Good afternoon, everybody, and welcome to Perna First twenty twenty one Quarterly Presentation. Let me start, as usual, with an overview of the Italian electricity market. As you can see in this chart, in the first three months of 2021, national demand was about 79 terawatt hour, with an increase of 2.2% versus previous year, when national demand was 77 terawatt hour. Let me highlight that in the month of March, demand in Italy returned to 2019 levels, showing a relevant increase of 11.8% compared to March 2020, among that, as you remember, was heavily impacted by COVID-nineteen. Moreover, it is important to underline that in the 2021, renewable sources covered about 34% of the demand and 40% of national net total production compared to the 38% registered in 2020.
Concerning national net total production, this stood at 67 terawatt hours with a strong increase of renewables generation, which grew by 6.5% versus 2020, while nonrenewable generation decreased by about 2%, confirming the consolidation of the ongoing decarbonization process. Now, let me move to the first quarter twenty twenty one key numbers of Page five. In the 2021, group revenues and EBITDA were up by 105% respectively versus last year, which means 54,000,000 and $19,000,000 Moreover, we reported a group net income of $190,000,000 $4,000,000 higher versus last year, while group CapEx stood at $242,000,000 11% more versus the first quarter twenty twenty, confirming the P and L growth and the robust CapEx acceleration continued also in this 2021 and fully in line with the implementation of our industrial plan. To support this acceleration driven by system names, our net debt stood at €9,300,000,000 versus about 9,200,000,000.0 at 2020 year end. Finally, let me remind you that in June, we will pay the 2020 final dividend of EUR 17.86 per share.
The 2020 interim dividend of EUR 9.09 per share was already paid in November. Sorry for the interruption. I understand that we lost the line at the beginning So, I will kindly ask you to let me restart from the same page. So again, Page eight, first quarter twenty twenty one results.
Regulated revenues reached $537,000,000 $20,000,000 better than last year. The increase was mainly due to the investment acceleration pursued in the recent years. Non regulated and international revenues reached $85,000,000 67.2% higher than last year. Non regulated growth was mainly attributable to the overall contribution coming from the already mentioned of group cables and to the increase in revenues related to the connectivity business, while Interventional revenues were almost stable versus last year. Now, let's go through operating cost analysis.
As you can see in the chart on Page nine, total operating cost stood at $168000000.26.2 percent higher than last year. The increase was mainly attributable to Blue Cable's consolidation. Regulated operational expenses increased by $5,000,000 mainly as a consequence of one off items. Net of those nonrecurring adjustments, operating expenses remained stable despite the massive increase of the asset base. Let me now analyze EBITDA moving to the next slide.
Due to all the previously mentioned dynamics, first quarter twenty twenty one group EBITDA reached $454,000,000 $19,000,000 better than last year. The increase was mainly attributable to regulated activities, which contributed for about $15,000,000 versus last year. Let's now have a look to the lower part of the profit and losses turning to the next slide at Page 11. Depreciation and amortization amounted to $163,000,000 The increase versus last year was mainly due to the impact of new assets becoming operational in the period. As a consequence, EBIT reached $291,000,000 $9,000,000 higher versus first quarter twenty twenty.
We reported net financial expenses of $22,000,000 in line with our expectations. Taxes stood at $78,000,000.2000000 dollars higher versus last year, essentially due to a higher pretax result registered in the period. As a consequence, tax rate stood at 29% in line with the same period of 2020. As a result, group net income reached $190,000,000.4000000 dollars higher versus the same period of last year despite higher depreciation and amortization, many thanks to the business acceleration we have mentioned before. In light of those results, we are able to confirm all the provider targets for the year 2021.
Moving to CapEx analysis. In the first quarter of twenty twenty one, total CapEx amounted to $242,000,000 11% higher than last year, showing the double digit acceleration to drive the ongoing energy transition process and to contribute to the Italian economic recovery. Indeed, we invested about $227,000,000 in regulated activities. Among the main projects of the period, it is worth mentioning the realization of new lines as for example, the Paterno Pantano Briolo in Eastern Sicily or the Italy France interconnection and the investment in stabilization devices and synchronous compensators that will allow the enhancing of our grid stability. Non regulated and other CapEx stood at $15,000,000 This includes capitalized financial charges and other investments.
