Good afternoon, ladies and gentlemen, and welcome to Terna's first quarter 2024 consolidated results presentation. At this time, all participants are in listen-only mode. Please be advised that today's conference is being recorded. I'd like to hand the conference over to our host speaker today, Mr. Omar Al Bayati, Head of Investor Relations, Corporate Development, and Sustainability. Please go ahead, sir.
Good afternoon, everyone, and welcome to Terna's first quarter 2024 result presentation. The call will be hosted by our CFO, Francesco Beccali. Following the presentation, we'll be having a Q&A session. We kindly ask you to send any questions to investor.relations@terna.it. Please, Francesco, the floor is yours.
Thank you, Omar, and good afternoon, everybody. Before starting to analyze the figures, I'd like to share with you the latest main achievements. First, let me remind you that on March 29th, we presented the Group's 2024-2028 Industrial Plan, which aims to consolidate the company's strategic role in managing the Italian electricity system and, more generally, strengthen the commitment to enable the country's energy transition. To do so, Terna plans to significantly increase its investments over the life of the plan to EUR 16.5 billion, the highest level ever in the group's history, 65% up versus the last industrial plan. We are now focused on the execution of the new plan. In this regard, let me underline that we are well on track for what concerns authorization processes and procurement of the main projects included in our 2024-2028 plan.
Indeed, in January, the Ministry of Environment and Energy Security authorized the realization of the Adriatic Link, the submarine power line that will connect the regions of Marche and Abruzzo. This development project is recognized as strategic for the country by the regulatory authorities, will strengthen energy exchange in central Italy, addressing the security and flexibility needs of the national electrical system and the targets for further growth of renewables. Execution is not only about delivering investments but also about ensuring the financiability of the plan. In this respect, on January 10th, the company successfully launched a fixed-rate single-tranche bond issue for a total amount of EUR 550 million. The proceeds will be allocated to meet the ordinary financial requirements and to fund the needs of the group's industrial plan.
Moreover, in February, Terna signed a financing contract with the European Investment Bank for the last tranche of the EUR 1.9 billion loan for the Tyrrhenian Link project, the submarine electricity cable connecting the Italian mainland with Sicily and Sardinia. In addition, on April 4th, as part of the financial strategy outlined in the new industrial plan, Terna successfully issued a hybrid green perpetual bond with a total nominal amount of EUR 850 million. All these operations, that will be better described in the next sections of the presentation, enhance the solidity of our financial structure, further diversifying the investor base. Terna's leadership in the field of sustainability is once again demonstrated. Indeed, the sustainability plan has been embedded in the industrial plan.
The activities envisaged by the Sustainability Plan include projects and actions confirming Terna's commitment to delivering a Just Transition, a fair, inclusive process that takes into account the potential impacts on all stakeholders, including workers, local communities, and suppliers. Moreover, Terna has been included in the list of international leaders for efforts against climate change, according to CDP's Climate Change Survey. Furthermore, Terna was also included in the list of leading international companies for their suppliers' involvement in the fight against climate change. After this brief introduction, let me give you the usual overview of the Italian electricity market. Turn to the next slide. As you can see from this chart, in the first three months of 2024, national demand was about 78 TWh, with an increase of almost 1% versus last year, when national demand was at about 77 TWh.
In the first quarter of 2024, renewable sources covered about 36% of national demand, 7 percentage points higher than last year. Regarding national net total production, this stood at 61 TWh, 4% lower than the same period of 2023. Let me also say that in this first quarter, renewable sources covered about 46% of the national net total production. The increase versus last year is also due to the contribution of wind and solar production, which grew by 13% and 6% respectively versus first quarter of 2023. Now, let's move to the main figures of the period. In the first three months of 2024, we registered a strong growth in all P&L lines and CapEx. Indeed, group revenues and EBITDA were up by 20% and 26% respectively versus last year, which means EUR 146 million and EUR 128 million higher than the first three months of 2023.
We also reported a group net income at EUR 268 million, with an increase of 34% versus the same period of last year. Group capital was EUR 483 million, recording a double-digit increase of 53% versus the first quarter of last year. Let me underline that this is a record-breaking level of capital for the first three months of the year. This confirms, once again, our solid capital acceleration to serve the system needs and enable the green transition in line with our recently presented industrial plan. To support this acceleration, at the end of March 2024, net debt stood at EUR 10.6 billion versus about EUR 10.5 billion at 2023 year-end. Now, let me give you a deeper analysis of the figures of the period. Moving to slide 8. Let's start with revenue analysis.
