Ladies and gentlemen, thank you for standing by, and welcome to the 1Q 2020 consolidated results for Terna. At this time, all participants are on a listen-only mode. After the speaker presentation, there'll be a question and answer session. To ask a question during this session, you'll need to press Star and One on your telephone keypad. I must advise you that this conference is being recorded today, Wednesday, the 13th of May 2020, and I would now like to hand the conference over to our speakers today, Agostino Scornajenchi, CFO. Please go ahead, sir.
Good afternoon, everybody, welcome to the first quarter 2020 result presentation. Before starting to analyze the figures, I would like to share with you the latest trend of the electricity demand in Italy. In the first three months of the year, due to the lockdown measures imposed by the COVID-19 health emergency, national demand was up 77 terawatt-hour, a 4.5% decrease versus the same period of 2019, when national demand was about 81 terawatt-hour. Let me highlight that about 33% of it was covered by renewable sources versus 31% of first quarter 2019. National net total production stood at 66 terawatt-hour with a strong increase registered in hydro production, which grew by 19% versus the same period of last year, confirming the strong growth trend for renewable already highlighted in the past months.
Before going deep into the results of the period, let me underline that in this COVID-19 emergency, employees' health and safety have been and will continue to be the top priority for Terna. Following the guidelines and the restrictions established by the government and the regional authorities, Terna introduced a series of measures to guarantee the continuity of the electricity service in full safety. Terna set up a crisis committee in constant contact with the Civil Protection Department, authorities, trade unions, and major Italian companies. We introduced smart working for 100% of our non-authoritative employees with the suspension of all non-essential travels. We also provided with periodic sanitization of offices and construction sites, and we introduced temperature measurement on 100% of our employees through thermal scanner installed in all our facilities. Now, let's move to the main figures of the period on page five.
Despite the lockdown related to the COVID-19 emergency, in the first three months of the year, group revenues and EBITDA were up by 6% and 3% respectively, which means EUR 31 million and EUR 14 million higher than the last year. Moreover, we reported a net income of EUR 187 million, EUR 1 million higher versus last year, while group CapEx stood at EUR 218 million, 32% more versus the first quarter of 2019, confirming the strong CapEx acceleration set in the 2020-2024 strategic plan presented last March, even in a such complex framework of national emergency. To support this CapEx acceleration, our net debt stood at EUR 8.4 billion versus about EUR 8.3 billion at the year-end 2019, and full in line with our expectations.
Regarding the impact of the restriction imposed by the COVID-19 emergency, we do not expect to see significant direct effects given the largely regulated nature of our business.
Let's now perform a deeper analysis of the figures. As usual, let's start with revenues analysis on page seven. Total revenues in the first three months of 2020 increased by 5.7%, reaching EUR 567 million, up by EUR 31 million versus the same period of last year. The growth was mainly attributable to regulated activities, which contributed for about EUR 17 million. Regarding non-regulated and international activities, the increase versus the same period of 2019 of EUR 11 million and EUR 3 million, respectively, was mainly related to Tamini, to the Italy-Montenegro private interconnection, and to our projects in Latin America, as we will analyze more in detail later on in the presentation. Let's now go into the details of the regulated and non-regulated revenues evolution, moving to the next slide. The regulated revenues reached EUR 517 million, EUR 17 million better than last year.
The increase was mainly attributable to tariff evolution, while other regulated revenues increased by EUR 5 million, mainly as a consequence of higher revenues related to better quality of service for the period. Mind that the impact related to volumes consequent to the COVID-19 emergency was limited in the region of a low single digit. Non-regulated and international revenues reached EUR 51 million, about 37% higher than last year. This growth was mainly due to the increase of Tamini transformer turnover, the entry into operation of the Italy-Montenegro interconnection, and the contribution of the Brazilian projects, which entered into operation between the end of 2018 and the first half of 2019. Now let's go through operating cost analysis at page nine. As shown in the chart, total operating costs stood at EUR 133 million, 14% higher than last year.
The increase was mainly attributable to Terna as a consequence of higher volumes of activity, partially offset by lower costs related to quality of service. For a deeper analysis of the group OpEx components, let's turn to the next slide. Well, starting from regulated OpEx, we kept full control of our costs, reporting EUR 98 million, substantially in line versus last year and despite the strong increase in our asset base. Non-regulated and international operating expenses amounted to EUR 35 million, EUR 13 million more than last year, mainly due to Tamini orders evolution. Let me now analyze the EBITDA. Moving to the next slide. Considering the above-mentioned effects, group EBITDA reached EUR 434 million, EUR 14 million better than last year. We registered a positive EBITDA contribution both from regulated and international activities, which grew by EUR 13 and EUR three million, respectively, versus last year.