Regarding the net debt and cash flow analysis, let me move to Page 13. Net debt at the March 2021 was 9,321 million dollars $148,000,000 higher than twenty twenty year end levels, mainly as a consequence of the CapEx acceleration made on the National Grid. In many case, we generated an operating cash flow of $323,000,000 thanks to which we were able to more than cover the CapEx spending of the period. Let's now make a deeper analysis of our debt profile with the last slide on Page 14. As you know, PERMA follows a prudent and proactive debt management approach aimed at keeping a solid and diversified financial structure.
Indeed, at the end of the first quarter, we registered fixed over floating rate and gross debt of about 81% and an average creation of about five years. In line with our strategy, which plays sustainability as the driving force for value creation, Termina aims to confirm its leadership in the sustainable financial market. Indeed, starting from January 2021, TERMAC becomes the first Italian electric utility to join the NASA Sustainable Bond Network. Moreover, let me also highlight that from February 2020, TERMAC is also part of the CFO Task Force for the SDGs, an initiative launched by the United Nations Global Compact for the development of sustainable finance. In particular, the task force aims through the implementation of principles and guidelines that align in corporate finance and investment with the sustainable development goals promoted by the United Nations.
Finally, TERNA is also present in the corporate forum of sustainable finance, the network of European companies committed to developing sustainable finance as a tool to promote a more sustainable and responsible society. We thank you for your attention. We are now ready to open our Q and A session. Thank you.
So our first question comes from the line of Harry Wimber from Bank of America. Please go ahead with your question.
Hi, Brian. I've got two questions. I apologize because actually neither of them are specifically on the results. But hopefully, they'll be interesting and relevant nonetheless. The first one's on inflation given, obviously, that was dominating the news out of The U.
S. Today. Just wondered if could explore your exposure to inflation a little bit. I guess you're one of the few remaining pure play inflation exposed companies in sort of infrastructure in Europe. So I just wanted to understand from
you if maybe you could give us a
bit of color on where you see the sensitivity in the plan. So I'm not just talking about sort of a single year, the plan period if inflation sort of outturns higher than what you assumed. So if I remember correctly, think you're only assuming about 1% inflation in the plan. So what could the upside be, say, if inflation were 100 bps or so higher than that on your targets? And then also, just so I can understand correctly, so if your input costs increase, whether it's cost of raw materials and components from suppliers and stuff, presumably, you pass those all through.
So actually, inflation higher inflation could actually result in sort of increases in your CapEx, which goes straight into the ramp as well. So if you could just sort of confirm that understanding. So that's the first question. And the second one, this is slightly left field, it's been a very important topic, I know, for a lot of investors. You were briefly earmarked to be included in the S and P Global Clean Energy Index earlier in the year.
But actually, when they did the rebalance in April, you you weren't included. But it's a bit of a cliffhanger because, I believe S and P, have said they're gonna open a consultation on whether to include smart grids in the next rebalance, which I believe would be in or at least the next constituent rebalance should be in October. So the question is, have you had any dialogue with S and P on potentially potential inclusion in that? Because I think it'd be really interesting if we get any color on what you spoke into them. Thank you.
Okay. So let me start from the second one. We are not pricing anything in that index, you should ask directly to some of the groups for this. Regarding the first question you mentioned, of course, we have seen this relevant information coming from The US today with the update of our inflation rates, of course, is pretty interesting for us. What is important to remember is that in the midterm, all the regulated activities and specifically, term related activities will be positively impacted by the increase in inflation and the deflation connected to the inflation.
You'll remember that each year, both the RAB, the regulated asset base, the allowed depreciation and allowed OpEx are revaluated by these indices. So first of all, what will happen to our O and M cost? If we will have an inflation process, of course, O and M cost will be impacted by also the level of recognized OpEx will be immediately impacted as well. So I do not see any relevant changes in our marginality. What could change is what we will see on the top line because consider that for each valuation of 1% on the expected inflation, the impact on regulated revenues is about just a little bit lower than €20,000,000 €90,000,000 to be precise.
