Good afternoon, everyone, and welcome to TERNA Full Year twenty twenty Results Presentation. That's Omar Al Bayadi, Head of Investor Relations. Here with me, Mr. Stefan Odonaruma, CEO and Mr. Agostino Skornajenki, CFO.
The presentation will be followed by a Q and A session. Let's start. Stefano, the floor is yours.
Good afternoon and welcome to TERNA's full year twenty twenty results presentation. Let me start with an overview of the Italian electricity market. As you can see in this chart, in 2020, due to the COVID health emergency, national demand was about three zero three terawatt hours, a reduction of 5.3% versus previous year when national demand was about three twenty terawatt hours. Despite this situation, let me highlight that there have been signs of recovery starting from the month of July. Indeed, in the month of December, demand increases by 1.1% compared to December 2019.
It's important to underline that in 2020, renewable sources covered about 38% of the demand compared to 35% in 2019 and about 42% of national net total production. Concerning national net total production, this stood at two seventy three terawatt hours with a strong increase in photovoltaic production, which grew by about 10%. At the same time, nonrenewable production decreased by 7%, confirming the consolidation of the energy transition process. However, let me underline that despite the challenging situation on the electricity market caused by COVID, TENNA was able to manage the grid, ensuring quality of service and security of supply. Now let me move to 2020 key numbers.
In 2020, group revenues and EBITDA were up by 105% respectively versus last year, which means $218,000,000 and €89,000,000 higher than the last year. This feature represents a solid ground to support the further growth of the group for the next years. Moreover, we reported a group net income of $786,000,000,000 $28,000,000 higher versus last year, while group CapEx stood at $1,350,000,000 7% more versus 2019, confirming the strong CapEx acceleration even in this challenging emergency scenario. Indeed, as you can appreciate from the chart, all these main figures meet and exceed the provided guidance for 2020, demonstrating TERNA's strong commitment on the execution of this plan. To support this deep CapEx acceleration driven by the ongoing energy transition, our net debt stood at €9,200,000,000 versus about €8,300,000,000 at year end 2019.
Now let me spend a few words on the main achievements of the 2020, turning to the next slide. 2020, as you know, was characterized by the COVID emergency. Despite this challenging scenario of a global crisis, Terna continued to develop the national grid moving on in all its main projects. We accelerated starting from the end of the second quarter of the year and then with the presentation of the new twenty twenty one-twenty twenty five industrial plant driving energy, which foreseen investments in Italy for €8,900,000,000 during the period. Regarding regulatory activities, among the main projects, we can mention the inauguration in October of the connection between Capri and The Netherlands made before the prime minister.
Thanks to this line, 19 kilometers long, Terna was able to eliminate emissions on the island, decommissioning the old diesel power plant. Moreover, let me highlight that important steps forward have been made on the Tigranes and Adriatic links in the last months, following the green light from the regulator. For what concerns not regulated activities, as you know, in February 2020, the closing for the acquisition 90% of Bluch cables was signed and then the integration started. Bloop is one of the leading operators in the underground cable sector. The deal allowed Oterna to ensure an excellence in research, development and testing of one of TSO's core technologies, namely underground cables.
Regarding international activities in the 2020, we finalized the closing with Quebec for the acquisition of the Lineaverde one, the second of two concessions acquired by Turner in Brazil. Despite the difficult situation caused by COVID, we accelerated with all the main construction sites after the lockdown also abroad. Regarding our people, this difficult scenario is requiring us to adapt new methods based on new digital technologies. Therefore, in order to support TENAS evolution, in December we launched the new Ways of Working project through which we aim to transform working methods from the simplification of activities to a new use of physical and virtual spaces, as well as the adoption of new digital tools to once again be the director of the transition. Moreover, confirming the central role of sustainability in our strategy, in the second part of the year TEN was confirmed for the third consecutive year in the Bloomberg Gender Equality Index, for the sixteenth consecutive year in the FTSE4Good and for the tenth consecutive year in the STOXX ESG.