The increase was mainly due to higher regulated revenues, as well as to the contribution coming from the full operation of the new lines in Brazil. Let's now have a look to the lower part of the P&L, turning to page 12. Depreciation and amortization amounted to EUR 152 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 282 million, EUR 2.2 million higher versus the first quarter of 2019. We reported net financial expenses at EUR 19 million, EUR 3.4 million higher than the same period of last year, mainly as a consequence of inflation and capitalized financial shares dynamics for the first three months. Taxes stood at EUR 76 million with an average tax rate of 29.1%, almost in line with the same period of last year.
Consequently, the group net income reached EUR 187 million, substantially stable versus the same period of last year, despite a higher depreciation and amortization level linked to the already mentioned acceleration of investments. Moving to capital expenditure analysis. For the first three months of 2020, total expenses amounted to EUR 218 million, 32% higher than the same period of last year, well on track to meet the full-year target set in the strategic plan, despite the suspension of the main construction site occurred between 13th and the 20th of March as a consequence of the restrictive measures linked to the COVID-19 emergency. In phase one, only the activities considered essential have been assured. With the phase two, all activities are progressively normalizing. We invested about EUR 206 million in regulated activities.
Among the main projects of the period, it is worth mentioning the rationalization of Naples metropolitan area, the installation of synchronous compensators, and asset renewal. Among CapEx categories, development CapEx stood at EUR 74 million, which means 36% of total regulated CapEx. Asset renewal and efficiency was EUR 93, so 45%, while the standard CapEx was EUR 39 million, meaning 19%. Non-regulated and other CapEx stood at EUR 11 million, which includes capitalized financial charges and other investments. Regarding net debt and cash flow analysis, let's move to page 14. Net debt at the end of the first quarter 2020 was EUR 8,409 million, EUR 150 million higher than 2019 year-end level, and mainly linked to the strong CapEx acceleration of the period.
Let me underline that on the working capital side, we registered no relevant delay on cash settlements, thus we do not expect any issue with bad debts in the coming months. In this context, we generated an operating cash flow of EUR 306 million, 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. We confirm our solid financial structure with a duration of 4.8 years and a level of fixed to total gross debt of about 80%. Moreover, we do not see relevant financing needs until 2021. As a consequence of the debt management activities delivered, cost of net debt at the end of the period remained substantially in line with year-end 2019 levels.
Let me highlight that following the presentation of the 2020-2024 strategic plan, all the main rating agencies confirmed the rating assigned to Terna. To this extent, let me also highlight the fourth recent rating affirmation coming from Fitch, despite the downgrade of the rating of Italian government bonds, decided just a couple of weeks ago. Thank you very much for your attention, and we are now ready to open the Q&A session. Please.
Thank you, ladies and gentlemen. We'll now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, that's star and one for any questions. Your first question comes to the line of Harry Wyburd from Bank of America. Please ask your question.
Hi. Good afternoon, everybody. Thanks for taking my questions. I've got three, please. First one, there's been some press mention of the idea of a tie-up between Snam and Terna. I just wondered what your view was on the plausibility of that ever happening. The second is just on demand. You gave us some good detail of what happened in the first quarter. It'd be really interesting to get your view data in terms of what you've been seeing in the last few days as the lockdown has started to lift. Are there any trends that you've seen in your role as the system operator in terms of a resumption in business demand that are important, that might help us understand what the impact of demand is going to be, not just on you, but on the wider sector?
Just the trends on demand in the last few days. Then, the final one, just on the regulatory review. Still some way off, but I'd be interested in your thoughts on whether the crisis might have a bearing on the review. Clearly, I presume the government will be keen to keep investment going, given that it has a very high GDP multiplier. Do you think, therefore, that the regulator perhaps, either directly or indirectly, might end up being perhaps a bit more lenient in terms of the returns allowances that it gives at the next WACC review? Thank you.
