Good afternoon, everybody. Welcome to Terna First 2021 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, a month that, as you remember, was heavily impacted by COVID-19. It is important to underline that in the first quarter of 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 hour, with a strong increase of renewable generation, which grew by 6.5% versus 2020, while non-renewable generation decreased by about 2%, confirming the consolidation of the ongoing decarbonization process.
Let me move to the first quarter 2021 key numbers at page five. In the first quarter of 2021, group revenues and EBITDA were up by 10% and 5% respectively versus last year, which means EUR 54 million and EUR 19 million.
We reported a group net income of EUR 190 million, EUR 4 million higher versus last year, while group CapEx stood at EUR 242 million, 11% more versus the first quarter 2020, confirming the P&L growth and the robust CapEx acceleration continued also in this first month of 2021 and fully in line with the implementation of our industrial plan.
To support this acceleration driven by system needs, our net debt stood at EUR 9.3 billion, versus about EUR 9.2 at 2020 year-end. I will kindly ask you to let me restart from the same page. The 2020 interim dividend of EUR 9.09 per share was already paid in November. Sorry for the interruption. I understand that we lost line at the beginning of page eight. Again, page eight.
First quarter 2021 results. Regulated revenues reached EUR 537 million, EUR 20 million better than last year. The increase was mainly due to the investment acceleration pursued in the recent years. Non-regulated and international revenues reached EUR 85 million, 67.2% higher than last year.
Non-regulated growth was mainly attributable to the overall contribution coming from the already mentioned integration of Brugg Cables and to the increase in revenues related to the connectivity business, while international revenues were almost stable versus last year. Now, let's go through operating cost analysis.
As you can see in the chart at page nine, total operating costs stood at EUR 168 million, 26.2% higher than last year. The increase was mainly attributable to Brugg Cables consolidation. Regulated operational expenses increased by EUR 5 million, mainly as a consequence of one-off items.
Net of those non-recurring adjustments, operating expenses remained stable despite the massive increase of the asset base. Let me now analyze the EBITDA, moving to the next slide. Due to all the previously mentioned dynamics, first quarter 2021 group EBITDA reached EUR 454 million, EUR 19 million better than last year.
The increase was mainly attributable to regulated activities, which contributed for about EUR 15 million 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. The depreciation and amortization amounts at EUR 163 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 291 million, EUR 9 million higher versus first quarter 2020. We reported net financial expenses at EUR 22 million, in line with our expectations. Taxes stood at EUR 78 million, EUR 2 million higher versus last year, essentially due to a higher pre-tax result registered in the period. As a consequence, tax rates stood at 29%, in line with the same period of 2020.
As a result, group net income reached EUR 190 million, EUR 4 million higher versus the same period of last year, despite higher depreciation and amortization, mainly thanks to the business acceleration we have mentioned before. In light of those results, we are able to confirm all the provided targets for the year 2021.
Moving to CapEx analysis. In the first quarter of 2021, total CapEx amounted to EUR 242 million, 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 EUR 227 million in regulated activities.
Among the main projects of the period, though, it is worth mentioning the realization of new lines, as for example, the Paternò-Pantano-Priolo 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.
Not regulated and other CapEx stood at EUR 16 million. 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 end of March 2021 was EUR 9,321 million, EUR 148 million higher than 2020 year-end levels, mainly as a consequence of the CapEx acceleration made on the national grid.
In any case, we generated an operating cash flow of EUR 353 million, thanks to which we are 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 of page 14. As you know, Terna 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 ratio gross debt of about 81%, and an average duration of about five years. In line with our strategy, which place sustainability as the driving force for value creation, Terna aims to confirm its leadership in the sustainable financial market. Indeed, starting from January 2021, Terna has become the first Italian electric utility to join the Nasdaq Sustainable Bond Network.
Moreover, let me also add that from February 2020, Terna is also part of the CFO Taskforce 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, at aligning corporate finance and investment with the Sustainable Development Goals promoted by the United Nations.
Finally, Terna is also present in the Corporate Forum on 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&A session. Thank you.
Ladies and gentlemen, if you wish to ask a question, can you press star one on your telephone keypad. Once again, to ask a question, you can press star one on your telephone keypad. Our first question comes from the line of Harry Sheringham from Bank of America. Please go ahead with your question.
Hi, everyone. I've got two questions. I apologize because actually neither of them are specifically on the results. Hopefully they'll be interesting and relevant nonetheless. The first one's on inflation, given obviously that what's dominating the news out of the U.S. today.
Just wondered if we could explore your exposure to inflation a little bit, because I guess you're one of the few remaining pure play inflation exposed companies in sort of infrastructure in Europe.
