Good afternoon, ladies and gentlemen, and welcome to Terna nine months 2023 consolidated results presentation. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I'd like to hand the conference over to our host speaker today, Mr Omar Al Bayaty, Head of Investor Relations and Sustainability. Please go ahead, sir.
G`ood afternoon, everyone, and welcome to Terna's nine-month 2023 results presentation. The call will be hosted by our CFO, Francesco Beccali. Following the presentation, we will have the Q and A session. We kindly ask you to send any questions to investor.relations@terna.it. Please, Francesco, the floor is yours.
Thank you, Omar, and good afternoon, everybody. Before starting, let me say that I'm really proud to take on this new challenge, and I would like to thank the company for the opportunity I was given, that I'm tackling with a lot of energy, motivation, and commitment, fully aware, due to my experiences, of Terna's huge potential. Now, let me show you the main achievements of the period. Regarding regulated activities, let me say that we are really well on track for what concerns authorization processes and procurement of the main projects included in our strategic plan. Indeed, in September, the Ministry of Environment and Energy Security has authorized the western branch of the Tyrrhenian Link and the final project of the Sa.Co.I.3. As you know, the Tyrrhenian Link is a direct current submarine power line that will connect Sardinia, Sicily, and Campania.
It is a strategic project for the Italian electrical system within the framework of the energy transition target set by the National Integrated Plan for Energy and Climate, the so-called NECP. It will contribute to achieve the phase out of coal by increasing the transport capacity, enhancing the security, adequacy, and flexibility of the national electricity transmission grid, as well as promoting the integration of the domestic market and renewable sources. For what concerns the Sa.Co.I.3, the project aims to connect Sardinia, Corsica, and Tuscany with a total capacity of up to 400 MW. Once operational, Sa.Co.I.3 will contribute to strengthen the European electricity market, promote the development of renewable sources, and increase transport capacity between central and northern Italy, Sicily and Sardinia. This will bring a great reliability and security of the national transmission grid and the reduction in cost for the dispatching service market.
In addition, regarding procurement, at the beginning of September, Terna awarded Prysmian the contract for the supply and laying of submarine and underground power cables of the Adriatic Link, the 1,000 MW HVDC connection between the Abruzzo and Marche regions. The cable supply is another milestone in the rapid implementation of the project. Moving to our sustainability achievements, Terna reaffirms its status as a global sustainability leader. Indeed, this is the 13th consecutive year that the company has been listed in the Stoxx Global ESG Leaders Index, which selects the best companies globally based on ESG best practices. Finally, regarding shareholder remuneration, today, Board of Directors approved 2023 interim dividend of EUR 0.1146 per share, to be paid at the end of this month, up by 8% compared to last year, in line with our dividend policy.
After this brief introduction, let's now look at the latest trends regarding electricity demand in Italy, turning to the next slide. As you can see from this chart, in the first nine months of 2023, national demand was about 233 TWh, recording a decrease of 4% on last year, when national demand was set at 242 TWh. The reduction in electricity demand in the first nine months of the year is mainly due to the decrease in industrial consumption and the increase in average temperatures. In the first nine months of 2023, renewable sources covered about 37% of national demand, five percentage points higher than last year. National net total production stood at 197 TWh, about 7% lower than the same period in 2022.
Despite that, let me highlight the remarkable increase in hydro production, which grew by 29% compared to the first nine months of last year. Moreover, in the considered period, renewable sources covered about 44% of the national net total production. Now, let's move to the main figures of the period. In the first nine months of 2023, group revenues and EBITDA were up by 13% and 10% respectively, versus last year, which means EUR 265 million and EUR 144 million euros higher than the first nine months of 2022. We also reported a group net income of EUR 642 million , with an increase of 9% versus last year.
Group CapEx was one, was set at EUR 1,434 million, recording a double-digit increase of 39% versus the same period of last year. Re confirming our solid capital acceleration to serve the system needs and enable the energy transition. To support this acceleration, at the end of September 2023, net debt stood at EUR 9.5 billion, versus about EUR 8.6 billion at 2022 year end. Now, let me give you a deeper analysis of the figures of the period, moving to slide eight. Let's start with the revenues analysis. Total revenues in the first nine months of 2023 increased by 12.8%, reaching EUR 2,247 million, up by EUR 255 million versus last year.