In addition, recently, TERNA was also ranked first among the Electric Utilities of the Dow Jones Sustainability Index world for the third year in a row and was recognized among the 50 most sustainable companies in the world at the twenty twenty CIES Business Sustainability Awards. Finally, let me remind you about the bonds launched in July and September for 500,000,000 as well as the confirmation of long term ratings from all the main rating agencies, as a recognition of TERNA's central role in driving and enabling the energy transition. Now let's make a deeper analysis of the 2020 results, leaving the floor to our CFO. Please, Agostino.
Thank you, Stefano and good afternoon to everybody. Let's start with revenues analysis. Total revenues in December 2020 increased by 9.5% reaching 2,514 million dollars up by $218,000,000 versus last year. The growth was attributable to regulated activities, which contributed for 94,000,000 and to the consolidation of Brookhaven's for which as already mentioned by Stefan, the closing was signed in February 2020. Let's now go into the detail of the regulated and non regulated revenues evolution moving to the next slide.
Regulated revenues reached 2,149 million dollars $94,000,000 better than last year. The increase was mainly due to our investments, while other regulated revenues increased by $18,000,000 mainly as a consequence of one off component. Non regulated and international revenues reached $365,000,000 about 52% higher than last year. This growth mainly reflects the overall contribution coming from the integration of BlueCable. Now, let's go through operating cost analysis at Page 11.
As shown in the chart, total operating cost is 2,683,000.000 23.3% higher than last year. The increase was mainly attributable to group cable consolidation. Regulated operating expenses increased by 31,000,000 mainly as a consequence of one off items. Net of the perimeter effect related to the Bruck acquisition, the Group's OpEx increased by about $28,000,000 versus 2019. Let me now analyze EBITDA.
Moving to the next slide. Considering the above mentioned effects and despite twenty twenty global health emergency condition, group EBITDA reached $1,830,000,000 dollars $89,000,000 better than last year. We registered a positive EBITDA contribution both from regulated and non regulated and international activities, which grew by $63,000,000 and $26,000,000 respectively versus last year. The increase was mainly attributable to higher regulated revenues as well as to the contribution coming from group cable acquisition. Let's now have a look to the lower part of the profit and losses turning to the next slide.
And I am now at Page 13. Depreciation and amortization amounted to $644,000,000 The increase versus last year was mainly due to the impact of new assets becoming operational in the period. As a consequence, EBIT reached $1,187,000,032 million dollars higher versus 2019. We reported net financial expenses at $94,000,000.16000000 dollars higher than last year, mainly as a consequence of the interest expenses on the debt of foreign companies and to the adjustment in the evaluation of equity investment in associated companies. Taxes stood at $298,000,016 million dollars lower versus last year due to the higher income not relevant for tax purposes recognized in the period.
As a consequence, rates stood at 27% versus 29 of 2019. As a result, group net income reached $786,000,000 $28,000,000 higher versus the same period last year despite higher depreciation and amortization mainly as a consequence of the business acceleration. Moving to capital expenditure analysis, Page 14. In 2020, total capital expenditures amounted to $1,351,000,000 dollars 7% higher than last year confirming Terna's great ability to reach its goals despite the challenging scenario. Indeed, we invested about $1,233,000,000 dollars in regulated activities.
Among the main projects of the period, it is worth mentioning synchronous compensators,
the Paterno Pantano Priolo line in
Eastern Sicily, as well as the progress on construction sites for the Italian France interconnection. Among CapEx categories, development CapEx represented 39 of total regulated CapEx. Asset renewal and efficiency CapEx was 42%, while defense CapEx represented 19%. Non regulated and better CapEx stood at $118,000,000 This includes capitalized financial charges and other investments. Regarding net debt and cash flow analysis, net debt at the 2020 was 19,173 million dollars $914,000,000 higher than 2019 year end level mainly as a consequence of the CapEx acceleration made on the National Grid.
