Good afternoon, ladies and gentlemen. And welcome to Terna's Nine Months 2024 Consolidated Results Presentation. At this time, all participants are in listen-only mode. Please be advised that today's conference is being recorded. I would like to hand the conference over to our host speaker today, Mr. Stefano Gamberini, Head of Investor Relations. Please go ahead, sir.

Good afternoon, and welcome to Terna's nine months 2024 results presentation. My name is Stefano Gamberini, and I'm proud to be here today as Terna's new Head of Investor Relations. After 30 years as a financial analyst, I'm very excited about this new challenge. Together with the IR team, I hope to continue and improve the excellent relationship that has been built with the financial community supporting our company's growth. The call will be hosted by our CFO, Francesco Beccali. Following the presentation, we will have the Q&A session. So we kindly ask you to send any questions you might have to our e-mail address, investors.relations@terna.it. Francesco, please, the floor is yours.

Thank you, Stefano, and welcome on board. Good afternoon, everybody. Before starting to analyze the figures, I would like to share with you the main highlights of the period. First, I remind you that at the end of July, the authority published 3 documents regarding output-based incentive schemes renewal. We output-based -- the update of the allowed WACC and deflator assessment. More in details, the resolution 326 of 2024 provides from the start of the new ancillary services market incentive scheme for 2 periods of 3 years each, 2025 to 2027 and 2028 to 2030. According to the resolution, for each year of the period, 2025-2030, Terna will receive 12% of the overall MSD cost reduction. For each year of the period 2025 to 2027, the baseline will be represented by 2023 actual MSD cost increased by an extra component to take into account the expected changes coming from energy scenario evolution. Then as part of the definition of the WACC for the period 2025-2027, in addition to updating market parameters based on predefined rules, the consultation document 342 of 2024 addresses different themes, including the update of the beta parameter and the recognized corporate tax rate. The regulator is also evaluating to confirm the trigger mechanism to adjust the WACC to material changes in market conditions as done in the period 2022-'24. Finally, with the consultation document 340 of 2024, the authority initiates the process for evaluating possible revisions of the capital cost revaluation criteria for electricity and gas infrastructure services in relation to the use of the deflator. The authority is consulting on the possibility of continuing to use the deflator with corrective measures or replacing the deflator with other inflation indicators. Moreover, for what concerns the Italian transmission grid, I would like to announce the Terna signed term sheet with Acea for the acquisition of a portion of the high-voltage grid in Rome and suburban area. We are going to talk about it more in depth in the next slide. From a financial standpoint, we put a lot of effort on ensuring a balanced and solid financial structure. In this regard, let me remind you about the agreement signed on October 24, with the European Investment Bank for EUR 400 million loan for the renewal of the Italian transmission network. Let's now talk about our sustainability commitment. As already stated in the past, for us, sustainability is not only in what we do, but also in how we operate. This commitment is reflected in our financial structure. Indeed, besides the ESG credit facilities already published and disclosed to the stakeholders with the second quarter results and financial statements in July and October, Terna signed 2 ESG-linked credit facilities for a total amount of EUR 800 million. The credit line will have a maturity of 5 years with financial charges linked to Terna's performance in relation to specific environmental social and governance indicators. Finally, regarding our shareholders' remuneration, today's Board of Directors approved 2024 interim dividend of EUR 11.92 per share, up by 4% compared to the previous year, in line with the baseline dividend policy communicated to the market. Let me now spend a few words regarding the new deal. Moving to the next slide. As mentioned before, Terna signed a term sheet with Acea from the acquisition of a portion of the high voltage grid in Rome and suburban areas. This deal is driven by several key factors that are aligned with our long-term goals. By consolidating our high voltage operations, we can greatly reduce operational complexity, including congestion resolution and the improvement of quality of service. This simplification allows us to respond more swiftly to challenges and enhances our overall service delivery. Another crucial aspect of this acquisition is the centralization of high-voltage management activities under the control of the transmission system operator. It is worth to underline that this process is aligned to ARERA resolution 616 of 2023, which introduced an incentive mechanism aimed at promoting the transfer of the high-voltage grid assets from distributors to Terna. The purchase price of EUR 224 million represents a 10% premium on the estimated 2024 calendar and it is subject to some adjustments, including the 2025 CapEx spending. Moreover, the deal