don't sell consumer contracts to indexed markets. So because of this, there's a reduction of revenues, of course. So whenever there's a reduction in the price of energy, we do see a reduction in revenues too. However, this doesn't have an impact on EBITDA for us. Actually, it's the opposite. EBITDA is increasing. And this is due, on one side, thanks to the commercial development because we increased our customer base, or better, we increased the EBITDA due to customer base margins and customer base management. And also, we are recording an energy management activities increase, mainly connected to the Superbonus, so-called Superbonus lower.
As far as CapEx is concerned, we see an increase in CapEx, which is partly due to some industrial investment, and partly this is due to higher commissioning costs for all activation strategies with clients. So as you see, we serve a higher number of electricity clients, 1.24 million customers. And we post an even bigger growth of gas customers because we're actually implementing a dual strategy, and so we are actually serving customers that have a dual agreement with us. So we provide them with both electricity and gas. Now, having said that, let me thank you for your time. And what I want to tell all of you is that thanks to the results we've seen in the Q1, we can simply confirm the guidance that we stated.
So EBITDA between 3%-5% versus 2023, investment net of funding EUR 1.1 billion-EUR 1.5 billion gross, and net financial position versus EBITDA is 3.5. So I'll give the floor back to Dario for his final wrap-up. Thank you. We can open the Q&A session now. Thank you.
This is the current call operator. We're opening the Q&A session now. So if you do have questions, please press star one on your phone. To exit the queue, please press star two. And please ask your questions using your receivers. If you have questions, please press star one now. First question is from Javier Suárez of Mediobanca.
Good afternoon, everyone. Thanks for your presentation. I have a couple of questions. The first is about your accounting and regulation on water.
I think that in your accounting for water, you're still using the regulation parameters or regulation formula that was applied before. So is this connected with the final settlement with local authorities? So the question is, when do you think this final settlement with local authorities is going to happen? So when will you start accounting for retroactively, so accounting for the improvements in the tariff systems from January 2024 onwards? So do you think a reasonable agreement should be an increase of revenues, should bring about an increase of revenues of about 200 basis points versus the previous data? Do you still consider that to be a reasonable expectation? My second question is about the new waste-to-energy installation to serve the city of Rome. So if I'm not mistaken, the bid should be filed before May 18th. Do you confirm you want to be involved in that tender?
What is the reason why you consider that an interesting business for the company? My third question is about well, it's connected to the earlier question, actually. It's about the supply business, which is performing pretty well during the Q1 of 2024. And do you consider this business as non-core for ACEA? So is it possibly subject to disposal to fund different growth opportunities? Thank you.
Thank you, Javier. I'll take your question on the accounting and regulation accounting, and then Fabrizio will take the other questions. Now, as far as regulation accounting is concerned, we are currently implementing the tariff increases that have been already approved, as you correctly imagined. And we expect the final settlement with the authorities to happen towards the end of 2023 or the end of Q3 or the beginning of Q4.
So by then, we are going to account for this increase. We still believe that what we indicated as an average budget increase is still reasonable. So we are sticking to the numbers we indicated in our previous presentations. Fabrizio will answer on WtE.
Yeah, good afternoon. So as far as the Rome waste-to-energy plant, the tender says that bids should be handed in by mid-May. We're actually working to prepare our bid and to file it. As you know, we confirm we're interested. This project is strategic. It's a project which, as you know, has seen us amongst the promoters. Or better, it's a project which has been tendered by the extraordinary commissioner, but it's actually the project that the consortium originally filed, which was headed by Acea and which includes Hitachi Zosen, Suez, and ED.
So because of the way this is structured, since it's a private-public partnership project, the procedure says we have a right to action if other bids are also filed. So we have a kind of a preemptive right, which is typical in this kind of bidding. So it's a very important project for us, not just because of the very nature of the project itself, which is certainly interesting, but also in Rome, as we speak, we already have a pretty active environmental management business in place thanks to the waste-to-energy systems of San Vittore, Frosinone, which is actually why we're revamping it and building a fourth line. So it's absolutely functional to manage and develop our business locally.