In any case, we generated an operating cash flow of $1,343,000,000 dollars thanks to which we were able to cover almost all CapEx spending of the period. Overall, thanks to our actions, cost of net debt at the 2020 was stable versus year end 2019. Let's now make a deeper analysis of our debt profile. Thanks to our conservative debt management approach aimed at keeping a solid financial structure, mitigating any potential financial risk. At the 2020, we registered the fixed over floating ratio of debt of about 83% and an average duration of about five years.
Regarding the proactive debt management activities delivered in the period, let me remind you about the bond issue made in September for €500,000,000 with a duration of ten years and a coupon of 0.375%. This bond followed the green bond launched in July for a total nominal amount of 500,000,000 Euro and an actual cost equal to 0.78% confirming our absolute leadership in the sustainable financial market. Finally, I would underline like that today's Board of Directors also approved the 2020 final dividend of 17.86 per share to be paid in June. The 2020 interim dividend of €9.09 per share has been already paid last November. In line with the communicated policy, total dividend for 2020 therefore was €0.27 per share.
Now before starting the Q and A session, I leave the floor to our CEO, Stefano Dormaruma, for some closing remarks.
Thank you, Agostino. As you have seen in this presentation, despite the challenging related to the COVID emergency, we were able to present you a solid set for 2020 results. On this ground, we are also able to confirm all the guidance provided last November in the twenty twenty one-twenty five Industrial Plan. We are committed and well on track with 2021, for which I remind you we expect: revenues of $2,570,000,000 EBITDA of $1,840,000,000 total CapEx of $1,400,000,000 and an EPS of $0.39 Moreover, from an industrial standpoint, we are also well on track on authorizations and procurement. Regarding relevant projects, let me just mention that in February 2021, TERNA began the public engagement process of the Adriatic Link.
This is the new undersea cable which will connect a Bruton market for which we will invest over $1,000,000,000 involving about 120 companies. The new interconnection, completely invisible, will further reinforce our role of energy transition manager and facilitator. Furthermore, we also started a public consultation on the new Tiddanian Link, the undersea power line that will link Sicily to Sardinia and Campania. The Tiddanian Link is a strategic project for the Italian electricity system for which Eterna will invest about 3,700,000,000 over the next few years, involving two fifty companies. Finally, let me point out again that 2021 will also be the year of the new ways of working that will bring benefit from improved logistics and a higher quality of life for our employees, a top priority for us.
Thank you for your attention. We are now ready for the Q and A session.
Thank Our first question comes from the line of Javier Suarez from Mediobanca. Please go ahead with your question.
Hi. Good afternoon, and thank you for the presentation. I have three questions. More top down, right down, bottom up. It's on on the new administration, a new prime minister, new minister for ecological transition.
So the question for this year for the CEO is if he can update us on any conversation with the new administration and the implication that the new administration may have for the energy sector in Italy for the implementation of the energy transition and for the role of TERNA within that energy transition. So any update on conversations with the new administration and particularly with the Minister for Economical Ecological Transition would be appreciated. Second question is on the document that has been published yesterday by the antitrust authority that is suggesting Prime Minister Draghi to introduce changes to make the system a little bit more virtuous. I wanted to make sure that the antitrust authority suggesting is to increase to simplify the approval for new investment. And there is also a reference to the high level of congestion in the electricity network, something that may give particularly high market power to certain operators in certain areas.
So you can give us your view on what the antitrust authority is saying and the implication that this acceleration in the approval process for new investment may have from Terna. And the third and final question is on regulation that may be a little bit more difficult to answer, but is if you can update us on any conversation that you may have had with the regulator on the regulatory review. I'm not pretending to have a number, but just your body language from the regulator in the conversation with the developers of infrastructures. Many thanks.
Thank you for your questions. First question about new government and ministers. Yes, we have started some discussions and meetings with different government members. And my approach is in any case to show which are the main topics and the criticity in for our plan in terms of authorizations, in terms of meetings of the systems for the energy and energy transition and,
sorry.
