A2A SpA Q1 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Javier Suarez - Mediobanca S.p.A. - Analyst : My first question is about the increase in the guidance. Can you please help us understand what part of this increase in the guidance in EBITDA and income is related to water effects, (inaudible) effects and which part is associated with better performance? There's definitely a contribution by both and I would be interested in understanding how these EUR100 million of EBITDA can be broken down? And the second question is with respect to what you said about in the business plan that you've recently presented. If my memory serves me well, from 2025, 2026, you have an assumption of hydro production of around 3.94 terawatt per hours. Can you confirm that? And looking at the circle average of the last ten to twelve years, I think you mentioned that you consider this to be -- whether you consider this to be a realistic or conservative assumption. And then I would like to have an update on the [selling] strategy for the previous -- well, in the previous quarter, you mentioned you wanted to achieve a 70% level for 2024 and then [2060] for 2024 and [2050] for 2026. Can you tell us about the forward selling, and can you tell us the price level that you plan to achieve in 2026? And then I have one last question about the supply performance, which is better than you expected? So can you give us some more generality about what we can expect from this strategy? Thank you. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 14, 2024 / NTS, A2.MI - Q1 2024 A2A SpA Earnings Call

Question: Davide Candela - Intesa Sanpaolo S.p.A. - Analyst : I have two questions. First question referring to generation, it's a conceptual question about hydro. As in 2022, with drought that has had tails in 2023, could an apparently positive year like 2024 have positive reverberations on 2025 in terms of water level? So is it possible to store terawatts for the following year, or is it convenient to generate more energy also for a price reason in 2024? Second question is about the network. If we look at electricity and gas ramps, I have seen significant growth, not only year-on-year, but also growth with reference to end of 2023, plus 18% for electricity. So end of 2023, did you still have a temporary RAB, not considering some aspects, like for instance, the deflator and inflation effect? Or do you have new impacting projects in 2024 which have produced these benefits? Unidentified Company Representative_1 As to hydro-production, it's very likely, if 2024 continues normally to reach year end with a build up in water reservoirs, We don't have any specific interest in depleting all of them in 2024. We have had to update the guidance in Q1. We have therefore the opposite interest. We don't have water reservoirs with a huge capacity. So this is definitely an element which is brought with some limitations. But in 2023, we had 3.7 gigawatt and this was also partly due to the fact that the year had started with empty reservoirs. While we deemed that 2025 will start with water reservoirs filtered to their maximum capacity level, this is important to consider we have reduced the hedging from 70% to 63% and there is no price decrease assumption in 2025. So also on the price side, we don't have any interest in anticipating the production in 2024 over 2025. As to the electricity RAB, it's a topic you're very familiar with. We don't have a RAB increase due to acquisitions. We have a RAB increase due to the fact that we have performed EUR234 million new investments in 2023. There are about EUR70 million depreciations and EUR170 million more of electricity, which stems from the huge investments we are making in the electricity grid so as to tackle the growth in the peak demand in the city of Milan where the distribution level is about terawatts 7 per hour and energy density which is five times higher than in Rome, and a network increasingly demanding for energy. A peak capacity of 1.7 gigawatt but we are suffering when we reach 1.5 gigawatts. So the investments we are making will help us reach 2040 with a 2.6 gigawatt capacity, which requires this level of investments. This is a very important element to consider. [Yasa] has a more limited increase, mainly due to the service contract with the municipality of Milan. Also, for gas we have incremental investments in our business plan. And for water you see a higher figure than we had originally assumed because it's some way self explanatory. We were supposed to transfer twelve small concessions to the in house operators in the province of Brescia called Acque Bresciane. And they didn't have the economics to step in and as a matter of fact, they have surrendered. They have given up. The assets are still controlled by us and the same goes for the RAB. We are still investing in water and we believe there can be great opportunities there in our future.