And the same impact on our regulated asset base is in the region of €130,000,000 Consider that in the Industrial Plan twenty twenty one-twenty twenty five, we have assumed a rough inflator at slightly above 1%. It was 1.1%, if I'm not wrong, on average during the planned period. So we consider this more as an opportunity than as a risk.
That's very useful. Thank you.
Next comes from the line of Javier Suarez from Mediobanca. Please go ahead.
Hi, good afternoon and thank you for the presentation. Three questions on my side as well. The first one is one of context and then the second and the third are of detail. The question on the context is if you can help us to understand which has been the participation of TERNA in the writing of proposal by the Italian government of the recovery plan and which could be the implication of that plan and the European funding for a company like yours? That would be the first question.
Then the second question is on the increase that we have seen on the underlying cost for the company of €5,000,000 on the regulated activities. I think that you mentioned that during the presentation that this is a one off this is due to a one off impact. Can you elaborate on that and explain to what that one off impact is related to? And the third question is on the working capital dynamics that you have seen during the first quarter. If you can elaborate also on them and what we are expect you are expecting by the year end.
Many thanks.
Louis, can you hear me?
Yes, we can hear you. Yes.
Okay, sorry. Let me start from the third question. Sorry, we were on mute. Let me restart on this. On working capital, of course, we still have some impact in our working capital connected with what happened last year.
You remember just one year ago, in the middle of the pandemic, it was April and May, we have seen massive reduction of the national demand. And as a consequence of that, a massive increase of the electricity generated by renewables. This was a very good thing because we covered a lot of our needs with renewables. The problem is that this has some implication in terms of stability of the grid. So we were obliged to purchase some stabilization services from for a new unit from balancing services from thermal generation plant, and we are obliged to pay that cash.
The tariff structure implies that the recovery of this cash out will take something like twelve, eleven months. So we expect to reabsorb this impact by more or less the second and the third quarter twenty twenty one. Relating to the one off evolution of our revenues with respect to first quarter twenty twenty, consider that we are only talking about the different accounting methodology on quality of service revenues and cost, respect to what we did in last year, nothing relevant and nothing that we'll continue in the future. Regarding the first question, this is really an open one question. Of course, we are part of the discussion about the recovery plan and the recovery of resilience plan.
It is a consequence of the damages created by the pandemic to the international economy. In this context, the European Council created this fund to develop on different assets, including digitization, innovation, and social improvement. Regarding Italy, the fund foresees something slightly lower than €200,000,000 €191,000,000 between 2021 and 2026. On top of that, there are other €13,000,000 related to the REACT European Union program, which foresees also shorter time horizon of spend in 2021 and 2022. So the total amount is slightly lower than €300,000,000.
I think that here, the key question is the way the government, institution, and companies, including Cerner, will be able to spend this money. Of course, an element that will become key is the authorization process. We are already there. Independently from the size of the recovery plan, are already there with a massive amount of investment related with evolution of the national grid. As you remember, we have presented a business plan with more than €9,000,000,000 in the five year horizon.
And as you probably will see in the coming weeks, we have also confirmed this amount with the ten year development plan that has been approved today by the vote of the electorate. I cannot mention figures, but, for sure you will not see a reduction there. So here the key question is how institution, how the political organization, how public communities will be able to implement this plan, giving a list of authorization of fast track projects in order to realize this investment in a really in a very ambitious timeframe because most of the investment that needs to be completed by 2026, that is five years starting by today. So it's two times the average speed that we've seen in the recent years in Italy. Thank you.
Our next question comes from the line of Eneveco Bartoli from Stifel. Please go ahead.
Hi, good evening and thanks for taking my questions. The first question is relating to the Tyranian link. The press reported that you started discussion with local authorities in Sardinia. So if you can update us on the status of the discussions and when you expect that the authorization process will be moved to the central government level? The second question is related to the increase in revenues in the regulated part of the business.
If you can provide us the amount of output based incentives incentives that were included in the first quarter, maybe compared to the first quarter last year and the amount that you expect to cover in the rest of the quarters. And the third one is an update, if you can, on the cost of debt that you had in the first quarter. Thank you.