Total revenues in the first three months of the year increased by 20.4%, reaching EUR 858 million, up by EUR 146 million versus last year. The growth was attributable both to regulated and non-regulated activities, which contributed for EUR 116 million and EUR 29 million respectively. Let's now go into the details of the revenue evolutions. Moving to the next slide. Regulated revenues reached EUR 730 million, EUR 116 million better than last year, which means about 19% more than the same period of last year. The increase was mainly driven by the increase in RAB and by the updated value of WACC remuneration and the higher output-based incentives effect related to the higher benefits generated for the system. Non-regulated and international revenues reached EUR 180 million and EUR 28 million, 29.8% higher than last year.
Non-regulated growth was mainly attributable to the increase in revenues coming from Tamini and to the higher contribution of LT Group's energy services. International revenues were set to zero. Given that the requirements of IFRS 5 have been met, the overall results of 2023 and 2022 attributable to the South American subsidiaries included in the planned sale of assets have been classified in the item profit or loss for the period from assets held for sale in the group's reclassified income statement. Now, let's go through operating cost analysis. As you can see in this chart, total operating cost stood at EUR 230 million, 8.3% higher than last year.
Regarding regulated activities, the decrease was mainly attributable to the increased capitalization of labor costs after taking into account an increase in the average headcount compared to the first quarter of 2023, while non-regulated activities were impacted mainly by higher costs for the purchase of raw materials and services related to Tamini and LT Group. Let me now move to analyze EBITDA. Moving to the next slide. Due to the previously mentioned effect, first quarter 2024 group EBITDA reached EUR 628 million, 25.6% higher than the same period of last year. The increase was mainly attributable to regulated activities, which contributed for about EUR 124 million more versus the first three months of last year, showing an EBITDA of EUR 610 million in the first quarter of 2024.
Let me underline how this growth in EBITDA attributable to regulated activities is not only linked to an increase in regulated revenues but also to a remarkable reduction of operating expenses as a demonstration of our ability to maintain cost structure under control. Let's now have a look to the lower part of the P&L. Turning to slide 12. D&A amounted to EUR 209 million. The increase versus last year was mainly due to the full recognition of depreciation relating to the entry into operation of new assets. As a consequence, EBIT reached EUR 419 million, 33.6% higher versus the first quarter of 2023. We reported net financial expenses at EUR 37 million.
The increase versus last year is mainly attributable to the subscription of new financings and the increase of interest rates partially mitigated by the lower level of inflation related to the inflation-linked bond expired in September 2023 and by the higher financial income on available liquidity. Taxes stood at EUR 112 million, EUR 30 million higher versus last year, essentially due to increased profit. Our tax rate stood at 29.2%. As a result, group net income reached EUR 268 million, 34% higher versus the same period of last year. Moving to capital analysis. In the first three months of 2024, total capital amounted to EUR 483 million, 53% higher than last year, confirming the robust acceleration in line with our institutional role for the country. Let me underline that this is a record-breaking level of capital for the first three months of the year.
Indeed, we invested about EUR 462 million in regulated activities. Among the main projects of the period, it is worth mentioning the Tyrrhenian Link, the Adriatic Link, the Colunga-Calenzano connection, the modernization of the high-voltage grid in the locations due to the Winter Olympics in 2026, and the investments in stabilization devices for grid security, including synchronous compensators. Among capital categories, development capital represented 64% of the total regulated capital. Defense capital stood at 10%, while asset renewal and efficiency was at 26%. Non-regulated and other capitals stood instead at EUR 21 million. This includes capitalized financial charge and other investments. Regarding net debt and cash flow analysis, net debt at the end of March 2024 was about EUR 10.6 billion, around EUR 93 million higher than 2023 year-end level, mainly as a consequence of the capital acceleration made on the national grid.
During the period, we generated an operating cash flow of EUR 461 million, thanks to which we were able to cover most of the capital spending of the period. Let's now make a deeper analysis of our debt profile. Moving to page 15. In line with our cautious and proactive debt management approach and at maintaining a solid financial structure at the end of this first three months of 2024, we registered a fixed floating ratio on gross debt of about 89% and an average duration of about six years. As already mentioned, since the beginning of the year, Terna successfully launched two bonds issued. In January, the company issued a fixed rate, single tranche bond issue for a total amount of EUR 850 million.
