Good afternoon, ladies and gentlemen, and welcome to Terna's nine months 2024 consolidated results presentation. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would like to hand the conference over to our host speaker today, Mr. Stefano Gamberini, Head of Investor Relations. Please go ahead, sir.
Good afternoon and welcome to Terna's Nine Months 2024 Results Presentation. My name is Stefano Gamberini, and I'm proud to be here today as Terna's new Head of Investor Relations. After 30 years as a financial analyst, I'm very excited about this new challenge. Together with the IR team, I hope to continue and improve the excellent relationship that has been built with the financial community, supporting our company's growth. The call will be hosted by our CFO, Francesco Beccali. Following the presentation, we will have the Q&A session, so we kindly ask you to send any questions you might have to our email address, investor.relations@terna.it. Francesco, the floor is yours.
Thank you, Stefano, and welcome on board.
Thank you.
Good afternoon, everybody. Before starting to analyze the figures, I would like to share with you the main highlights of the period. First, I remind you that at the end of July, the authority published three documents regarding output-based incentive schemes renewal, the output-based update of the allowed WACC and deflator assessment. More in detail, the Resolution 326 of 2024 provides for the start of the new ancillary services market incentive scheme for two periods of three years each, 2025-2027 and 2028-2030. According to the resolution, for each year of the period 2025-2030, Terna will receive 12% of the overall MSD cost reduction. For each year of the period 2025-2027, the baseline will be represented by 2023 actual MSD cost increased by an extra component to take into account the expected changes coming from energy scenario evolution.
Then, as part of the definition of the WACC for the period 2025-2027, in addition to updating market parameters based on predefined rules, the consultation document 342 of 2024 addresses different themes, including the update of the beta parameters and the recognized corporate tax rate. The regulator is also evaluating to confirm the trigger mechanism to adjust the WACC to material changes in market conditions, as done in the period 2022-2024. Finally, with the consultation document 340 of 2024, the authority initiates the process for evaluating possible revisions of the capital cost revaluation criteria for electricity and gas infrastructure services in relation to the use of the deflator. The authority is consulting on the possibility of continuing to use the deflator with corrective measures or replacing the deflator with other inflation indicators.
Moreover, for what concerns the Italian transmission grid, I would like to announce that Terna signed a term sheet with Acea for the acquisition of a portion of the high-voltage grid in Rome and suburban areas. We are going to talk about it more in depth in the next slide. From a financial standpoint, we put a lot of efforts on ensuring a balanced and solid financial structure. In this regard, let me remind you about the agreement signed on October the 24th with the European Investment Bank for a EUR 400 million loan for the renewal of the Italian transmission network. Let's now talk about our sustainability commitment. As already stated in the past, for us, sustainability is not only in what we do, but also in how we operate. This commitment is reflected in our financial structure.
Indeed, besides the ESG credit facilities already publicly disclosed to the stakeholders with the second quarter results and financial statements, in July and October, Terna signed two ESG-linked credit facilities for a total amount of EUR 800 million. The credit lines will have a maturity of five years with financial charges linked to Terna's performance in relation to specific environmental, social, and governance indicators. Finally, regarding our shareholders' remuneration, today's Board of Directors approved the 2024 interim dividend of EUR 0.1192 per share, up by 4% compared to the previous year, in line with the baseline dividend policy communicated to the market. Let me now spend a few words regarding the new deal, moving to the next slide. As mentioned before, Terna signed a term sheet with Acea for the acquisition of a portion of the high-voltage grid in Rome and suburban areas.
This deal is driven by several key factors that are aligned with our long-term goals. By consolidating our high-voltage operations, we can greatly reduce operational complexity, including congestion resolution and the improvement of quality of service. These simplifications allow us to respond more swiftly to challenges and enhance our overall service delivery. Another crucial aspect of this acquisition is the centralization of high-voltage management activities under the control of the transmission system operator. It is worth to underline that this process is aligned to ARERA Resolution 616 of 2023, which introduced an incentive mechanism aimed at promoting the transfer of the high-voltage grid assets from distributors to Terna. The purchase price of EUR 224 million represents a 10% premium on the estimated 2024 calendar run. This is subject to some adjustments, including the 2025 cap expanding.