For us, this is likely to mark the beginning of future perspectives too because this would actually be the first project that we'd promote directly because the other projects that the company has access to were purchased by ACEA and not developed from scratch. They had been originally developed by other players, and then ACEA acquired them, whereas we are working on the actual creation of this project. The group is always very careful in maximizing value and optimally managing all of its assets. It's quite obvious that any business we have will try to maximize in terms of business management. In my view, this doesn't limit any kind of strategic or brand-related project. We may want to review the business allocation of the company in the future. Any assessment about future business opportunities are still true and hold true.
I would like to remind you that, as we said in our business plan, our focus is that Acea's core business is focusing on the regulated business. Now, of course, this other business we are discussing has totally different features. Thanks a lot.
The next question will be asked by Stefano Gamberini of Equita SIM.
Thank you. Good afternoon, everyone. Sabrina, I have a first question on working capital. So in first Q, we have EUR 100,000,000 of working capital. Would you please help me understand why, and what can we expect on a fuller basis in terms of impact? If I'm not mistaken, in the business plan, we're supposed to be neutral. In 2024, what kind of impact can we expect? And so in the Q1, there's already been an increase in payments because of the water situation, I think.
Secondly, I have a question on tariffs. Tariffs for water in particular, what kind of WACC do you use? Is it 3.16 or 3.8%? And as a consequence, what is the average increase that you applied for with local authorities for 2024? So I know that the average for the period is 5.5%. If I understand that right, they're answering in Q4. So what's going to change in Q4? Maybe just the management of net working capital because if I understand you well, as far as net financial position is concerned, there shouldn't be any major change. Then I have a question on waste. There's a slowdown, but the plan includes a big growth of results there. So what should we expect from the waste business in the rest of the year? So EBITDA is 3.5% there. What is the contribution of waste in this?
Are we likely to see big growth as early as 2025, or should we wait till the end of the period of the plan? And then, if I may, I have another question on asset rotation too. So I do understand you can certainly manage possible disposals, but my feeling is that you want to be more active in your management there. So my question is, can we expect anything to happen within this year? Maybe discussions on dealings. I mean, energy sales and minority on waste, I think, are being studied by you. So what are you going to do with your stake in Acque, the assets you have developed in solar? I think this is just a part of your company today, so you can actually dispose of them and sell them to the JV with Equita. So what can we expect in terms of asset rotation?
Thank you. So your first question, Stefano, was the drivers for the growth of the working capital. So working capital, compared to what we budgeted originally, is absolutely in line with our expectations. It's actually a tiny little bit better, but actually, it's pretty much in line with our expectations for Q1. As you rightly said, of course, there's an impact from receivables, which means that we're still applying the old tariff method. Also, there is a reduction of investments we've made compared to the year before, also to improve the impact on financial charges. I'm sure you appreciate it that we actually fall in line with the previous year. And we achieved that result even though there's a 5% decrease of similar dealings for the Q1.
As we said at the business plan presentation conference call, this year, the objective we have in mind is staying at 3.5 times on the NFP to EBITDA ratio. We're slightly below that level today, 3.48. So actually, there's a slight improvement compared to 3.49, which was the performance at the end of the year, but basically, it's the same number all in all. So all of this makes us believe and notice that the trend is absolutely right on track and our targets are achievable. That doesn't mean we will have no working capital absorption at all throughout the year. We will have some. As we said at the beginning, we'll have to keep the net financial position to EBITDA ratio firmly under control, and then we will improve versus the last few years, also thanks to new tariffs. So that was the first question.
As to the second question, the WACC we use is 4.8. So as we said earlier, tariff increases so far are just in line with the ones that have been approved. But for the last quarter, we hope that agreements will be reached. So we are pretty much in line with the budget today. So versus our average tariffs, we are pretty much in line with budgets and expectations. Then you were asking about the waste and the performance of the environment business. So in the first part of the year, of course, we suffer from the fact that we have downtime at the Terni lines. Terni is supposed to go back to being operational at the end of June. But actually, we had already budgeted for this.