And my point of view is that there is a great interest on our position on the electricity market and the energy market in terms of role of a facilitator for the transition. We will continue in the next week a list of meetings just to go more in-depth in some topics and to give our support to define possible new rules for the next future. In any case, I am really positive on this. Second point is the anti blast information that we had yesterday and today on the newspaper. And what I can see is that I agree on two topics that the cost for congestion may be a problem in the future if we will do not in a right speed what is absolutely necessary for the system.
And so it's everything is really in line with our industrial plan and with our strategic plan for the next ten years. So, my opinion is that, it seems that all the stakeholders are coming on this crack, let me say. Everybody are understanding, which is really, important for the next future to allow and ensure this plan that is a national plan, is not a term plan, only a term plan. On the third point, let me say that first of all, the process for the USCC update has started only in October and we expect to have more details just before or during the summer period. But in any case, we are experiencing a unique period characterized by COVID crisis.
And for this reason, we expect the situation to be appropriately taken account, let me say, as done for the other regulatory aspects in different economic activities in this period. Also in the Italian energy sector, where there have been several corrective measures or determinations and the postponements. Indeed, regulatory track record over the years has always been characterized by a balanced and careful approach to the evolution of the reference context. In our plan, we assumed in any case a stable regulatory WACC. But on the other hand, we have not included all the potentially positive components related to incentives for regime by regulatory reviews already planned.
So for me, nothing is changing. And I also on this I feel a positive overview.
Interesting, Mehdi. Thanks.
Our next question comes from the line of Harry Wigborough from Bank of America. Please go ahead with your question.
Hi, everyone. Thanks very much for taking my questions. I've got three. First one is just a bit of a follow-up really on the regulations. You mentioned that you had some offsets if the formula moves against you, or at least that was my interpretation.
The specific question though is do you expect the formula, for the regulatory return to change? Because I think some of your peers have suggested that there might actually be a change in the way the formula works as well as an update of the input. So I'd be interested to get your thoughts on what these there might be a change in the formula. Second, questions on EU stimulus. I I believe that Italy is due to submit, its stimulus project proposals by the April.
So I'd be interested to know, to what extent you're involved in that and whether you think there might be some opportunities to do projects there which weren't until now included in your CapEx plans? And then the final one, I know it's not been long since you set out the the strategy, so this might be a little bit premature. But just looking at what some of your peers are doing across Europe, you've, obviously, you just had, the WPD deal in The UK, so attaching a a very high premium to electricity networks. You've got some of your peers in or you've got SLAM, obviously, in Italy, talking about doing investment platforms for for kind of energy transition assets. You've got Red Electrica talking about potentially getting an investment partner in, on their fiber and satellite operations.
So the the question I'm asking is, if you look at your nonregulated and and perhaps your international activities, Is there an opportunity here perhaps to look at bringing in an outside investor or maybe sort of somehow monetizing these or crystallizing value given that there seems to be a huge amount of of capital looking at these kind of assets and and big valuations being being paid? Thank you.
Okay. About, on the first question, I only want to clarify that, I think maybe will not, so easy a change of formula,
but
maybe useful a different evaluation of KPIs coming from the analysis of this strange and difficult period, in which observation period is really so strange and not really connected to the reality over the next month and to the proxy of the period. Then speaking about recovery plan, presented also with the previous government organization, we presented some projects that are in line with our strategic plan. And if during the discussion that are provided for the next weeks on this term, we may be involved in such kind of investments. It will be not a problem for us, only a way to better confirm our trend and our guidance. Regarding The UK, what we see changement, no.
I just answered different on different banks on this. I think no problem for us. It's a completely different situation starting by the different country, different geography, different energy sector and different also period, let's say. On the last question on non regulated activities and international, as you can see, our plan is, let me say, a calmer plan on this because we are so focused on regulated activities. So at the moment, we don't provide any change about this plan and we are trying only to obtain more value coming from these activities, more industrial activities and also other energy services, but no more than this at the moment.
Thank you.
Our next question comes from the line of Nikia Baker from Bernstein. Please go ahead with your question.