Let me start from the last one. No, honestly, I do not see any implication coming from the crisis regarding potential changes in the regulatory approach of the Italian Energy Authority, and in general, regarding the approach of the government vis-a-vis the realization of investment. On the other side, I see some opportunities here. I confirm that acceleration of investment in infrastructure is one of the main tools to assist the economy for a fast recovery. That's what we are doing in operational side. As I just said during my speech, we were obliged to take some decision to stop some work somewhere, not because we were not allowed, given that the electricity transmission is a sector that has a special authorization to continue its work. The problem was logistic issue, given that the country was basically closed until two weeks ago.
It was not possible to move goods and people around the company. What we are doing now, and we already started two weeks ago, is progressively reopening of our sites, and we are also rescheduling all the activities foreseen for the second half of the year, trying also to anticipate some activities that originally was expected in the first half of 2021. We are also asking assistance to the government from an authorizational side in order to obtain some acceleration also in the authorizational process in order to allow us to recover. What can I say is that today, we are close to the 80% of activity normally restored. We have more than 100 sites, construction sites, that have been reopened in the latest weeks.
Let me start here to comment the second question about the demand. Of course, during the lockdown, especially starting from the second half of March and the end of April, we have seen relevant decrease in the total energy demand. Also, in some weeks, we have seen a huge reduction with respect to the same weeks of the previous year. In some weeks, we have seen a reduction of almost 20%. Today, we expect at year-end, an average reduction between 8% and 10%. This is the view that we have today. This will not have relevant implication on our margin, given that, as you know, only a very limited portion of our revenues are directly connected with the volumes that are transported on the grid. Consider that out of EUR 2.2 billion of regulated revenues, less than EUR 200 million are related to volume.
You can consider something slightly less than two million for each percentage point of reduction. As said before, we see some millions of reduction that we can easily manage by year-end. That's why I don't see any impact in the marginality for 2020. Coming to your first question, of course, the merger between Terna and Snam is a topic that has been already discussed several times. What can I say here? We have continued in a framework of technical collaboration, working together in order to build the joint energy scenario for the future. That is something that is interesting for both of us. Thank you.
Okay. Thank you.
Thank you. Next question comes live, Enrico Bartoli from MainFirst. Please ask your question.
Hi, good afternoon. Three questions also on my side. First of all, a general question about, let's say, the impact that you expect from the COVID emergency on the approach or the support at political level to the energy transition. If you can elaborate a bit, some hints on possible discussions or signals that you receive political level, both on the EU and Italian side. Linked to this, on the press, there were indicated some discussions with the government about the possibility to speed up the authorization processes to increase, accelerate the CapEx execution on also your side, if you also can give us some comments on this. If you expect any impact on your operating costs from the lockdown or the emergency at the level of 2020.
The third one, you are quite clear, but if you can elaborate a bit more on any possible impact on working capital because of the economic situation, maybe there can be some delays or bad debt in the electricity system, if you can also provide some more details on this point. Thank you.
Okay, there are four. Let me give you the answer for the question one and two. Let me manage them together. What about investment and what about government approach in terms of authorization? Well, from a technical perspective, the investment that were needed for the energy system before the COVID emergency are still needed even after the COVID emergency. Let me spend one minute on this. I think that the emergency was an excellent tool to let us understand which are the physical and the practical implication of a system that is based more and more on renewable. As you can imagine, in the second half of March and the first half of April, the country was basically closed, industrial consumption were very low. Weather condition were excellent, so the contribution coming from renewable were impressive.
Of course, the technical implication to manage this increase were also impressive. That's why we had the practical demonstration that investment on grid are necessary in order to allow, from a technical standpoint, a massive acceleration in distributed renewable generation. We were already convinced about that, but now we also have the practical demonstration. This is something that is perfectly known at Terna level, and this is something that is also known at government level. I've said before to your colleagues, we are closely working with the government, given that it is clear that investment in infrastructure is one of the best way to stimulate the economic recovery of the country. There is a multiplier effect besides this.
We are working with policy makers on how the authorization process could be shortened in order to accelerate the investment process also for the coming years. Regarding the operational cost, of course, we have seen an increase in some specific type of costs, but they are being basically more than compensated by savings in other areas. As you can imagine, no one is traveling anymore in the company today. Also, the variable part of the FTE compensation has been dramatically reduced as a consequence of the application of the smart working. Also on operational cost side, we fully confirm the guidance that we have communicated. Regarding working capital, of course, if you are in a crisis environment, you can imagine that the final customer could decide to delay payments to the sale companies. Sale companies could decide to delay payments to distribution companies.