includes the purchase of optical fiber network, part of which for the portion exceeding the national transmission grid needs is commercialized to third parties. The acquisition with simplified investment decision process and increase the basket of potential projects on high-voltage grid within the Rome area and Central Italy. It should also be pointed out that the acquisition of existing assets as compared to the development of a greenfield project allows to an immediate recognition of the full time, which, together with the expected contribution from optical fiber network commercialization allows the deal to be EPS accretive from the first year. In conclusion, let me remark that the translate -- transaction is fully aligned with the objectives outlined in our 2024-2028 strategic plan with neutral effect as far as our credit revenue is concerned and aim at reinforcing our commitment to grow. Now let me give you the usual overview of the Italian electricity market. Turning to the next slide. As you can see from this chart, in the first nine months of 2024, national demand was about 236 terawatt with an increase of 2.1% versus last year when national demand was about 231 terawatt hour. The increase mainly concerns the third quarter of the year. Indeed, as you can appreciate from the graph also due to the high temperature registered during the summer, national demand in the third quarter was about 84 terawatt hours, almost 4% more versus the same period of last year when demand was about 81 terawatt hour. In the first nine months of 2024, renewable sources covered about 43% of national demand, 6 percentage points higher than last year. Regarding national net total production, this stood at 199 terawatt hours, 2% higher than the same period of 2023 with a remarkable increase in hydro production, which grew by 45% compared to the same period of last year. Let me also highlight that in the period, renewable sources covered more than half of the national net total production. The increase versus last year is also due to the contribution of solar production, which grew by 17% compared to the first nine months of 2023. To conclude, let me share with you that in 2024, the operating renewable capacity increase of 5.3 gigawatts. This value is 33% higher compared to the same period of the previous year. Let's move to the main figures of the period. In the first nine months of 2024, we registered a double-digit growth in all P&L lines and CapEx. Indeed, group revenues and EBITDA increased by 18% and 22%, respectively, versus last year, resulting EUR 400 million and EUR 336 million higher than the first nine months of 2023. We also reported a group net income of EUR 813 million, up by 27% compared to the same period of last year. Group CapEx was about EUR 1.7 billion in the first nine months, with an increase of 19% versus the first nine months of 2023. This confirms once again our efforts to accelerate investments to fulfill the needs of the Italian energy systems and enable the green transition. To support this acceleration at the end of September, net debt stood at around EUR 10 billion versus about EUR 10.5 billion in 2023 year-end as described in the upcoming slides. Now let's make a deeper analysis of the results, turning to the next slide. Let's start with the revenue analysis. Total revenues in the first nine months of 2024 reached EUR 2,647 million, increasing by 18%, up by EUR 400 million versus last year. Such increase was attributable both to regulated and nonregulated activities, which contributed for EUR 317 million and EUR 83 million, respectively. Let's now go into the details of the revenues evolution moving to the next slide. Regulated revenues in the first nine months were EUR 2.222 billion, EUR 317 million higher than last year, which means an increase of about 17% compared to the same period of 2023. The increase was mainly driven by the increase in WACC and the updated value of regulatory WACC. Nonregulated and international revenues reached EUR 426 million, 24% higher than last year. Nonregulated growth was mainly attributable to the increase in revenues coming from the equipment business related to Tamini plus EUR 32 million and to the higher contribution of LFT Group's Energy Services for a contribution of EUR 37 million. International revenues were set to zero. Given that the requirements of IFRS 5 have been met, the total results for the first nine months of 2024 and 2023 attributable to the South American subsidiaries included in the planned sales of assets initiated at the end of 2021 have been classified in the item profit and loss for the period from assets, as for sale in the group's reclassified income statement. Now let's go to the operating cost analysis. As you can see from the chart, total operating costs were EUR 755 million, 9.3% higher than last year. Regarding regulated activities, the difference year-on-year is almost flat. The impact on personnel expenses resulting from the growth in the work cost for the implementation of the group's investment plan was offset by a corresponding increase in capitalized costs. Nonregulated activities were mainly impacted by higher costs for the purchasing of raw materials and services related to the LC Group and Tamini. These increase were driven by higher volume of activities reflected also in revenue growth. Let me now analyze EBITDA. Moving to the next slide. Due to a previously