Okay. Let me start from the output based incentives. The amount of the output based incentives included in the first quarter twenty twenty one is zero and nothing relevant is expected for the rest of the year. I confirm the guidance provided in the business plan, something in the region of €200,000,000 for the period twenty twenty one-twenty twenty five. Second question first question, sorry, was on the Perennial Yield.
Okay. Let me remind you that the total investment cost for Perennial Yield is confirmed at €3,700,000,000 of which 1,800,000,000.0 included in the twenty twenty one-twenty twenty five horizon. According to the last opinion of the Italian regulator, the new perennial link will be planned in the next National Development Plan 2021 with two single separated bipolar links, the East Link and the West Link. What is happening now is that the public consultation with the region involved by the new interconnection is ongoing. The authorization procedure will be launched and are expected to be completed within the coming two years.
The expected commissioning date is the same we have already communicated six months ago, is 2025. This interconnection will be key in order to ensure stability and security of network and markets on integration integration of additional energy renewable for Sardinia, but not only for Sardinia, but specifically for Sardinia, give adequacy services stability of the grid in the context of the harmonization of the island that today, as you know better than me, is strictly linked with coal generation that, of course, need to be the balance in line with the guidelines communicated by the Italian and the EU government in the recent years. Regarding the cost of debt, nothing to add to not actually respect what we already said at year end 2020, we are still confirming the 1.3 average cost of debt that we have communicated for the financial plan horizon. Thank you.
Our next question comes from the line of Stefano Gambellini from Equita. Please go ahead with your question.
Good afternoon. Few questions also from my side. Just an update on the talks with the regulator regarding the update of the regulation on the WACC. If you can share with us something on top of the possible disclosure of the first consultation paper. Last time you still expected no severe cut in returns.
I don't know if this guidance or this expectation could be confirmed. The second view, confirm that all the projects in your 2021, 2025, that are now confirmed also the total investments. In the case of some delays related to the Iranian Link, which is a very complex program, could you confirm that the additional €800.900000000 CapEx that you disclosed last November are already in place and are going ahead to offset and postpone on this project. And the final, if you have adjustment regarding the authorization process that is going ahead for all renewable in order to accelerate the installment of renewable is going ahead. Last time you said that the requests are growing a lot, but on the other side, everything is stopped due to authorization process.
Have you seen some steps ahead in the last three months?
Okay. Well, regarding the Wattachu review, the process for this review started at October 2020 with the opening of the consultation process and also the observation period that will last until this October 2021. So we expect to have some additional detail, let me say, immediately before and immediately after the summer break. What we have seen and what we see today, if you ask for a comment, what we see today, what we also have commented already during this presentation with what happened today with inflation expectation in The U. S.
That for sure we are experiencing a unique period that is a consequence of the COVID-nineteen crisis. We expect that the situation could be appropriately taken in account. You know, the the the track record of the regulator on this extent is excellent. Over the years, they have always decided with a balanced and careful approach and the evolution of the reference context. So we have no doubt that, as usual, the discussion will be proactive.
But again, nothing to have now. We will come back on this topic in the coming months. Last question sorry, second question was related to the level of investment. Yes, we confirm the guidance. What I can say here is that first quarter twenty twenty one was an excellent quarter, more than €200,000,000 of investment completed.
We have 1,400,000,000.0 to be delivered, as you know, as the guidance provided for 2021. We have stepped up from there, but it was a good beginning, better than 2020. And 2020 was a good beginning. So my position is the following, including also the comments you required on the perennial link. We are in line with our expectation.
We are fully committed to respect the guidelines. We have some flexibility. It's not only a declaration. It's something that we have demonstrated last year when in a particular framework we were able to reschedule a lot of projects. But at the end of the year, we are able to deliver the same size of the announced investment, we are in the same situation.
We are not concerned specifically for the company and link. We know that there is an important amount related to that. But consider that we have already demonstrated we have enough flexibility to reach in any case targets that we have committed. Third question thank you. Third question related to renewal development in Italy and possible solution.