So right now, we see no particular challenge in reaching our objectives, in complying with our targets because as far as the energy price is concerned, over that 70% has already been accounted for at values that are quite hopeful. I mean, we are very positive we may be able to recover any possible further decrease that may happen in the rest of the year. Then for the overall business plan, let me remind you all that we'll have big growth because in the last 18 months of the plan, the fourth line of San Vittore will become operational. So we started to build it now. And so there's about EUR 200,000,000 investments that will be deployed between this year, next year, and the beginning of 2026. Then, of course, having four production lines is certainly going to be very helpful and will help us get to our targets.
Well, I'll take your other questions. So as far as the asset rotation issue is concerned, as I said during the business plan presentation, this is, of course, an issue, and it's something which is not actually part of the business plan objectives. So it doesn't have any particular impact or influence on the objectives we've set ourselves. We are actually looking at some opportunities if the right conditions come up and if the right candidates come up on the market. There's a number of assets that may be interesting here. We have mentioned one earlier, which is the commercial business. We're actually looking at some opportunities for growth in other businesses too. Or better, we are looking at the possible optimization in the management of these assets. So it's premature to discuss that now. We are working on some of these things.
And as soon as we'll have a clearer understanding of them, we will be happy to share this information with you. However, I would say that the key message, which I also pointed out when we presented our plan, is that the plan's objectives do not factor in any possible disposal of assets. There are some upside potentials there, and we will assess them as we go if the right conditions appear. So if the right conditions come up on the market, we will look at those possibilities.
Well, thank you very much. Yes, as far as the financial charges are concerned, well, congratulations. It's just a EUR 1 ,000,000 worsening in this kind of scenario, which is a very, very good result. So may I ask you if you have any kind of guidance on the bottom line too?
Well, as far as the bottom line is concerned, it's too early to say. I think we're doing well. And as we already said and promised, we'll keep improving and do everything in our power to improve. However, the budget sees an increase in our profit. However, it's part where we're just at the beginning of the year today. Okay.
We'll discuss it next time. Thank you.
Next question, Francesco Sala of Banca Akros.
Thank you. Good afternoon. I also have a question on water tariffs. So the final settlement on tariffs is about to come. Are your expectations the same you had with the business plan period, or did anything change? Do you have any contingencies on the EBITDA guidance you've confirmed today? Second question is about net working capital. During this quarter, did you adopt different factoring policies than the earlier quarter, or did they change?
And if they did, how did they change? Thank you.
Thanks for your questions. As to our expectations on the final settlement, so far, we are confident that we'll be able to keep that 2% of tariff increase versus the level we have today. I'd like to remind you all that we were very conservative in our business plan. So the gap between the maximum tariff allowed and the level we negotiated in MTI 3, well, we kept that in the MTI 4 too. So we're pretty confident that what we have planned for will be achievable.
As far as net working capital is concerned and the factoring policies, what is important for us today is that since we have reached a time when rates were really high, are really high, we are very, very careful to carefully manage our assets so that whenever we have to dispose of something, we'll dispose of the least expensive parts of our assets. So we're actually working on this versus the end of last year, we stand at -5%. And we decided to do that in order to have an impact on the P&L and at treasury level, which is likely to be as stable as possible versus last year, even though the rates scenario is still showing very high rates and not going down. Thank you.
Next question, Emanuele Oggioni of Kepler Cheuvreux, please.
Good afternoon. Thanks for your presentation. I have a couple of questions.
The first will be on water.
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wide question connected to the recurrent expectations we hear about because pretty much everyone expects the government to nationalize and to intervene on the engineering and industrialization process in the sector, especially this concerns municipal cities in Central and Southern Italy where service is less than optimal. I mean, there are interruptions in water provisions because of lack of investments and so on and so forth. So from that viewpoint, are you working on these developments? Are you lobbying with the other water players? Do you feel that the government is really going to attack this problem sooner or later? And do you think it's likely that these problems are going to be sorted out at some time? So that's my first question. The second is a more technical question on electricity distribution and regulation in particular.