This issuance, a part of the EUR 9 billion Euro Medium Term Note Programme, received a very favorable market response, with demand outstripping supply by almost three times the offered amount. The bond, issued with a spread of 100 basis points over the mid-swaps, has a duration of 7 years, and will pay a coupon of 3.5%. In April, Terna successfully launched an issue of a perpetual green hybrid bond with a total nominal amount of EUR 850 million. Also, this issue received a great market response with a maximum demand of over EUR 3 billion, outstripping supply by approximately four times the offered amount. The bond is non-callable for 6 years and was issued with a spread of 214 basis points over the mid-swap, with a subordination premium of 130 basis points, one of the tightest for this type of instruments since the end of 2021.
The issue will pay an annual coupon of 4.75% until the first reset date scheduled on April 11th, 2030, and will have an effective rate equal to 4.8%. With regard to bank debt, in February, the European Investment Bank and Terna signed the contract for the final tranche of the EUR 1.9 billion financing of the Tyrrhenian Link. This contract establishes a final tranche of EUR 500 million in addition to the previous finance contract signed on November 8th, 2022, and March 30th, 2023, for the construction and commissioning of the east and west sections of the project. Let me remind you that with terms of around 22 years from each drawdown, the loans are of long maturity and more competitive cost than those generally available on the market. This makes them align with Terna's policy to optimize its financial structure.
Moreover, in April, Terna also increased to EUR 2.255 billion the total amount of the ESG-linked Revolving Credit Facility signed on May 12, 2023, signing an amendment and restatement agreement. All other terms and conditions of the credit line remain unchanged. Before moving to Q&A session, let me underline that with the strong set of results just presented for the first quarter, we can fully confirm our guidance for 2024. Thank you for your attention. We're now ready for the Q&A session.
Thank you, Francesco. We received several questions. Let's start from the first one. Please, Cristiano.
Okay. Thank you, Omar. Let's start for the first one. We received several questions regarding the amount of output-based incentives accounted in the first quarter 2024. Please, Francesco, can you comment on that?
Sure. As to the output-based incentives recognized in the first quarter of 2024, the figure is about EUR 60 million relating to dispatching services market's efficiency incentives connected to the cost saving related to the reduction of the volumes traded on the market.
Thank you. And again, on output-based incentives, what are the assumptions for 2024 and for the plan period?
The strategic plan assumes about EUR 400 million cumulated during the time horizon of the plan with a front-end loaded distribution.
Okay. Thank you. Maybe last question regarding output-based incentives. Can you comment about when there could be more visibility in relation to the potential ancillary service market incentive scheme renewal?
Well, given the high reduction of the ancillary services market cost over the first two years of the incentive schemes, the Italian Regulatory Authority is assessing the potential extension of the scheme for the coming years. Anyway, any decision on the possible scheme renewal is expected by the end of the year.
Thank you very much. Always being in the regulatory environment, we are switching to another argument because we received few questions about the potential reassessment of the deflator for 2024 tariff. Can you please give some color on this point?
Sure. According to the resolution 615 of 2023, the deflator applied to the 2024 tariff is equal to 5.9%. And it is the cumulative result of the deflator of the last three quarters of the year 2022, not included in the 2023 tariff, equal to 4.2% and the variation in the 2023 fixed income investment deflator with an expected estimation equal to 1.6%. This value will be - and let me stress this point - reassessed by the regulator in 2025 with ex post data. Since the deflator historical series published by ISTAT will be subject to other quarterly revisions until ARERA will take the final value in the first month of 2025. So it is now too early to make projections on 2024 deflator reassessment.
Okay. Thank you. Still about regulation, maybe can you comment about the WACC assumption from 2025 onwards?
Sure. Our estimate of the WACC from 2025 onwards stands currently at 5.5%, which is the same level that we share with the market during our business plan presentation. It is based on the shift from 6% - 33% of the weight of the cost of debt of the previous regulatory period, which is set equal to 2.4%. The latest available data, the mark-to-market of the values recorded from February 2024, of all the parameters that have to be updated for the calculation of the cost of equity. Please note that our assumptions related to regulatory WACC are made consistent with those related to the cost of debt, which provide a kind of partial natural edge for the company.
For what concerns the fiscal parameters, the values for the second period, the one which goes from 2025 to 2027, will be determined based on an analysis of the relevant tax legislation and the actual level of tax incidence observed in 2022-2023. Finally, with reference to Beta Assets, a revision of the methodological criteria of calculation is planned during 2024 for all regulated electricity and gas infrastructure services.
Thank you very much, Francesco. There are also some questions we received about ROSS framework. Could you please comment about the ROSS system regulatory updates?