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. I'm not just talking about sort of single year, but the plan period, if inflation sort of outturns higher than what you assume. If I remember correctly, I think you're only assuming about 1% for inflation in the plan.
What could the upside be, say, if inflation were 100 basis points or also higher than that on your targets? Just so I can understand correctly, if your input costs increase, whether it was cost of raw materials and components from suppliers and stuff, presumably you pass those all through, actually higher inflation could actually result in sort of increases in your CapEx or sort of straight into the RAB as well. If you could just sort of confirm that understanding.
That's the first question. The second one 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&P Global Clean Energy Index earlier in the year. Actually when they did the rebalance in April, you weren't included.
It's a bit of a cliffhanger because I believe S&P have said they're going to open a consultation on whether to include smart grids in the next rebalance, which I believe will be in, or at least the next constituent rebalance should be in October. The question is, have you had any dialogue with S&P on potential inclusion in that? I think it would be really interesting if we get any color on whether you've spoken to them. Thank you.
Okay, let me start from the second one. We are not pricing in that index, so you should ask directly to Standard & Poor's for this. Regarding the first question that you mentioned, of course, we have seen this relevant information coming from the U.S. today, with the update on inflation rates.
Of course, it's pretty interesting for us. What is important to remember is that, in the midterm, all the regulated activities, and specifically Terna regulated activities, will be positively impacted by the increase in inflation and the deflator connected to the inflation. You remember that each year, both the RAB, the regulated asset base, the allowed depreciation, and allowed OPEX are reevaluated by these indices.
First of all, what will happen to our O&M cost, if we will have an inflation process, of course, O&M cost will be impacted by also the level of recognized OPEX, will be immediately impacted as well. 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 variation of 1% on the expected inflation, the impact on regulated revenues is about just little bit lower than EUR 20 million. EUR 19 million, to be precise.
The same impact on our regulated asset base is in the region of EUR 130 million. Consider that in the industrial plan 2021/2025, we have assumed a RAB inflation rate slightly above 1%. It was 1.1%, if I'm not wrong, on average during the plan period. We consider this more as an opportunity than as a risk.
Okay, that's very useful. Thank you.
Our next question.
You're welcome.
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 the 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.
The second question is on the increase that we have seen on the underlying cost for the company of EUR 5 million on the regulated activities. I think that you mentioned that during the presentation, that this is due to a one-off impact. Can you elaborate on that and explain, to what that one-off impact is related to?
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 you are expecting by the year-end? Many thanks.
Can you hear me?
Yes, we can hear you. Yes.
Okay. Sorry. Let me start from the third question. Sorry. We were muted. 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 a massive reduction of the national demand.
As a consequence of that, a massive decrease 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. We were obliged to purchase some stabilization services from a foreign unit, from balancing services from thermal generation plant, and we were obliged also to pay that cash.
The tariff structure implies that the recovery of this cash out will take something like 12, 11 months. We expect to reabsorb this impact by, more or less, the second and the third quarter 2021.
Relating to the one-off of evolution of our revenues with respect first quarter 2020, consider that we are only talking about a different accounting methodology on quality of service, revenues and cost, respect to what we did in last year.
Nothing relevant and nothing that will continue in the future. Regarding the first question, that is really an open one, question. Of course, we are part of the discussion about the recovery plan and the COVID 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, ecological transition, and social inclusion. Regarding Italy, the fund foresees something slightly lower than EUR 200 million, EUR 191 million between 2021 and 2026.
Top of that, there are other EUR 13 million related to the REACT-EU European Union program, which foresees also shorter time of horizon of spend in 2021 and 2022. The total amount is slightly lower than EUR 300 million.
I think that here the key question is the way the government, institution, and companies, including Terna, 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, we are already there with a massive amount of investment related with the evolution of the national grid.
As you remember, we have presented a business plan with more than €9 billion in the five-year horizon. As you probably will see in the coming weeks, we have also confirmed this amount with the 10-year development plan that has been approved today by the board of directors.
I cannot mention figures, for sure, you will not see a reduction there. 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 process in order to realize this investment in a very ambitious timeframe, because most of the investment will need to be completed by 2026. That is five years starting by today. It's two times the average speed that we've seen in the recent years in Italy.
Thank you.
Our next question comes from line of Enrico Bartoli from MainFirst. Please go ahead.
Hi, good evening, thanks for taking my questions. First question is relating to the Tyrrhenian Link. The press reported that you started discussion with local authorities in Sardinia. 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.