Thank you so much for taking my questions. I think I have two. You mentioned once or twice one off in the results of 2020. If you would mind sort of like elaborating a little bit on that one and what we should expect for 2021 or not? And, also, the second question is also, slightly broader on, expectations for 2030 and targets, to some extent sort of like, extending from the previous questions.
I mean, we have, I would say, on the 2030 horizon three three things that can move. It is the higher emission reduction targets on the European level, which should eventually end up in more ambitious country plans by the individual countries increasing the 2030 ambitions. And I was just wondering what that could mean in Italy in terms of potentially higher renewables ambitions and if that had any follow on investments potential for TERNA. I mean, the second, we we have already covered it, but it is the green recovery fund, what that sort of, like, means for you. And the third, I see the hydrogen strategies being developed across Europe.
So if you don't mind sort of like on here the the next five and also ten year horizon, what what sort of like upside is there for Tanner from all of these various strategies and developments? Thank you.
Yes. Good afternoon, everybody. Igor Franski
from Angeliki
speaking. Regarding the first question related to one off, well, let me
say no relevant one off in the Euron Financial Account 2020. The only one the only relevant one was related to the acquisition of the cable. This is an indication foreseen in our forecast for the year 2020 included in our estimate internal estimate that starting from together will become a structural part of our business for the future. Of course, we are happy for this acquisition, but this is something that was already in our plans.
Please Stefano.
Okay. Thank you, Agostino. If I well understood, you asked me about the possible review of targets over the next ten years for the MEAC in Italy and also the European plan. I think it will increase in terms of targets, in any case, as to be increased, but also in an execution way, let me say. So it's absolutely necessary that all the targets are possible to be realized.
And I think that in Italy, just now, there is a good level of targets, but it's possible also to increase this. It's absolutely necessary to create the conditions for this in terms not only of our authorization, that is the most important part of it, but also with some different rules for the market. There may be also with some incentives for some parts of this market. For example, we have to speak about how to debilitate the new renewable installation. And this part of the national plan has to be helped not only with the authorization, also with incentives.
And I think also it's important to advertise starting a faster starting of the storage systems. And I think during the next month, will be really discussed in this and maybe also that we will be involved in such a way in this kind of activities. And I think that this may be also a possibility for increase of our investments in some of the phases of the value chain. Then also speaking about RECORI, I think that also for RECORI Fund, there will be an opportunity for Italy to use a part of these investments to accelerate the transition. And, we are giving our opinion on this to the government members and to the authorities.
And I hope that something will really change, but I think so. On hydrogen, I think that the impact of hydrogen is not in the next two, three years on our side, but maybe really interesting on field of energy energy, energy, how to say, no, the actually storage sorry, energy storage. For the energy storage, it may be really interesting. We are also starting something in this on this track with those SourceNAM to apply some possible experiments for this. But it's not a real fast impact on our plan.
I think that transition plan followed by Perna in terms of, application of the system in Italy will continue on this track for another ten, fifteen years with no big changes. It's absolutely necessary also coming back to the concept of congestion costs. And it's important to avoid these costs and also to allow a better services securitization. Thank you.
Thank you.
Our next question comes from the line of Stefano Gambierini from Equita. Please go ahead with your question.
Thanks and good afternoon everybody. Few questions if I may. As regard the submarines interconnectors, could you spend a few words about that because if I'm not wrong, you have many of them in your CapEx plan and the authorization process is clearly a key driver for the investments in these activities. If you can update us on this on top of what you already said about the ThierryON LINK. The second question regarding the renewables.
During the presentation of your strategy plan, you underline that clearly you are an enabler of the renewable growth, but there are some problems maybe regarding the authorization but also regarding the tariff scheme, we can say your incentive scheme for the evolution of the growth, sorry, of renewable. Could you also in this case give us an idea, if I'm not wrong, the target was of around six gigawatt of new capacity by 2026? Are there some novelties, some more visibility because if I'm not wrong there are some delays in the investments for renewable. And the third regarding the topic of the regulation, Could you give the regulatory differentiate the remuneration for electricity and gas sectors ensuring some add on to the electric sector because this is involved in the energy transition in your idea or you exclude that some of these sorry, this kind of approach could be followed by the regulator. And again on this topic when you said that some other incentives could not incentive, output based incentives could arrive in order to help the growth of the company if we can expect some further output based incentives from the regulator during 2021?