Question: Emanuele Oggioni - Kepler Cheuvreux - Analyst : I have a first question about the disposal plan to fund the acquisition of the electricity network from Enel. I would like to know whether you can give us some information about the assets. Before the call, I have seen some Reuters figures on a minority's stake in distribution. I don't know whether you can add some information on that? Second question relates to hydroelectric concessions. Lombardy region has not started an award process but has launched a call for bids concerning services so as to start the process of awarding the concessions which have expired, or which are going to expire before December 1, 2029. What's your stand on that? In the past, this was quite a logic. The approach was that these assets were central in Europe, so there are public concessions on these assets and the governments would then step in. This was at the expectation, it has not happened in 2023 and it has not happened year to date. Can you provide us an update on that? And then the last question about the ancillary service market for MSD, for dispatching services, which will be for sure weak in 2024, decreasing versus '23, as we have seen in Q1. Do you have any update, any guidance for 2024 as a whole? Unidentified Company Representative_1 Yeah. As to disposal, so there is nothing I can tell you. You will probably understand the reason for that. We have said -- sure, lesser than one month ago that we were working to identify assets that can be interesting for minority operations among these assets. Maybe Reuters were referring to that. There can also be gas networks in the last few hours. They seem to be in the center of everybody's attention. So allow us some time and you will then see that we will follow an easy line. We are interested in having assets that are valued positively and assets which do not cause any governance issues, assets which don't make our life or the life of our business plan more difficult. As to hydro concessions, we have 2000 megawatts for -- to the volume, for the call for bits, and this value is self-explanatory. By the way we are in a phase where it's not really easy to oversee whether this coal forbids this tendering processes will be completed or not. Councillors [of story] couple of days ago has written an article on that. There was an interview and he has answered very cautiously to the question about the new tenders. After European elections, there can be a reopening of the negotiation table with Brussels for hydroelectric concessions within the context of the DG competition to pursue the fourth wave that we still deem to be the main way for the future. My very personal opinion is that there will be no tenders for hydroelectric energy, but I would like to specify that Milan seems to be the only place where tenders are constantly held for public transport, for gas networks, for waste collection. We have recently been awarded the order -- a tender on that. There are many exercises to be carried out at the same time. [Meta] of Enel, we are the main operators in this sector, so we are not really concerned about the tenders for our business plan. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 14, 2024 / NTS, A2.MI - Q1 2024 A2A SpA Earnings Call I don't think it's logic to start them in a scenario of European competition. If there is no mutuality from other countries. We have well protected our gas networks and the waste collection networks. And we will also be able to protect and defend these assets where the level of confidence and the familiarity that we have with local territories give us a leading edge in properly managing these plants and taking part in the tenders. We see a normalization. The figure of Q1 is in-line with the budget and figures. We are not surprised by the situation. Also at business plan level, we had assumed a decreasing trend. We are in a cautious position, considering MSD margins. What is this regulator is now intervening on -- at Hera and some way we were expecting that. Thank you.

Question: Francesco Sala - Banca Akros - Analyst : First question. Is there more visibility on the closing date for acquiring Enel networks? Is it going to take place in the last few days of '24 or is it going to be postponed by a few weeks? The second question, have you done some reflections about changing the mechanism for calculating the single energy price? And the last question is about the model, the D&A model. So what we have seen in Q1, could it be projected also for quarter, two, three and four? Unidentified Company Representative_1 Can you repeat the question?

Question: Roberto Letizia - Equita SIM S.p.A. - Analyst : You have already answered to almost all of my doubts. Can you repeat the coverage price for 2025? You have mentioned the percentage, but not the price. Is there any change? And what about the spark spreads in Q1 and also expected evolution throughout 2024? So forward curves are now projecting a rapid change, can you expand on that? And then waste performance in 2024, what do you expect performance wise in the next few quarters? Unidentified Company Representative_1 As to the price, we have hedged 20% at [128]. For spark spreads, as always explained, besides the fact that the hedging in 2025 will not be significant because the market is not liquid enough to do hedging on that in 2024, we have a hedging of about 30% at a price of about EUR20. We should nevertheless consider that with the CCGT plans, we use flexibility, very much. So we manage to produce during time slots of the day when we profit from very attractive, very high peak margins compared to the average values you can reach. These two situations cannot be easily compared. It's therefore necessary to operate as we do with our energy management department. You need to operate on the market every day, every single hour together, experience, and be able to get these margins. What was the other question about?

Question: Davide Candela - Intesa Sanpaolo S.p.A. - Analyst : I have two questions. Basically, the first one is about financial expenses. I have seen a good performance in Q1. And I think that this is also due to extra return on liquidity and cash. And I would like to ask whether the trend -- the performance of the quarter is a proxy for the year, or whether there would be a slight increase over the next few quarters? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 14, 2024 / NTS, A2.MI - Q1 2024 A2A SpA Earnings Call And then I have a question concerning -- going back to disposals, but still with regard to debt or equity like instruments. I would like to ask whether an alternative solution could be to issue a hybrid bond instead of making potential disposals, or whether you remain focused on basically to avoid this -- diluting the EPS in future? So I'd like to know if you have any comments to make because that would be helpful. Unidentified Company Representative_1 Well, on the second point, that's definitely one of the available options. We are conducting some analysis in order to figure out what works best from a financial point of view basically. But definitely the various feasible options also includes hybrid bonds because this is a particularly positive time with regard to the demand for hybrid bonds on the market. And as to financial sustainability, well, in my opinion, I would say that we have very good return because for our cash -- but we really hope that interest rates will be decreased and I think we're not the only ones hoping for that. Let's see what will happen, but -- and let's see what Ms. [Lagarde] is going to do over the next few weeks. Unidentified Company Representative_2 Yeah, you're absolutely right. Well, in this case too, Q1 definitely takes into account of a good remuneration of assets of the available cash, cash on hand, and the balancing will depend on the interest rate trend and on whether we can turn to the market in an efficient way with a product which is currently being studied in the most opportunistic form for us with regard to the possibility of keeping -- extracting some value from invested cash. But let's say that we can -- to say something about EUR130 million, EUR150 million.