mentioned effect, nine months '24 group EBITDA amidst EUR 1.892 billion, 22% higher than the same period of last year. The increase was mainly attributable to regulated activities, which contributed for about EUR 316 million, more versus the same period of last year showing an EBITDA of EUR 1.824 billion in the first nine months of 2024. Also, nonregulated activities contributed to the EBITDA improvement with a 42% growth versus the first nine months of last year, showing an EBITDA of EUR 68 million. Let's now move to the lower part of the P&L. Moving to the following slide. D&A amounted to EUR 635 million. The increase versus last year was mainly due to the entry into operation of new assets. As a consequence, EBIT reached EUR 1.257 billion, 28% higher versus the first 3 quarters of 2023. We reported net financial expenses at EUR 105 million. The increase versus last year was mainly attributable to the subscription of new financing and the increase of interest rate, partially mitigated by higher financial income on available liquidity and higher capitalized financial expenses. Taxes stood at EUR 339 million, and our tax rate stood at 29.4%. As a result, group net income reached EUR 813 million, 26.6% higher versus the same period of last year. Moving to CapEx analysis. In the first nine months, total CapEx amounted to EUR 1.699 billion, 19% higher than the same period of last year confirming the robust acceleration in line with our institutional. It means we invested about EUR 1.625 billion in regulated activities. Among the main projects of the period, it is worth mentioning the Tyrrhenian link, the Adriatic Link, the SACOI 3, the modernization of the high-voltage grid in the locations due towards the Winter Olympics in 2026 and the investment in stabilization devices for grid security, including synchronous compensators. Among CapEx categories, development CapEx registered an increase in the contribution of total CapEx representing 61% of the total versus 56% in the first nine months of 2023. For the remaining categories, asset renewal and efficiencies accounted for 29%, while defense CapEx stood at 10%. Nonregulated and other CapEx stood at EUR 75 million. This includes capitalized financial charges for EUR 52 million and other investments. Regarding the debt and cash flow analysis. Net debt at the end of September 2024 was about EUR 10 billion, almost EUR 500 million lower than 2023 year-end level. mainly thanks to the positive impact of the hybrid green bond issuance recognized as an equity instrument, partially mitigated by the dividend payment in June. During the period, we generated an operating cash flow of EUR 1.388 billion, thanks to which we were able to cover more than 80% of the CapEx spending of the period. Let's now make a detailed analysis on our debt provide. Moving to Page 16. In line with our cautious and proactive debt management approach aimed at maintaining a low risk profile and a solid financial structure, at the end of this first nine months of 2024, we registered a fixed floating ratio on gross debt of about 86% and an average duration of about six years. In line with our strategy of combining sustainability and growth to promote the energy transition as said at the beginning of the presentation, in October, Terna signed an agreement for EUR 400 million loan with European Investment Bank at a very competitive condition. This is a 22-year loan to support investments for the renewal of the electricity transmission grid in Italy and at improving resiliency and reliability. Moreover, besides the ESG-linked credit facilities to the stakeholders with the second quarter results and financial statements in July and October, Terna signed 2 ESG-linked credit facilities for a total amount of EUR 500 million. The lines will have a total term of 5 years, and will be linked to Terna's performance in relation to specific environmental, social and government indicators. Thank you for your attention. Now before moving to the Q&A session, let me share with you some closing remarks. First of all, I would like to underline that we are well on track in the execution of our CapEx plan and accelerating on 2028 plan targets through the term sheet signed for the acquisition of the portion of Rome high voltage grid. This represents a solid ground for the future, especially regarding the integration of renewable energy sources into our grid. By enhancing our infrastructure, we are not only increasing efficiency but also paving the way for a more sustainable energy future. Moreover, as you appreciated from the presentation, we were able to deliver a very strong set of results for the first nine months of the year with a double-digit increase in all P&L lines. To conclude, thanks to the increased contribution from the output-based incentives related to the current MSD scheme, which will finish at the end of the year, a low internal dispatching costs and related charges for end customer reduction, we are now able to improve our 2024 guidance. We expect revenues at EUR 3.610 billion, almost 2% more compared to the previous guidance, maintaining regulated revenues from the tariffs in line with estimates. We will also improve 2024 EBITDA guidance, now set at EUR 2.5 billion as well as EPS guidance, which rises to EUR 0.52 per share, 6% higher compared to the previous one. Thank you for your attention. We are now ready for the Q&A session.