A 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 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. 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 output-based incentives. The amount of the output-based incentives included in the first quarter 2021 is zero. Nothing relevant is expected for the rest of the year. I confirm the guidance provided in the business plan, something in the region of EUR 200 million for the period 2021-2025. First question, sorry, was on the Tyrrhenian Link. Okay.
Let me remind you that the total investment cost for Tyrrhenian Link is confirmed at EUR 3.7 billion, of which EUR 1.8 included in the 2021-2025 horizon. According to the last opinion of the Italian regulator, the new Tyrrhenian Link will be planned in the next national development plan 2021, with two singles separated by bipolar link, 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 market zone integration of additional renewable for Sardinia, but not only for Sardinia, but specifically for Sardinia, give adequate services, stability of the grid in a context of decarbonization of the island, that today, as you know better than me, is strictly linked with coal generation.
That, of course, need to be abandoned 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, nothing to expect what we already said at year-end 2020. We are still confirming the 1.3% average cost of debt, well, that we have communicated for the financial plan horizon.
Thank you.
Our next question comes from line of Stefano Gamberini 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 viewConfirm that all the projects, so in year 2021, 2025, that are confirmed, so also the total investment, in the case of some delays related to the Tyrrhenian Link, which is a very complex program, could you confirm that the additional $800 million-$900 million U.S. capital that you disclosed last November are already in place and are going ahead to offset eventual postponement on this project?
The final, if you have a judgment regarding the authorization process that is going ahead for all renewables in order to accelerate the installment of new renewables. 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? Thanks.
Okay. Well, regarding the WACC 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. We expect to have some additional detail, let me say, immediately before, immediately after the summer break.
What we have seen, 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-19 crisis. We expect that this situation could be appropriately taken in account. As you know, the track record of the regulator on this extent is excellent.
Over the years, they have always decided with a balanced and careful approach on the evolution of the reference context. We have no doubt that, as usual, the discussion will be proactive. Again, nothing to add 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 2021 was an excellent quarter, more than EUR 200 million of investment completed.
We have EUR 1.4 to be delivered. As you know, the guidance provided for 2021, we are still far from there, but it was a good beginning, better than 2020, and 2020 was a good beginning. My position is the following, including also the comments you required on the Tyrrhenian Link. We are in line with our expectations.
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 were able to deliver the same size of the announced investment.
We are in the same situation. We are not concerned specifically for the Tyrrhenian 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, the targets that we have committed. Third question. Thank you. Third question related to the renewal development in Italy and possible solution.
Here, the key element of the discussion is authorization, simplification, and acceleration of the meeting procedure for the different plants who have a clear view about the renewable auction mechanism, the remuneration scheme. It is something that, of course, is not in our hand, but something that we are clearly supporting with the authority, with the government, with institutions, because this will be a key enabling 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 Terna'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. 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 rules. Thank you.
Well, you know that a few weeks ago, at the end of April, the European Commission published the new Taxonomy Climate Delegated Act on climate change mitigation and adaptation. This is the auction name. The document confirms, let me say, the eligibility of electricity transmission grid to the taxonomy as one of the main enabling activities that substantially contributes to the climate change mitigation and adaptation. I think that this is an important attestation.
Also is the confirmation of what we have announced in the presentation we made on the 21/25 Industrial Plan in November. At that time, 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 beginning of 2022, after the final approval of the delegated act by the European Council and the European Parliament. That is something that is foreseen in the coming months. We are fully in the framework we have communicated in November, and of course, we are more than happy for this.
Great. Thank you very much.
Our next question comes the line of Bartłomiej Kubicki from Société Générale. 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 is quite an ambitious plan to have around five gigs of storage in Italy in the next years. I just want 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.
Should the storage be created, what is actually the upside to your CapEx plan, not only from the storage side 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 would be my guess. That would be the first thing.
Second, on your output-based incentives, you confirmed this EUR 200 million for your business plan. I think the whole scheme is for EUR 300 million. 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.
I would like to sort of ask you to what numbers the actual output-based incentive scheme could go up in your next Maybe, of course, you will not tell us this, but in your next business plan, what increase can we actually see from the output-based incentives? Thank you.
Well, let me start from output-based. I confirm what we said before. We have in the region of EUR 100 million, to be precise, EUR 120 million. 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 open 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, 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 the southern part of the country, for sure they are needed. Do we plan to build storage? Not at all.
We are waiting for private investors to do that, because we are not entitled to do that. Of course, we look at what is happening on the market. We need storage, as I said. Let me repeat on this. If nothing will happen, we will open a discussion on this. It is not a central phase for our business plan. It is something that is needed, not for business reasons, but let me say, for electrotechnical reasons. 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. Again, have 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.