The growth was attributable both to regulated and non-regulated activities, which contributed EUR 184 million and EUR 71 million, respectively. Let's now go into details of the revenues evolution, moving to the next slide. Regulated revenues reached EUR 1,904 million, EUR 184 million better than last year. The increase was mainly driven by the investments acceleration made on the National Grid, and the higher output-based incentive effect related to the higher benefits generated for the system. Non-regulated and international revenues reached EUR 343 million, 25.9% higher than last year. Non-regulated growth was mainly attributable to the increase in revenues coming from Brugg and Tamini, and to the higher contribution of the energy solutions, mostly related to the LT Group.
International revenues were set to zero in accordance with the IFRS 5 accounting standard, referred to as assets held for sale. Now, let's go through operating cost analysis. As you can see in this chart, total operating costs stood at EUR 691 million, EUR 19 million, 19.1% higher than last year. Regarding regulated activities, the increase was mainly attributable to the insourcing of new competencies and increased level of activity, while non-regulated activities have been impacted mainly by higher costs for the purchase of raw material and services related to Brugg and LT Group. Let me now analyze the EBITDA, moving to the next slide. Due to previously mentioned effects, nine months 2023 group EBITDA reached EUR 1,556 million, EUR 144 million better than last year.
The increase was mainly attributable to regulated activities, which contributed for about EUR 132 million more versus the same period of last year, showing an EBITDA of EUR 1,508 million in the first nine months of 2023. Let's now have a look to the lower part of the P&L, turning to slide 12. D&A amounted to EUR 577 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 980 million, 9.3% higher versus the result of the nine months of 2022. We reported net financial expenses at EUR 81 million.
The increase versus last year was mainly due to the cost of the new financings and to the increase of interest rate, partially mitigated by the lower level of inflation in the period, the increase in capitalized financial expenses, and the higher financial income on available liquidity. Taxes stood at EUR 252 million, EUR 25 million higher versus last year, essentially due to increased profit and positive one-off items recorded in nine months of 2022. As a consequence, our tax rate stood at 29.1%. As a result, group net income reached EUR 642 million, 9.3% higher versus the same period of last year. Now, moving to CapEx analysis.
In the first nine months of 2023, total CapEx amounted to EUR 1,434 million, 39% higher than last year, confirming the solid acceleration in line with our institutional role over the country. Let me underline that this is a record-breaking level of CapEx for the first nine months of the year. Indeed, we invested about EUR 1.36 billion in the regulated activities. Among the main projects of the period, it is worth mentioning the Tyrrhenian Link, the Adriatic Link, the Elba mainland connection, and the investments in stabilization devices as synchronous compensators. Among CapEx categories, the development CapEx represented 56% of total regulated CapEx. Defense CapEx stood at 12%, while asset renewal and efficiency was 32% of the total. Non-regulated and other CapEx stood at EUR 74 million. This includes capitalized financial charges and other investments.
Regarding net debt and cash flow analysis. Net debt at the end of September 2022 was about EUR 9.5 billion, around EUR 900 million higher than 2022 year-end levels. Mainly as a consequence of the investment in the period and the payment of the 2022 final dividend made in June. During the period, we generated an operating cash flow at EUR 1.168 billion, thanks to which we were able to cover most of the CapEx spending of the periods. Let's have a little deeper analysis of our debt profile, moving to page 16.
In line, in line with our cautious and proactive debt management approach, aimed at maintaining a solid financial structure, at the end of this first nine months, we registered a fixed floating ratio on gross debt of about 87%, and an average duration of about six years. Moreover, Terna aims to establish itself as one of the leaders in the sustainable financial market. This strategy has been confirmed also during the first nine months of this year, and in the process of updating its green bond framework, Terna achieved by Moody's, in late October, the highest possible score in the second party opinion, the sustainability quality score, one In this sense, let me remind you that in July, Terna launched a 10-year fixed rate green bond for a total amount of EUR 650 million.
The issuance was very successful on the market, with an order book, a peak of approximately four times the offered amount, and a final spread of 90 basis points over the mid swap. The green bond will have a duration of 10 years and will pay a coupon of 3.875%. Moreover, let me remind you that last May, Terna signed an ESG-linked revolving credit facilities for a total amount of EUR 1.8 billion. The transactions allows Terna to count on a liquidity appropriate to its current rating, further strengthening the company's financial structure. With regard to bank debt, two EIB loans totaling EUR 900 million for the construction and commissioning of the east and west sections of the Tyrrhenian Link project, signed in March, were drawn in June and in October, respectively.
To conclude, given the strong set of results for the period, we confirm once again all the guidance for 2023, waiting for the new business plan that we expect to present by the first quarter of 2024. Thank you for your attention. We are now ready for the Q and A session.