Moreover, the deal includes the purchase of optical fiber network, part of which, for the portion exceeding the national transmission grid's needs, is commercialized to third parties. The acquisition will simplify the investment decision process and increase the basket of potential projects on high-voltage grid in the Rome area and central Italy. It should also be pointed out that the acquisition of existing assets, as compared to the development of a greenfield project, allows for an immediate recognition of the full RAB, which, together with the expected contribution from optical fiber network commercialization, allows the deal to be EPS accretive from the first year. In conclusion, let me remark that the transaction is fully aligned with the objectives outlined in our 2024-2028 strategic plan, with neutral effects as far as our credit rating is concerned and aim at reinforcing our commitment to growth.
Now, let me give you the usual overview of the Italian electricity market. Turning to the next slide. As you can see from this chart, in the first nine months of 2024, national demand was about 236 terawatt-hours, with an increase of 2.1% versus last year, when national demand was about 231 terawatt-hours. The increase mainly concerns the third quarter of the year. Indeed, as you can appreciate from the graph, also due to the high temperature registered during the summer, national demand in the third quarter was about 84 terawatt-hours, almost 4% more versus the same period of last year, when demand was about 81 terawatt-hours. In the first nine months of 2024, renewable sources covered about 43% of national demand, 6 percentage points higher than last year.
Regarding national net total production, this stood at 199 terawatt-hours, 2% higher than the same period of 2023, with a remarkable increase in hydro production, which grew by 45% compared to the same period of last year. Let me also highlight that in the period, renewable sources covered more than half of the national net total production. The increase versus last year is also due to the contribution of solar production, which grew by 17% compared to the first nine months of 2023. To conclude, let me share with you that in 2024, the operating renewable capacity increased of 5.3 gigawatts. This value is 33% higher compared to the same period of the previous year. Now, let's move to the main figures of the period. In the first nine months of 2024, we registered a double-digit growth in all P&L lines and Capex.
Indeed, group revenues and EBITDA increased by 18% and 22% respectively versus last year, resulting in EUR 400 million and EUR 336 million higher than the first nine months of 2023. We also reported a group net income of EUR 813 million, up by 27% compared to the same period of last year. Group CapEx was about EUR 1.7 billion in the first nine months, with an increase of 19% versus the first nine months of 2023. This confirms, once again, our effort to accelerate investments to fulfill the needs of the Italian energy system and enable the clean transition. To support these accelerations, at the end of September, net debt stood at around EUR 10 billion versus about EUR 10.5 billion at 2023 year-end, as described in the upcoming slides. Now, let's make a deeper analysis of the results turning to the next slide. Let's start with the revenue analysis.
Total revenues in the first nine months of 2024 reached €2,647 million, increasing by 18%, up by €400 million versus last year. Such increase was attributable both to regulated and non-regulated activities, which contributed for €317 million and €83 million respectively. Let's now go into the details of the revenues evolution moving to the next slide. Regulated revenues in the first nine months were €2,222 million, €317 million higher than last year, which means an increase of about 17% compared to the same period of 2023. The increase was mainly driven by the increase in RAB and the update value of RAB. Non-regulated and international revenues reached €426 million, 24% higher than last year.
Non-regulated growth was mainly attributable to the increase in revenues coming from the equipment business related to Tamini, plus EUR 32 million, and to the higher contribution of LT Group's energy services, for a contribution of EUR 37 million. International revenues were set to zero. Given that the requirements of IFRS 5 have been met, the total results for the first nine months of 2024 and 2023 attributable to the South American subsidiaries included in the planned sales of assets initiated at the end of 2021 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 to the operating cost analysis. As you can see from the chart, total operating cost was EUR 755 million, 9.3% higher than last year. Regarding regulated activities, the difference year-on-year is almost flat.
The impact on personnel expenses resulting from the growth in the workforce for the implementation of the group's investment plan was offset by a corresponding increase in capitalized costs. Non-regulated activities were mainly impacted by higher costs for the purchasing of raw materials and services related to the LT Group and Tamini. These increases were driven by higher volume of activities, reflected also in revenue growth. Let me now analyze EBITDA, moving to the next slide. Due to a previously mentioned fact, nine months of 2024 group EBITDA amounts to EUR 1,892 million, 22% higher than the same period of last year. The increase was mainly attributable to regulated activities, which contributed for about EUR 316 million more versus the same period of last year, showing an EBITDA of EUR 1,824 million in the first nine months of 2024.