Also, based on the mark-to-market we have currently, how much WACC reduction do you expect for 2024 due to the debt cost component in the formula? And also, what's the impact on the deflator? Not so much for 2025 in this particular case, but for 2024. So if I'm not mistaken, for you two, in energy distribution, a part of the deflator is fixed and another part was estimated. The part which was originally estimated, looking at the recent ESTAT data, has even gotten down to a minus sign. So the deflator would actually overcome any kind of reduction. So could you please elaborate and give us some color on that? Thank you.
I'll take your question on the mark-to-market of water services. 5.6 will be the effective rate. We budgeted 5.7. So we are at maybe 70% of the period we're observing.
So we're not too far from our targets. Then, of course, the deflator has two components, one fixed, one variable. And the variable component is about 1.6. This is what we estimated to be, 1.6%. To give you some kind of sensitivity, a percentage point, a single percentage point may be worth about EUR 3.4 . So our numbers are not too horrible also because we've been very prudent in the construction of our budgets and plans. Now, as far as water scenarios are concerned, Fabrizio will answer.
Yeah, as far as water is concerned, progressively, and also thanks to our continuous campaigning on this, and we're actually raising awareness on this issue. So recently, you may have noticed that the government has strengthened the powers of the extraordinary commissioner for water.
So the objective is that of governing this more and more, strengthened the powers of the extraordinary commissioner for water. So the objective is that of governing this more and more centrally and not scattering management responsibilities all over the place as far as water management is concerned. Now, of course, the situation has been abandoned to itself for so many years that it will take some time to really change it. What I do see is growing awareness, which is the outcome of a lot of work we've been doing at all levels with institutions in communication and so on. Of course, it's a long way to go. However, we are actually looking at the first results. A new regulation is in place, and it's given some openings. So what we see happening today is actually in line with our business plan.
And then, of course, we hope and we do believe that there will be room for further possible upside. So when, how, and to what extent this is going to happen, that will have an impact on our business plan, but it depends on many factors, and we can only act on some of them. Thank you.
Next question, Davide Candela of Intesa Sanpaolo.
Good afternoon from me too, and thanks for your presentation. I have two questions. One is on the supply business. We have noticed you were very strong there in the Q1. So can you give us some ideas of the rest of the year? What's the outlook? Should we expect normalization because of retention policies or a tariff resetting? So can you give us some color on that?
Second question will be, can we have an update with reference to your process simplification plan and cost optimization plan? Can you update us on those plans?
Yes. For the update plan on costs and process simplification, we set ourselves a major target. We need to review 25% during the first year of the plan. So far, the cost transformation and business team is working on several fronts. And obviously, the most significant impacts of these activities will be felt over time. They don't happen overnight. But as far as the cost containment impact is concerned and simplification impact is concerned, as we speak, we feel we will stick to our budgeted forecast. So we are likely to stay with the budget data. We are absolutely in line with our original expectations. So everything's going well. It's proceeding smoothly.
We are engaged in a lot of make-or-buy analysis and the optimization of individual processes, including credit too. So this is actually starting to yield some benefits. We started last year. And so we are actually already looking at the first results. I'm sorry. I was disconnected. So I was saying the Q1 in the supply business was a very strong quarter. So we expect we will keep our budget promises because we can actually foresee that after bidding on the protected market, there's likely to be a more lively free market. And so hopefully, we'll be able to keep the same growth level we posted in the Q1. But as we speak, we still believe we will keep to our budget. Thank you very much.
Questions are over so far. We have received no more questions. So thank you very much.
Thanks a lot for your time and for attending the presentation of our results of the Acea Group as of March 31st. Investor relations will be available to answer all of your questions, if any. Thank you very much.