Thank you, Francesco. Let's start the Q and A session. We received a strong set of questions. We have grouped some of them together. First set of questions is related to the nine-month figures. The first point is related to the output-based incentives, and we received three main questions on that item. How many output-based incentives did you account for in nine months 2023? Do you confirm the EUR 300 million expectation for the full year? And what do you expect for the coming years?
Well, the output-based incentives recognized this year are about EUR 200 million, related to dispatching services, market efficiencies, which are connected to cost saving related to the reduction of the volumes traded on the market, and to inter-zonal incentives, connected to the creation of additional transport capacity among Italian pricing zones, as regulated by Resolution 567 of 2019. In 2023, we are assuming an amount of output-based incentives of about EUR 300 million, mainly related to the dispatching service market efficiency incentives. For the remaining years of the business plan, we expect output-based incentives contribution to continue consistently with the performance we will register on the relevant KPIs.
Thank you, Francesco. Now, let's move to cost of debt and financial charges. First question, can you give us more details on actual cost of debt and our expectation for full year 2023?
Sure. The cost of debt at the end of the first nine months of 2023 was 1.7%. As to the cost of debt for the full year 2023, we expect it to be slightly below 2%, reflecting the sharp interest rate increase observed in the last month, associated with the ambitious CapEx plan of the company.
Thank you, Francesco. Can you give us more color on financial charges in nine months, 2023?
In the first nine months of the year, net financial charges were equal to EUR 81.2 million, which is higher, EUR 25 million, more or less, higher than nine months, 2022. The increase in net financial charges is mainly attributable to the increase of interest rate, as we were also pointing out in the presentation, which affects the cost of the new debt, together with the floating portion of the existing one, and also is partially mitigated by the lower level of inflation in respect of 2022. On top of it. Let me also highlight the underline the increase in capitalized financial expenses and higher financial income on available liquidity, which both contributes to diminish the cost of debt for the period.
Thank you, Francesco. And, let's have a look to guidance and outlook. Any upside risk for guidance 2023?
As stated during the presentation, we confirm once again all the guidance for 2023.
Can you give us any comments about 2024 outlook?
Unfortunately, as for the 2024 guidance, as well as future years, we will wait for the discussion which we are having at the moment regarding the new business plan that we foresee to present, as already stated, by the first quarter of next year.
Thank you, Francesco. Now, let's move to execution. Could you provide us any updates or details on project execution status?
Sure. I can say that we are on the right path regarding the authorization process, construction activities, and procurement, in line with the milestones set in the updated industrial plan. Regarding authorization, in particular, almost all the budget CapEx has already been authorized. For what concerns procurement, potential shortage of raw materials do not represent relevant risk for Terna, given that we are already we have already locked in almost all the procurement needs till the end of 2023, also thanks to Brugg contribution.
Thank you, Francesco. Now, let's move to a more technical one regarding deflator and CPI. Do you have any comment regarding the GDP deflator trend versus CPI evolution?
Well, the only comment that I can make to this extent is that we observe that historically, deflator trend is less volatile than CPI, but that this is true both on the upside and on the downside.
Thank you. Thank you, Francesco. Let's move to dividend policy. Can you give us any updates on dividend policy?
First of all, let me say that our current dividend policy is fully sustainable and is aimed at maintaining the right balance between fair shareholder remuneration and the sustainability of the investment plan. I believe that this dividend guarantees constant and predictable growth, as well as full visibility over the plan period. Any other considerations about dividend policy will be part of the discussion of the new business plan that we foresee to present, as already stated, the quarter of 2024.
Thank you, Francesco. And now let's move to regulation. We have several questions regarding the recent resolution of the authority regarding the ROS. Are you able to give us any comments about the resolution concerning the implementation of criteria of the ROS regulation?
Sure. With the resolution, with the Resolution 497, published at the beginning of this month, ARERA establishes the application criteria for the ROS, the ROS base regulation, introducing the following regulatory measures, which represents an improvement compared to the current regulation. First of all, starting from 2024 investments and with effect from 2025, depreciation on assets will be recognized in the year following the entry into operation. Let me remind you that within the current regulatory framework, instead, in the tariff PRP, it is recognized the depreciation of assets that came to service up to year T -2 . Moreover, let me also highlight the revaluation based on deflator for the first four years of assets under construction, which are currently not revalued, and the application of the remuneration rate of the first two years, also to year three and four.
F urthermore, this rate is extended for the first six-year, for a specific subset of capital incentive assets, which are typically above EUR 1 billion. Finally, there is also the possibility of requesting the activation of the corrective delta factor, to account for operational cost increases related to new activities and changes in the scope of managed assets. With reference to the capitalization rates, let me also add that the latest resolution provides to determine it for the years to 2024 and 2025, based on the average rate of years 2021, 2022, 2023. And those are historical levels, while, and year 2024 and 2025, which are instead prospective values. For the capitalization rate of the years 2026 and 2027, ARERA proposed using the average rate between 2023 and 2027, with update or reopening possibly.