Also, non-regulated activities contributed to the EBITDA improvement, with a 42% growth versus the first nine months of last year, showing an EBITDA of EUR 68 million. Let's now have a look to the lower part of the P&L, moving to the following slide. D&A amounted to EUR 635 million. The increase versus last year was mainly due to the entry into operation of new assets. As a consequence, EBIT reached EUR 1,257 million, 28% higher versus the first three quarters of 2023. We reported net financial expenses at EUR 105 million. The increase versus last year was mainly attributable to the subscription of new financing and the increase of interest rate, partially mitigated by higher financial income on available liquidity and higher capitalized financial expenses. Taxes stood at EUR 339 million, and our tax rate stood at 29.4%.
As a result, group net income reached EUR 813 million, 26.6% higher versus the same period of last year. Moving to Capex analysis. In the first nine months, total Capex amounted to EUR 1,699 million, 19% higher than the same period of last year, confirming the robust acceleration in line with our institutional role for the country. Indeed, we invested about EUR 1,625 million in regulated activities. Among the main projects of the period, it is worth mentioning the Tyrrhenian Link, the Adriatic Link, Sa.Co.I.3, the modernization of the high-voltage grid in the locations due to the Winter Olympics in 2026, and the investment in stabilization devices for grid security, including synchronous compensators. Among Capex categories, development Capex registered an increase in the contribution on total Capex, representing 61% of the total versus 56% in the first nine months of 2023.
For the remaining categories, asset renewal and efficiency accounted for 29%, while defense Capex stood at 10%. Non-regulated and other Capex stood at €75 million. This includes capitalized financial charges for €52 million and other investments. Regarding net debt and cash flow analysis, net debt at the end of September 2024 was about €10 million, almost €500 million lower than 2023 year-end level, mainly thanks to the positive impact of the hybrid green bond issuance recognized as an equity instrument, partially mitigated by the dividend payment in June. During the period, we generated an operating cash flow of €1,388 million, thanks to which we were able to cover more than 80% of the Capex spending of the period. Let's now make a deeper analysis on our debt profile, moving to page 16.
In line with our cautious and proactive debt management approach aimed at maintaining a low-risk profile and a solid financial structure, at the end of these first nine months of 2024, we registered a fixed floating ratio on gross debt of about 86% and an average duration of about six years. In line with our strategy of combining sustainability and growth to promote the energy transition, as said at the beginning of the presentation in October, Terna signed an agreement for a EUR 400 million loan with the European Investment Bank at very competitive conditions. This is a 22-year loan to support investments for the renewal of the electricity transmission grid in Italy aimed at improving resiliency and reliability.
Moreover, besides ESG credit facilities already publicly disclosed to the stakeholders with the second quarter results and financial statements in July and October, Terna signed two ESG-linked credit facilities for a total amount of EUR 500 million. The lines will have a total term of five years, and will be linked to Terna's performance in relation to specific environmental, social, and governance indicators. Thank you for your attention now. Before moving to the Q&A session, let me share with you some closing remarks. First of all, I would like to underline that we are well on track in the execution of our CapEx plan and accelerating on 2028 plan targets through the term sheet signed for the acquisition of a portion of Rome's high-voltage grid. This represents a solid ground for the future, especially regarding the integration of renewable energy sources into our grid.
By enhancing our infrastructure, we are not only increasing efficiency, but also paving the way for a more sustainable energy future. Moreover, as you appreciated from the presentation, we were able to deliver a very strong set of results for the first nine months of the year, with a double-digit increase in all P&L lines. To conclude, thanks to the increased contribution from the out-of-base incentives related to the current MSB scheme, which will finish at the end of this year, along with internal dispatching costs and related charges for end customers' reduction, we are now able to improve our 2024 guidance. We expect revenues at €3,610 million, almost 2% more compared to the previous guidance, maintaining regulated revenues from the tariff in line with estimates.
We will also improve 2024 EBITDA guidance, now set at EUR 2.5 billion, as well as EPS guidance, which rises to EUR 0.52 per share, 6% higher compared to the previous month. Thank you for your attention. We are now ready for the Q&A session.