At the end, distribution company could decide to reverse this impact on transmission company as Terna is. Let me say two different things on this. The first, from a formal standpoint, the authority clearly say that this is not allowed with a specific resolution taken in the month of April. The transmission tariff is due by law. From a practical perspective, we have seen no delays. We cash in an average of EUR 160 million per month for the transmission component of our tariff, and we will not see any kind of delay.
Thank you.
Thank you. Next question comes the line of Stefano Gamberini from Equita SIM. Please ask your question.
Good afternoon, everybody. Three quick question, if I may. First of all, regarding if you can repeat what is your estimate in term of power generation consumption at year-end, the decline was 10% in March. Which kind of recovery do you expect for the full year, or what is the target on that? In particular, which kind of summer can we expect in term of electricity consumption, considering that the smart working increased a lot and probably the situation will remain this during the summer? The second, regarding the renewables. During 2019, if I'm not wrong, one gigawatt was installed and on stream. What happened in these two months? In particular, if you have some feedbacks from all the investors on the other side that are asking for new capacity and new interconnection for renewables, are they postponing their investment? If you have any visibility.
The last is just on the guidance, if it is possible, of net debt at year-end. Thanks.
Well, let me start from the last one. As you know, no guidance will be provided on net debt. Regarding volumes, let me repeat what we see at year-end, cumulative at year-end, is a reduction of total consumption between 8% and 10%. It was not related to March, it was related to the whole 2020. Thanks. Regarding renewables, now, we continue to see a progressive acceleration. We already start to see this acceleration in 2019 with additional one gigawatt installed. We are still working with a lot of private operators. As you know, we have a direct information coming from the demand that we receive for new interconnection, for new technical connection on the high voltage network. Of course, there is probably some delays related to the lockdown, but I don't see any relevant changes on this.
Just to understand, in the next quarters or during the summer, you see still a weak demand going ahead?
I see a progressive recovery of the demand respect the volumes previously expected. It will depend from the duration of the measures and the level of, let me see, release of the actual restrictions that we see in our normal life. It will not depend from us, of course. It will depend by the evolution of the crisis from an health and safety perspective.
Thanks.
You're welcome.
Thank you. Next question comes the line of James Brand from Deutsche Bank. Please ask your question.
Good afternoon. Nice to see relatively uneventful results at this kind of time. I have two questions on different topics. The first is on the LatAm operations that you have. I appreciate they're obviously a pretty small part of the overall group, and the overall group as a whole is very stable in the current environment. I was just wondering if you could give us a bit of detail what the COVID impact was on the operations and in LatAm, i.e., which of those projects are dollarized and which are in local currency? Obviously, there's been pretty big depreciations, and whether there are any volume impacts that we should be thinking about there. Second question is on your 10-year plan, which you published subsequent to the business plan, where obviously you set out the targets over the medium term.
The 10-year plan was a pretty punchy overall number in terms of CapEx and seemed to suggest annual CapEx going up quite substantially further than the kind of numbers that you'd outlined over the medium term, possibly up to over EUR 2 billion per annum, if my calculations are reasonable. I was just wondering whether you could talk a bit about that and what's driving the higher CapEx in the second half of the decade and where the opportunities are for greater investment. Thanks.
Okay. Regarding LatAm, as we know, we have Thank you. We have some activities in Latin America, especially in Brazil. We have some asset under construction in Peru and Uruguay. With limited size. Regarding Peru and Uruguay, of course, we see some slight delay in the realization, but we are absolutely not concerned, and we count on the possibility to recover the time that was lost. Regarding Brazil, we have asset in operation that are performed quite well without any negative implication coming from the COVID emergency. Let me say that, as you said, there is only a limited portion of our capital allocated in Latin America, that is expressed in local currency that we consider hedged in the long term. Second question was related to the path, let me say, about our investment spending.
Let me confirm that we are moving progressively from a situation coming from the past in which we were spending an average of EUR 700 million-EUR 800 million a year, to an average of EUR 1.2 billion, EUR 1.3 billion, even EUR 1.4 billion, dependently from the precise scheduling of the different project. This is confirmed by the 10-year development plan that we've just published a few weeks ago. We consider that EUR 1.3 billion, EUR 1.4 billion, it is the standard path, and if you look at the actual that we delivered to the market in the recent two, three years, we have moved from EUR 700 million-EUR 800 million progressively to EUR 900 million, EUR 1 billion, EUR 1.1 billion in 2020. We are reaching that path, and we will reach that path in the coming years. We will remain there.