The assessment of the impact coming from this new regulatory framework will be part of the discussion of the new business plan, obviously. So we will give you more color on this in due course.
Thank you. So now let's move to international strategy. Could you please give us a comment on future steps in international strategy, i.e., U.S. transmission markets?
Well, let me start with an update on the consolidation process of LatAm activities, that will allow Terna to maximize the value of the international portfolio, optimizing the group's risk-return profile. At the same time, we will continue to scout for other opportunities. This may also be with partnerships, and will be selected ensuring a low-risk profile and limited capital absorption, leveraging of the know-how developed by Terna. Our focus will be addressed on markets with high growth profile and low country risk, as, for example, United States, you mentioned. We will take a gradual approach, opening and leveraging our know-how in the design and operation of infrastructures.
Thank you, Francesco. We received a question regarding the financeability of CapEx plan in current rate environment and balance sheet headroom. Can you confirm on that? In this context, do you plan to issue another hybrid?
Well, first of all, let me confirm that as already communicated to the market last year, we are committed to maintain our credit risk profile and are comfortable with current solid investment grade rating. The emission of February 2022 is the first evidence of this approach. Even though, so far, our financial ratios are indeed comfortably consistent with our rating, we decided to access the market in order to benefit from opportunistic market conditions, and starting to mitigate an issue that would only materialize years later, and that we will continue to monitor and keep under control. Our funding strategy going forward is to spread the hybrid issues over time, in order to optimize the portion of hybrid capital within our capital structure at any time.
Therefore, we will come back to such a market in the upcoming months or years, as soon as it will be necessary, and with the amount needed in order to protect our credit profile, potentially filling our hybrid supply. Finally, let me highlight that we are also open to rely on other tools in order to maintain our financial soundness. The agreement for the disposal of our international activities that we were discussing before, and that we signed at the end of April 2022, is an evidence of our willingness to focus on our core activities and to maintain the leverage under full control. Let me finally tell you that we have several levers at our disposal, and we will choose the most efficient ones from time to time.
Thank you. Thank you, Francesco. We received also some questions regarding Terna's potential involvement, both in offshore wind and storage. Can you elaborate?
Our current CapEx plan does not include any investments related to offshore wind and storage. Let me be clear on that. Grid connections request from large-scale offshore wind power plants have significantly increased recently. We will continue to monitor the evolution of these technologies, and any other consideration about it will be part of the discussion of the new business plan. For what concerns storage, it should be developed through market options, and Terna cannot be directly involved in. We strongly reiterate the importance of storage development for the electricity system, and we will actively monitor its evolution.
Thank you, Francesco. We receive a couple of follow-on questions. The first, regarding regulation, and the second regarding working capital. Starting from the first one, what's your expectation about WACC value for 2024 tariff?
Well, I'm stating the obvious when I say that for 2024 final WACC value, we have to wait the resolution of the authority to be published by year-end. Having said that, at the current stage, we are looking at an estimated WACC variation of about.
Some details on working capital dynamics for nine months 2023, and what are your expectations for the full year 2023?
In the first nine months of 2023, working capital reports a decrease of about EUR 204 million, compared to the end of last year. This result, that has a negative impact on net financial debt, is mainly due to, on the one hand, the reduction of about EUR 96 million in net trade payables. We are talking about net pass-through energy payables, due to lower debt from the essential plans for the security of the electricity system, only partially offset by lower credits from the cost of procuring resources on the dispatch and service market.
On top of it, we also have an increase of about EUR 214 million in net receivables, resulting from regulated activities, mainly due to the dispatch market incentive mechanism revenues, and to interzonal incentives revenues, which will be collected in accordance with time defined in the resolutions itself. Both previous items are partially offset by an increase of net tax liabilities of about EUR 128 million, due to the increase of income tax expenses for the period, and of the net VAT payables. Please bear in mind that in 2022, Terna benefited, as we already discussed, of a positive cash flow effect deriving from net working capital decrease. The expectation for the full year 2023 is to reabsorb, at least partially, the benefits coming from the pass-through energy items booked at the end of 2022.
Thank you, Francesco. We cover all the points.
Thank you, Omar. Thank you, everybody, for attending this call, and see you on the next business plan presentation.
Thank you.
The first quarter of 2024. Goodbye, everybody.
Bye.
Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.