Well, in the ROSS approach, we see an opportunity to create further value for the electricity system and shareholders. It is consistent with the path already undertaken towards an output-based approach. At the end of last year, the regulator approved the ROSS regulation integrated text containing ROSS general principles and criteria for setting the allowed cost value for the period, which goes from 2024 to 2031. ARERA confirmed the gradual approach for implementing ROSS regulation, foreseeing the first phase, so-called ROSS base, starting in 2024. The main change introduced by ARERA in the ROSS base framework concerns the application of the capitalization rate to split the overall expenditures between slow and fast money components as a measure to support the finance ability of investment.
For the development of the ROSS integrale model itself, which is going to be applied in 2026, ARERA has defined a two-step approach: a framework resolution concerning the general criteria and a second resolution regarding specific sectoral measures aimed at defining methods and possible experimental applications of the ROSS integrale model. The resolution of the ROSS integrale will take place through a process of dialogue between ARERA and operators. During this process, ARERA will publish consultation documents in order to share and discuss objectives and tools underlying the new framework with the regulated entities.
Okay. Thank you, Francesco. Now, let's move to the debt profile. Some questions are regarding hybrids. Specifically, some people are asking if do you plan to issue any other hybrid, and what is the maximum potential capacity for Terna to issue this?
Well, following the recent issues that we have just mentioned during the presentation of the first quarter results, our funding strategy moving forward remains focused on optimizing from time to time the hybrid capital portion within our capital structure. The group will continue to monitor the market for potential opportunities and will return to such markets in the future as needed to ensure the protection of our credit profile and to capitalize on any suitable opportunities that may materialize. After the EUR 850 million recently issued, we do have remaining capacity for further hybrid issuances of about EUR 2 billion within the Industrial Plan horizon to be exploited if needed and if suitable opportunities will materialize.
Perfect. Thank you very much, Francesco. We also received a question regarding the expected net debt evolution following the last hybrid issues that you mentioned. Can you please comment on this?
Well, as you very well know, we do not provide any guidance on net debt. Net debt will reflect the guidance provided on CapEx and EPS and the level of working capital at the end of 2024. However, let me remind that hybrid bonds are accounted as equity under IFRS given the perpetual nature of the securities and given also the ability to defer coupons at Terna's discretion. So our hybrid issuances will not be accounted in our net debt, and the coupon payments will not be recorded as financial charges in the payment statement.
Thank you very much. Now, we switch to the procurement authorization. Since we received a few questions about the procurement authorization status, can you give us an update on this?
Well, regarding authorization, I can say that we are on the right path, and the CapEx plan is strong, solid, and safe. The main HVDC projects are authorized, and Italian-Tunisia connection is about to be authorized. For what concerns instead procurement, we are sensitive, obviously, to potential shortage and bottlenecks along the relevant supply chains investing in the industry. Nevertheless, we manage this risk setting up an array of actions to handle possible drawbacks in a timely and efficient manner. So also on procurement side, we are well on track given that we have already locked in almost all the procurement needs till the end of 2024, also thanks to group contribution. Indeed, as to the strategic plan is concerned, about 80% has been already procured, and about 70% is covered by existing procurement contracts.
Thank you. Now, a very popular question. Is there enough time on 2024 guidance?
The only answer that I can provide you with is that as stated during the presentation, thanks to the strong set of results just presented for the first quarter, we are able to fully confirm our guidance for 2024.
Thank you very much again. Finally, we received some questions regarding electricity trends both regarding supply and demand side. We summarize this question as follows. In case of slowdown in renewables development or in case of new trends on electricity demand such as data centers, for example, what are the impacts on our CapEx plan?
Well, on this aspect, let me remind the key objectives that Terna needs to aim at and continuously improve to fulfill its TSO role . First of all, we need to guarantee energy continuity in the country, ensuring service quality and continuity of supply in the energy system in a fast-moving scenario. From a traditional system with centralized generation facilities and one-way flows, we are quickly moving over to a complex, integrated, and much less predictable system characterized by multidirectional flows among a large number of players. Then, we need to enhance the resilience of the grid to withstand potential stresses, which is paramount for energy continuity. In addition, finally, we need to ensure the security of the electricity grid to address new challenges coming from the transition towards a more complex energy system.
Our CapEx plan is driven by all these increasing needs of the system, and it is aimed to manage and anticipate any foreseeable trend that can impact the electricity system.
Thanks, Francesco. There are no more questions. Yeah, quite a number of questions. So thanks, everyone, for joining the call, and please consider IR department at your disposal for any follow-up.
Thank you very much.
Thank you. Bye.