Hello, and welcome to the Q1 consolidated results conference call. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero, and you will be connected to an operator. I will now hand over to your host, Agostino Scornajenchi, Chief Financial Officer, to begin today's call. Thank you.
Good afternoon, everybody, and welcome to Terna Q1 2022 results presentation. Before starting to analyze the figures, I would like to share with you the main latest achievements. First, let me remind you that on the 24th of March, we presented the update of our 2021-2025 Industrial Plan Driving Energy, that foresees EUR 10 billion of total investments. This includes EUR 9.5 billion of regulated investments aimed at developing, modernizing, and strengthening the national transmission grid, confirming our role in driving the energy transition and enabling an even more complex, sustainable, and innovative electricity system. From a financial standpoint, we continue to enhance our financial structure. In this regard, let me underline that in February, we successfully launched the first green non-convertible perpetual subordinated hybrid bond for a nominal amount of EUR 1 billion.
Regarding our rating profile, I would highlight that in March, Standard & Poor's, Moody's, and Scope Ratings confirmed Terna's long-term rating and BBB+ with a positive outlook, Baa2 with a stable outlook, and A- with a stable outlook, acknowledging the stability of the updated 2021-2025 industrial plan. As already announced, at the end of April, we signed an agreement with CDPQ, a global investment group, for the sale of about 100% of Terna Group's portfolio of power transmission assets in Brazil, Peru, and Uruguay for an equity value of over EUR 265 million. This transaction will allow Terna to focus on domestic core activities and refocus in low-risk markets with an attractive growth potential. The closing of the deal is planned in the H2 of 2022.
After this brief introduction, let me give you the usual overview of the Italian electricity market, moving to the next slide. As you can appreciate from this chart, in the first three months of 2022, national demand was about 80 TWh, with an increase of about 3% versus previous year, when national demand was 78 TWh. As you can see in this chart, in the last 12 months, we registered a full recovery of the national demand, which returned to 2019 levels, recovering the decline related to the COVID-19 pandemic. Moreover, it is important to underline that in the Q1 of 2022, renewable sources covered about 29% of the demand, with a strong increase in wind and solar production.
Concerning national net total production, they stood at 71 terawatt-hours, 6.7 higher than the same period of 2021, mainly thanks to the solid contribution of wind, hydro, and solar production. Renewables cover about 33% of total generation. Now, let's move to the Q1 2022 key numbers at page six. In the Q1 of 2022, group revenues and the EBITDA were up by 5% and 3% respectively versus last year, which means EUR 29 million and EUR 13 million higher than Q1 2021, while group net income was EUR 192 million, 1% higher versus last year. Moreover, group CapEx stood at EUR 293 million, 21% more versus Q1 2021, confirming the robust CapEx acceleration in line with the implementation of our updated industrial plan.
At the end of March 2022, net debt stood at EUR 8.7 billion versus about EUR 10 billion at 2021 year-end. Let me remind you that 2021 results have been restated for international activities held for sale according to IFRS 5 accounting principle. Finally, at the end of April, Terna's AGM approved the total dividend for 2021 of EUR 0.2911 per share, including the interim dividend of EUR 0.0982 per share already paid in November 2021, and the final dividend of EUR 0.1929 per share to be paid in June 2022, all in line with the dividend policy announced in the updated industrial plan. Now, let me make a deeper analysis of Q1 figures, turning to the next slide. I am now at page 8. Let's start with revenues analysis.
Total revenues in the Q1 of 2022 increased by 4.7%, reaching EUR 644 million, up by EUR 29 million versus last year. The growth was mainly attributable to regulated activities, which contributed EUR 25 million, and to the successful integration of LT Renewables, one of the main Italian operators in the maintenance of solar systems, acquired in October 2021. Let's now go into the details of the regulated and non-regulated revenues evolution, moving to the next slide. Regulated revenues reached EUR 562 million, EUR 25 million better than last year. The increase was mainly due to the ongoing investment acceleration made on the grid and output-based incentive effects. Non-regulated and international revenues reached EUR 82 million, 4.3% higher than last year.