Okay.
Thank you. Next question comes in the line of Javier Suárez from Mediobanca. Please ask your question.
Hi, good afternoon to everyone.
Hello.
Two question remaining. The first one is a follow-up after the previous question on the 10 years development plan. What the company has done, and I agree with the different administration inside about 10 years CapEx plan, that means an increase versus the previous plan. I just wonder if you can help us to understand the philosophy for this 10 years investment plan. What has been approved versus the previous version. I know that there is an annual recovery on this 10-year plan, but I just wanted to see what has changed in the latest version versus the previous one. The second remaining question is on the acceleration on CapEx. There has been several question on the capacity that the company has to give a contribution to the economical recovery through an acceleration on CapEx.
The question for you would be, to what level do you think that the company can increase its annual CapEx with its current structure? You just mentioned that CapEx has been increased to EUR 1.3 billion or EUR 1.4 billion per annum. To what level of CapEx the company could move into in order to help with economical recovery? Many thanks.
Well, I think that it is always possible to do better. I think that EUR 1.3 billion, EUR 1.4 billion, it is already quite ambitious. Never forget that the company was at EUR 700 million only a few years ago. If I'm not wrong, the business plan 2017, 2021, EUR 3.7 billion was the total CapEx expectation for the five-year horizon. Now we are at EUR 7.4 billion, it's two times. Basically, with the same organizational structure and basically, we are asking to our engineer to deliver between 50% and 100% more. It's an unbelievable effort that we are asking to our people. Of course, regarding our 10-year development plan, there are some relevant projects included in it. Let me mention the Tyrrhenian Link. That is a project that will connect the south of the peninsula with the north of Sicily and the south of Sardinia.
It will have relevant dramatic impact on the functioning of the electricity system in Sardinia. More than that, we will close a sort of ring in order to move electricity around the country, without moving through the peninsula, but moving through the island. You can imagine which will be the level of benefits that this will provide to the stability of the overall system. Of course, this sole investment will be something in the region between EUR 3.5 billion and EUR 4 billion, of which EUR 900 million are already included in the five-year business plan, and the remaining part will be completed after 2025. An additional EUR 1 billion will be connected to the Adriatic Link, another submarine interconnection that is included, this time, in the long-term development plan, but not in the business plan because it will start after 2025.
If you exclude some specific spike as these type of projects, I think again, that 1.3, 1.4 is an ambitious path for the future. I consider it fully sustainable also from a debt profile.
Thank you.
Thank you. Next question comes from line of Olivier van Doosselaere from Exane. Please ask your question.
Yes, good afternoon, and thank you very much for taking the time to answer our questions today. I only had one question remaining. It's actually, again, on volume effects. I understand you say that you don't see implications or risk of people not paying their bills, but I wonder what the implications would be of overall volumes actually just coming down, as you mentioned, between 8%-10% this year. Obviously, you get paid your transmission share, but if the volumes are down, does that mean that also the regulated costs are facing a shortfall in that order of magnitude, which would subsequently be recovered through a tariff increase? Are you paid in a different manner that might not be volumetric? If there is a need for a tariff increase to recover that, could you please indicate over what time periods that normally gets spread? Thank you.
I consider that, first, the impact coming from variation in volumes is marginal, because, let me repeat that 90% of our tariff fee is fully independent from the volumes that we transport on our lines. Of course, this is an extraordinary situation, and what we will see at the other end will depend, basically, from what will happen in the coming two months. Now, we see a progressive and fast recovery of the demand, and this is the consequence of a progressive reopening of the country, of the industrial activity, and the commercial activity, that we are seeing day by day increasing. Of course, this will have to be confirmed from a medical perspective. I'm not a doctor. I'm not here to convince anyone that we are out of the story or not.
Of course, if we will see some additional decision to reintroduce lockdown measures, of course, situation will worsen. I hope that at the very end, we will be able to contain such a reduction as much as possible. In any case, the impacts on our figures will be negligible.
Thank you very much.
Thank you. There are no further questions.
Okay, thank you very much for the time you dedicated to us, and have a nice afternoon. Hope to see you in the coming months. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.