Again, yes, the key element of the discussion is authorization, simplification and acceleration of permitting procedure for the different plans. We have a clear view about the renewable option mechanism, the remuneration scheme. It is something that, of course, is not in our hand, but it's something that we are clearly supporting with the authority, with the government, with the institution because this will be a key element factor for the decarbonization target communicated by the government, not only the Italian government, of course, but also the European Union target defined in the recent years.
Our next question comes from the line of James Brand from Deutsche Bank. Please go ahead.
Hello. Good afternoon. I was wondering, lots of people are focusing at the moment on the taxonomy, rules, and, I would imagine that most of Turner's activities should be compliant. But sometimes there are some unusual quirks around how the rules are working, like, for instance, energy supply not being considered to be compliant with the rules. So I was wondering whether you could comment on your understanding of which of your activities and the proportion that's going to be compliant with the laws.
Thank you.
Well, you know that, two weeks ago, at the April, the European Commission published the the new taxonomy regulation delegated act on climate change mitigation and adaptation. This is the option. Document confirms, let me say, the eligibility of electricity transmission with to the taxonomy as one of the main enabling activities that substantially contribute to the climate change mitigation and adaptation. I think that this is an important participation and also is the confirmation of what we have announced in the presentation we made on the twenty twenty one-twenty twenty five Industrial Plan in November. At that time, so before this transition, we already announced that more or less 95% of our regulated investment could have been considered eligible according to the criteria that at the time, the European Union was in the process of, definition that now has been defined.
These criteria are expected to enter in force, I think, the 2022 after the final approval of the the delegated act by the European Council and the European Parliament. That that is something that is foreseen in the coming months. So we are fully in the framework we have communicated in November, and, of course, we are more than happy with this.
Great. Thank you very much.
Our next question comes from the line of Bartek Kubicki from Societe Generale. Please go ahead with your question.
Hello and good afternoon. Two questions from my side, please. Firstly, I would like to ask you about storage. I think there's quite an ambitious plan to have around five gigs of storage in Italy in the next years. I want I just wanted to ask you where the country is in terms of constructing this?
What your role could be in actually building storage, providing it's not delivered by the market? And should the storage be created, what is actually the upside to your CapEx plan not only from the storage sites as such but also from the transmission lines which will be connected to those storage sites? I think many of them needs to be constructed on the South. And I guess south of the country is less interconnected than the North. That will be my guess.
So that will be the first thing. And second, on your output base incentives, you confirmed this €200,000,000 for your business plan. I think the whole scheme is for €300,000,000 I just wonder what are the upsides, meaning whether you are in the discussions right now with the regulator to actually either extend the scheme or increase the scheme. So I would like to sort of ask you to to what extent to to what to to what numbers the the the actually, output based incentive scheme could go up in your next maybe, of course, you will not tell you us tell tell us this, but in your next business plan, what increase can we actually see from the out base incentives? Thank you.
Well, let me start from out base. I confirm what we said before. We have in the region of €200,000,000 with the size of €220,000,000 This is the exact figure we have communicated in November, and we are going to confirm this. Of course, we are working. There are a lot of other discussions with the authority for the period after the current business plan horizon.
And if we will have something to communicate on this, you will see the moment we will update the business plan. Regarding storage, I I want to be really let let me give you a really an easy answer to your question. Are the storage, needed? Yes. Of course.
We need. Are they needed in the southern part of the country? Yes. Not only in the southern part of the country. For sure, they are needed.
Do we plan to build storage? Not at all. We are looking for private investors to do that because we are not entitled to do that. Of course, we do know what is happening on the market. We need storage as I I let me repeat on this.
If nothing will happen, we will open a discussion on this. It is not part, it's not a central phase for our business plan. It is something that is needed, not for business leads or, but let me say, for electro technical reasons. So someone will have to do that, and we are expecting that will happen. Okay.
Thank you.
We have no further question at this point. So I hand the conference back to you, sir.
Okay. Thank you very much for your time. I really hope to see you in presence as soon as possible. And again, a nice rest of the afternoon. Goodbye.
Ladies and gentlemen, thank you for your participation today. This concludes today's call. You may now disconnect your lines. Thank you.