Non-regulated growth was mainly attributable to the overall contribution coming from the already mentioned integration of LT Group, while international revenues were set to zero in application of the already mentioned IFRS 5 accounting standard and refer to asset held for sale in Latin America. Now, let's go through operating cost analysis. As you can see in this chart of page 10, total operating costs stood at EUR 183 million, 9.4% higher than last year. Regarding regulated activities, the increase was mainly attributable to the insourcing of new competencies, while non-regulated activities have been impacted by LT Group full integration. Let me now analyze EBITDA, moving to the next slide. Due to the previously mentioned dynamics, Q1 2022 group EBITDA reached EUR 461 million, EUR 30 million better than last year.
This increase was mainly attributable to regulated activities, which contributed for about EUR 15 million versus last year and showing an EBITDA of EUR 448 million in the Q1 of 2022. Let's now have a look at the lower part of the profit and loss, turning to the next slide on page 12. Depreciation and amortization amounted to EUR 168 million. The increase versus last year was mainly due to the impact of new assets becoming operational in the period. As a consequence, EBIT reached EUR 294 million, EUR 8 million higher versus Q1 2021. We reported net financial expenses of EUR 24 million. The increase versus last year was mainly due to the rise in inflation registered in the last months.
Taxes stood at EUR 76 million, EUR 1.5 million lower versus last year, essentially due to non-deductible costs registered in the same period of 2021. As a consequence, tax rates stood at 28.3%. As a result, group net income reached one hundred and ninety-two million, 1% higher versus the same period of last year. Moving to CapEx analysis. In the Q1 of 2022, total CapEx amounted to EUR 293 million, 21% higher than last year, showing a double-digit acceleration to drive the energy transition process and to deal with the ongoing energy crisis. Indeed, we invested about EUR 281 million in regulated activities. Among the main project of the period is worth mentioning the Tyrrhenian Link, the Paternò-Pantano Priolo in eastern Sicily, and the investment in stabilization devices as synchronous compensators.
Among CapEx categories, development CapEx represented 38% of total regulated CapEx. Defensive CapEx stood at 15%, while asset renewal and efficiency was 47%. Non-regulated and other CapEx stood at EUR 13 million. This includes capitalized financial charges and other investment. Regarding net debt and cash flow analysis at page 14, net debt at the end of March 2022 was about EUR 8.7 billion, about EUR 1.3 billion lower than 2021 year-end level, mainly due to the hybrid issuance made in February, that in line with accounting standards, has been accounted as equity. During the period, we generated an operating cash flow of EUR 371 million, thanks to which we were able to more than cover the CapEx spending of the quarter. Let's now make deeper analysis of our debt profile, moving to page 15.
In line with our prudent and proactive debt management approach, at the end of this Q1 , we registered a fixed over floating ratio in gross debt of about 86% and an average duration of about five years. As already mentioned, with the aim of confirming our leadership in the sustainable financial market, in February 2022, we successfully launched the first green hybrid bond from an Italian corporate for a nominal amount of EUR 1 billion. The issuance was very successful in the market with an order book at peak over EUR 4 billion. In the same period, we also signed a bilateral ESG linked term loan for a total amount of EUR 300 million with a term of two years and an interest rate linked to Terna's performance in specific ESG indicators. Thank you for your attention, and we are now ready for the Q&A session.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you will be advised when to ask your question. So once again, that's star one if you would like to ask a question. The first question comes from the line of Harry Wyburd from Bank of America. Please go ahead.
Hi there. Good afternoon, everyone. Just two from me. The first is on the cost of debt going up and inflation. If I remember correctly, I think there's just one bond that you have that's inflation linked. Perhaps you could remind me how big it is, 'cause I'm afraid I can't remember. I think it was quite small. What's the precise inflation linkage of that bond? Is there any other inflationary impact on your interest costs, i.e., like your floating rate debt getting more expensive, or was it just that single inflation linked bond that drove the increase in debt costs? That's the first one.
The second one, so I think the last grid development plan that was published last July, can you just remind us when the next one is gonna be published? Are you able to give any kind of sense as to what you know, the last one I think had about a 20% increase in expenditure in it. I'd be interested if you could give us any kind of flavor of whether we should expect another increase in the next plan. Thank you.
Thank you. Thank you, Harry, for your question. First one, you're right. There is a residual bond expiring in September 2023. The total nominal amount of the bond is EUR 500 million, and this explain most part of the increase of the cost of debt related to the evolution of inflation. Regarding our next development plan, this will not take place in 2022 because it will happen every two years. This is something that we will discuss together starting from beginning of 2023.