Thanks.
Okay. On the main the first question is on the main project that we have and on the authorization process. I think we are really on track. The most important project is the Telenium Link and, the good news is that during the last couple of months, we had important confirmations also coming from the authorities on this kind of project. And we are discussing with the region organizations to define the main aspect of the executional project.
I think that we are on track on our planning, and I think we will be in time on this. And it is also valid for Adriatic Link and other AGUDC cable project that is so important on the other side of Italy. And also for other important projects that are not HODC but also normal connections, but important connections on other areas in Italy like in the North Of Italy Veneto, Centinio and so on, but also and Tuscany, coming back to HBC, we are following a good track on the SACOI three d project for Sardinia, Tuscany and Kostika. But in the meantime, we are also doing a good job on Campania and Tissile for new connections. So my opinion at the moment is that more than 60% of our plan is just just now authorized.
Another 15% of this plan is now on we are working on this. And so, not really important criticism on this. So the execution of the plan at the moment after only a couple of months over the New Year and the first year over the five years, so plan, it seems to be absolutely in line. On renewables activities, your question is, it will start or not, let me say. I think that, it's absolutely necessary in acceleration.
But, my opinion, my is that the mood also at, authority and institutions level is at the moment a good mode. So it's necessary to define, to decide some important aspects of this, but it's really possible that in few months, it will change. So, my opinion is necessary to define, necessary to define some new rules and maybe also to define, some incentives to help the system to start. Medicaid also, Terna wants to continue to start to observe first of all, but then also to study possibility for investments as you know not to manage production plants because we cannot but well for the system, yes, to start. Then on the what you see, you spoke about the difference between gas and electricity, but we are on two different, let me say, world, more withdrawn, more is different.
And I spoke only for electricity sector. And my opinion is that the electricity transport, but also distribution are too important for the next future and to help the real reaching of targets that it's important that all the stakeholder involved, of all, but also institution has in mind the needs, the strong needs of this investment for our account.
Thank you. Thanks, Rob.
Our next question comes from the line of Stefano Bezzato from Credit Suisse. Please go ahead with your question.
Yes, hi, good afternoon. It's Stefano Bedzado from Credit Suisse. Two questions, if I may. The first one on your 2021 guidance, you are targeting €0.39 EPS, which is the same level that you reached in 2020. Is there any particular headwind or risk that makes you conservative for this year considering that you had four percent earnings growth in 2020 and you go flat in 2021?
The second question is on the regulatory review and the impact on your earnings and more in general on the dividend, I would like to understand if there is a maximum level of payout above which you are not willing to go from 2022?
Let me say, first of all, 2021 guidance, no any change and no more risks. We see absolutely continuity with what we said before. On the second point, the impact of the regulatory review on our dividend policy and so on. Now I think that it will be no problems also because of that, like I said before, we have considered a constant level of remuneration, but we will not also not consider some important opportunities that we can have during the next two, three years. So we are not afraid at the moment about these conditions and situation.
Sorry, I use this moment, this minute, but I would like also to give another information on previous question on renewable plants because what is really interesting that we are observing a continuous increase of demand for authorization, a continuous presentation of new projects. At the moment, if I took all the demand that we have they have presented or the operators have presented, it cover is theoretically, it cover the complete plan over the next ten years. So it's really interesting to see that there is an acceleration starting into the intention of investors and operators on this. Then we will see will be the behavior. Thank you.
We have no further question at this point. So I hand the conference back to the CEO, Mr. Stefano Donnarumma.
Thank you for your attention. Thank you for your question and for your that you follow our company with interest. Thank you.