Thank you, Francesco. Let's start from the questions about nine-month results. We received many ones about out-of-base incentives. Could you give more details about how many out-of-base incentives have been accounted in nine months 2024?
Sure, Stefano. The out-of-base incentives recognized in nine months 2024 are about EUR 200 million, substantially in line with previous year. These are mostly related to dispatching service markets' efficiency incentives connected to cost saving related to the reduction of the volumes traded on the market, and residually linked to the interzonal incentive schemes connected to the creation of additional transport capacity among Italian pricing zones.
Again, on incentives, could you provide your new expectation on 2024 overall contribution from out-of-base incentives?
Sure. Let me underline once more that the out-of-base incentives for 2024 are mainly related to the mechanism of incentives for dispatching activities ending this year, a scheme which was aimed at rewarding the efficiency of dispatching activities and, as a result, reducing dispatching service market costs. Our expectations reflect the update in the performance estimates for 2024, which will allow to book incentives slightly over €300 million, in line with MSB incentives accounted in the year 2023. In addition to this, for what concerns the incentives for additional interzonal transmission capacity, the expected value in 2024 is approximately €15 million already accounted in September.
Thank you. Last question about this topic. Could you guide on the expected contribution from the recently approved new out-of-base incentive framework on dispatching for next years?
As already stated during past months, in the 2024-2028 strategic plan, we assume about €400 million of cumulated out-of-base incentives in the business plan period, with the front-end loaded distribution. At current stage, we will not provide a precise guidance on the further contribution we could have from new frameworks approving during 2024. Now, regarding OpEx, could you comment about the regulated labor cost trend in nine months '24? Sure. The labor cost in the first three quarters decreased versus the same period of 2023. Despite the increase of the gross personal expenses for the growth of the number of employees, we are more or less 330 full-time equivalents more than the previous year. The labor cost decreased as a result of higher capitalized personal costs compared to the previous year to support CapEx activation.
Thank you.
Regarding financial structure, could you update us on your plans to finance your current Capex plan? What is the current hybrid capacity, and what are the additional levers to manage the financial sustainability?
As already stated during the capital market day and then confirmed by rating agencies, the 2024-2028 Capex plan is fully sustainable under a financial standpoint. As to the levers to manage the creditworthiness of the company, we confirm that we could, if needed, use all the full hybrid capacity of the company that we estimate to be by 2028 up to €4 billion, which includes the €1 billion point 85 already outstanding. Moreover, we could have further flexibility through additional grants that we could use in some assessments.
Going now to recent regulatory updates, could you please give some color on the potential shift from deflator to CPI for the RAB indexation?
Sure, Stefano.
Consider that, as mentioned during the presentation, on July 31st, the authority started the consultation process to evaluate if continuing to use the deflator with corrective measures or replacing the deflator with other inflation indicators to overcome the issue of lower capital revaluation levels compared to inflationary trends and of low stability and predictability of the deflator. The consultation process will conclude at the end of April 2025. With regards to the deflator applied to the 2024 tariff, which was set by the regulator at 5.9%, on October 4th, ISTAT published the value of the fixed investment deflator by also valuing the second quarter of 2024. In this publication, ISTAT made a revision of the all-historical series, which brought back the 2023 variation to a positive value from -0.8%- 1.2%.
In this regard, we do expect the 2024 deflator for tariff exposed value will not differ substantially from the current 5.9%, which was set ex ante.
Good. Could you, cemment comment about WACC expectation for 2025 onwards, please?
The WACC value for the period 2025 to 2027 will be updated by ARERA by year-end. The observation period for the update of the main macroeconomic parameters concluded in September. Current mark-to-market, including the application of the graduality rule set for calculating the allotted cost of debt and assuming any change on risk-free and beta parameters, would lead to a 5.4% WACC. By the end of the year, ARERA will issue the resolution with the final value, including the decision on beta and interest rates.
Okay. Now, we have a question about storage system. Could you provide an update on the Italian MACSE, so-called MACSE framework, please?
Sure.