Okay. Got it. Sorry, one follow-up on the inflation-linked bond. When it matures in September 2023, would you expect or would you intend to replace that with another inflation-linked bond? Or will you go back to having non-inflation-linked?
I don't think so. As usual, we will evaluate market conditions at the time we will have the need to do something.
Okay. Many thanks.
The next question comes from the line of Stefano Gamberini from Equita. Please go ahead.
Good afternoon, everybody. Three questions from my side. First of all, regarding during the presentation of the business plan, you underlined that you could close a deal in the storage business in the forthcoming months. Could you give us some color about this and if this deal could have some significant impact on your EPS or not? The second, taking into account the current inflation expectations, what could be the RAB deflator that we could expect in 2023 or in 2024, and the upside compared to the trend you have in your business plan? Finally, regarding working capital, I noticed an improvement in the Q1 , while seasonally speaking, usually the Q1 was negative.
Could we expect a positive working capital year-end, despite all the measures from the government to reduce the bill for final customers? Or do you expect a worsening of working capital in forthcoming quarters? Thanks a lot.
Yes. Let me start from the last question. Evolution of working capital is in line with we'd announced in the past. You remember that we suffered a little bit an increase of working capital due to some collateral effects connected with the beginning of the first pandemic cycle in spring 2020, in which we were forced to ask suddenly a relevant amount of ancillary services with a relevant increase of uplift. I already announced at the time that this would have been reabsorbed in a couple of years, and we are there. For the rest, you know, the Q1 of the year is an excellent quarter in terms of cash generation, given that there are no dividend and no tax to be paid.
This explains the improvement of the period, but in any case, we are talking about some seasonality effect, and we will follow on this in the coming quarter. Regarding your second question, we do not have info about the future RAB deflator that the authority would introduce in the future today. The RAB deflator that we expect is in line with inflation rates that we have seen at the moment we have prepared the business plan. That was beginning of this year. Regarding storage capacity is something that is needed for the electricity system in order to cope with the energy transition process. The more renewable you will install in the country, the more storage facility you will need. It is not so important to understand who will build these new facilities. It's important that someone will have to do that.
We are here to provide the maximum support in order to have this infrastructure realize it.
We currently have no questions in the queue. As a reminder, please press star one if you would like to ask a question. The next question comes from the line of Bartek Kubicki from Societe Generale. Please go ahead.
Thank you. Hello, and good afternoon. Two quick questions. If we look at this international transaction, can you give us some indications related to valuations in terms of multiples, P/E implied P/E or implied EV/EBITDA? Secondly, I guess you will start or you have maybe already started your Totex discussions. Can you actually give us some sort of timing, when can we expect first indications how Totex will look like for sort of, consultation papers from the regulator regarding the new regulatory regime? Thank you.
Well, as you know, we have signed an agreement for the disposal of more or less 100% of our Latin America portfolio for total equity value of around EUR 265 million. This will allow us to book a potential capital gain at closing, given that the closing will take place with a different time frame in the coming months with a potential total capital gain of around EUR 60 million. The transaction is fully in line with market multiple for similar transaction of this period. We have also take benefit from a positive FX rate of the latest weeks. Regarding your second question, application of Totex.
The first potential application of Totex is something that probably will take place starting from the next regulatory cycle. You know that something is already happening given that the authority already confirmed its intent and announced already in the past to move from a full input-based methodology, which you are basically paid on the basis of the money that you spend, through a more output-based oriented remuneration policy. This is something that is taking place already today. Given that if you look at the total output-based contribution of the previous business plan, we were talking of around EUR 200 million in five years. Now we are talking about 2 times this amount. That is the update of the business plan that we just presented to the market. Something is already happening.
As said several times, we believe that the authority will start with a sort of progressive introduction of the output-based methodology that for sure will take more and more space, in our remuneration scheme in the coming years.
Okay. Do you think in the next regulatory cycle, the full Totex will be implemented, meaning you will be able to show some Totex outperformance or potentially Totex underperformance if things go wrong, or it's still too early, 2024 is too early for that?
I think the details about the regulatory mechanism will be part of the discussion, a specific consultation between ARERA and operators, that will take place already in the second part of 2022. It's too early to imagine which could be the precise mechanism that the authority will apply.
Okay. Thank you very much.
The next question comes from the line of Roberto Ranieri from Intesa Sanpaolo. Please go ahead.