As you know, to ensure the development of the required storage capacity, Terna has been working on the design of the MACSE, the long-term procurement mechanism dedicated to storage technologies. The MACSE, which has been drafted in compliance with the legislative decree 210 of 2021, has been approved by the Ministry of Environment and Energy Security at the beginning of October. This mechanism will ensure that new storage capacity will be procured progressively over time, and the first auction is expected to be held by the first half of 2025.
Okay. So there are also a few questions about the progress of procurement and authorizations. Could you give us an update on that?
Regarding authorizations, I can say that we are on the right path, and the capital is strong and very solid. All the main HVAC projects are authorized.
For what concerns procurement, we are sensitive to potential shortages and bottlenecks along the relevant supply chains investing in the industry. We manage this risk, setting up an array of actions to handle possible drawbacks in a timely and efficient manner. So, also on the procurement side, we are very 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, of the 2024-2028 Capex plan, more than 80% has been already authorized, and more than 75% is covered by existing procurement contracts. This percentage increased to more than 80% if you include procurement contracts which are under negotiation because the tender is ongoing.
Thank you. We received a few questions about potential Capex update and the main new grid development projects. Could you comment on that?
We are now in the process of shaping the new national development plan that will be presented during the first part of 2025. For this purpose, we could be more precise on potential updates on future Capex needs in the first months of next year.
Thank you. Now, on the guidance increase just presented, could you comment on the drivers behind 2024 target improvement and if it will have an impact also on the future years? Thank you.
Thanks to the strong set of results presented today, as we said during the presentation, the increase of our 2024 guidance is mainly linked to higher than expected contribution of the out-of-base incentive schemes related to a significant reduction in the MSB costs and the greater benefits for the system that we were able to generate.
Let me remind you that the current out-of-base incentive framework will conclude at the end of this year. For this reason, our 2024 performance will not imply any upside in the following years.
Okay. Now, on the dividend policy, will the increase in 2024 guidance affect your dividend policy?
As you may remind, our dividend policy, which ensures constant and predictable growth as well as full visibility, envisages at least 4% annual growth over two periods, taking 2023 as the reference year. Only for 2024, minimum dividend per share will be equal to the higher of the 4% growth versus 2023 and the 75% payout ratio. Let me remind you that any higher dividend in 2024 will not have any impact from 2025 onwards.
Okay. Let's move now on the deal with Acea.
Can you please give some color on the rationale underlying the agreement with Acea for high-voltage grid acquisition you announced today?
Sure. This agreement, as we said in the presentation, reaffirms Terna's key role within the national electricity system, allowing for more efficient planning and operational management of the national transmission grid, especially in Roma, to strengthen service continuity and security. Moreover, the acquisition of these assets will also support a better decision-making process in renewal and development investments for the national transmission grid again in Rome and central Italy, unlocking potential new growth opportunities. This is a transaction which has a very strong industrial rationale. But let me also underline that this deal will be EBITDA accretive starting from year one.
Okay. What is the timing of purchase process, please?
We expect to proceed with the signing by, let's say, January 2025.
The closing is expected to happen around mid-2025.
Okay. How will this deal affect your 2025 EPS?
As we said earlier, this deal is expected to be closed around mid-2025, so the impact will be limited. However, we expect it to be EPS accretive from year one with a contribution of few EUR million starting from the closing date.
Okay. How large is the fiber optic network, and what is the expected revenue contributions?
As we said, part of the network is contracted out to third parties, so we have a guaranteed revenue stream from year one, and we can expand the network capacity further in the future.
Last few questions. What is the level of Capex that you may add to your investment plan thanks to this deal?
Let's say that the network included in this deal will require, in the coming years, the necessary investments for the maintenance and renewal of the assets. In addition, there are further investments we may consider undertaking for the development of the network in order to improve the management of the system, strengthening service security and continuity.
Okay. Do you plan other acquisitions on Italian regulated assets?
As we said during the presentation, this deal is included in the ARERA Resolution 616/2023 perimeter, through which the authority incentivizes distributors to divest certain assets. These assets are formally considered part of the electricity distribution network, but from a technical point of view, they are more functional to the high-voltage transmission system. Having said that, at current stage, we do not have any other potential deal in an advanced stage discussion. However, other smaller transactions are not excluded in the future. Okay.
So thank you very much, Francesco. There are no more questions. So, Francesco, please.
Thanks. Thanks, everybody, and see you next time.
See you.