Yes. Good afternoon, everyone, and thank you for the presentation. I have two questions, please. The first one is a clarification. I didn't catch when you expect the Latin assets disposal to be completed? My second question is on inflation and cost inflation. Did you have any impact, a negative impact on your CapEx for the project that you are executing? Do you expect that this to have any impact on your major projects in the future? Thank you very much.
Well, regarding your first question, we have signed an agreement with CDPQ in the latest days, and we will perform four different closing, given that we are talking about different companies and different assets that we have in Brazil, Peru, and Uruguay. More or less 50% of the deal will be closed already in 2022, somewhere before or immediately after summer 2022. The second part that is connected to the completion of the construction of an infrastructure called Linha Verde I in Brazil, and which we will have to complete the construction, and after, we will close the deal with the counterpart after the completion will take place in a second moment.
Regarding inflation. As you say, we do not have any impact coming from inflation, or maybe we have some cash impact because we have to pay a little bit more, the cost that we buy, but we have more than enough financing flexibility to do that. In the mid long term, inflation will provide us some benefits given that inflated cost will be part of our remunerated RAB and remunerated OpEx. In the long term, we will take an advantage from the increase of inflation. We are not concerned at all for this.
Okay. Thank you very much.
You're welcome.
The next question comes from the line of Stefano Sbisato from Credit Suisse. Please go ahead.
Yes. Hi, good afternoon. Three questions for me, please. The first one on regulation. If I remember correctly, the latest review has introduced the possibility of an update of the allowed return every year based on some trigger mechanism. Do you have any expectation or an estimate of where the allowed return could go in 2023 given how fundamentals have moved in the last five months? The second question is on OpEx evolution. If you can give us some color on the increase in OpEx for the regulated activities. Finally, one clarification on the capital gain from the LatAm asset disposal. Are you planning to distribute any of that capital gain as dividend? Thank you.
Regarding your first question, I think that you refer to the potential triggering mechanism in case of change, massive change in the macroeconomic fundamentals behind WACC, the allowed WACC.
Yeah.
Well, we are not there. We do not expect to be a trigger. We do expect that remuneration will remain even for the green line with the current one. We are still not there. If we will be closer, we will inform the market, of course. OpEx evolution, it's simply a consequence of the implementation of our business plan. Let me remind you that this company was spending only a few years ago something around EUR 700 million -EUR 800 million per year. Now we are two times that amount. This happened without any massive, let me say, increase in our organization. We have not doubled our organization. We have doubled our operational cost.
On the contrary, if you look at the ratio between the asset that we have and the cost, if you make a simple calculation between the total asset and the cost to manage that asset, the marginal impact is lowering, it's not increasing. Regarding capital gain, it is part of our, let me say, I don't wanna say day by day business because this is something that is not happening every day, but we're not going to modify our dividend policy that was already announced in the update of the business plan, is confirmed, and we are not going to change it.
Thank you very much.
The next question comes from the line of Emanuele Oggioni from Kepler Cheuvreux. Please go ahead.
Hi. Good evening, everybody, and thank you for taking my question as well. Sorry, I joined the conference late, so maybe you already answered. My question is basically if you could provide a sensitivity for RAB, for EBITDA, for a 100 basis point increase in deflator for one year. Thank you.
Yes. The sensitivity is the following: Consider that for each variation plus and minus 100 basis points of the deflator, you have a consequent variation in the remunerated asset base of around plus and minus EUR 440 million.
Thank you.
The next question comes from the line of Jose Ruiz from Barclays. Please go ahead.
Yeah, good afternoon. Thanks for taking my question. I just have one. You had a EUR 31 million increase in dispatching revenues. In slide number 22, you are saying that 2022 dispatching revenues are going to be flat versus last year. Should I assume that there was a concentration of revenues in the Q1 , and we will see a more normalized level in the following quarters? Thank you very much.
No, I think that EUR 31 million are related to some output-based incentives that have been accounted in the quarter. You will see in the coming quarter additional revenues coming from this source, because as anticipated before, we do expect an increasing contribution from output-based revenues in the current business plan.
Thank you.
There are no further questions in the queue, so I will hand the call back to your host for some closing remarks.
Well, thank you very much for your time. Let me wish you good afternoon, good evening, and see you on the H1 presentation at the end of July. Thank you.
Thank you for joining today's call. You may now disconnect your lines.