[Operator Instructions]

Thank you, Francesco. Let's start from the questions about nine months results. We received many ones about output-based incentives. Could you give more details about how many output-based incentives have been accounted in nine months '24?

Sure Stefano. The output-based incentives are recognized in nine months '24 are about EUR 200 million, substantially in line with previous year. These are mostly related to dispatching service market efficiency incentives connected to cost savings related to the reduction of the volumes traded on the market and residually linked to the interzonal incentive schemes connected to the creation of additional transport capacity around the Italian pricing zones.

Again, on incentives. Could you provide your new expectations on 2024 overall contribution from output-based incentives?

Sure. Let me underline once more that the output-based incentives for 2024 are mainly related to the mechanism of incentives for dispatching activities ending this year. The scheme which was aimed at rewarding the efficiency of dispatching activities and as a result, reducing dispatching service market cost. Our expectations reflect the update in the performance estimates for 2024, which will allow to book incentives slightly over EUR 300 million in line with MSD incentives accounted in the year 2023. In addition to this, for what concerns the incentives for additional interzonal transmission capacity, the expected value in 2024 is approximately EUR 15 million already accounted in September.

Last question about this topic. Could you guide on the expected contribution from the recently approved new output-based incentive framework on dispatching for next year?

Well, as already stated during past month, in the 2024-2028 strategic plan, we assume about EUR 400 million of cumulated output-based incentives in the business plan period with the front-end loaded distribution. At current rate, we will not provide the precise guidance on the further contribution we could have from new frameworks approving during 2024.

Now regarding OpEx, could you comment about the regulated labor cost trend in nine months '24?

Sure. The labor cost in the first quarter decreased versus the same period of 2023. Despite the increase of the gross personnel expenses for the growth of the number of employees, we are more or less 330 full-time equivalents more than the previous year. The labor cost decreased as a result of higher capitalized personnel costs compared to the previous year to support CapEx acceleration.

Regarding financial structure, could you update us on your plans to finance your current CapEx plan? What is the current hybrid capacity and what are the additional levers to manage the financial sustainability?

As already stated during the Capital Market Day and then confirmed by rating agencies the 2024-2028 CapEx plan is fully sustainable under a financial standpoint. As to the levers to manage the credit worthiness of the company, we confirm that we could, if needed, use all the full hybrid capacity of the company that we estimate to be by 2028, up to EUR 4 billion, which includes the EUR 1.85 billion already outstanding. Moreover, we could have further flexibility through additional grants that we could use if necessary.

Going now to recent regulatory updates. Could you please give some color on the potential shift from deflator to CPI for the RAB indexation?

Sure Stefano. Consider that as mentioned during the presentation, on July 31, the Authority started the consultation process to evaluate if continuing to use the deflator with corrective measures or replacing the deflator with other inflation indicators to overcome the issue of lower capital revaluation levels compared to inflationary trends and of low stability and predictability of the deflator. The consultation process will conclude at the end of April 2025. With regards to deflator applied to 2024 tariff, which was set by the regulator at 5.9% as on October 4, published the value of the fixed investment deflator by also valuing the second quarter of 2024. In these publications made the revision of the old historical series, which brought back the 2023 variation to a positive value from minus 0.8% to 1.2%. In this regard, we do expect the 2024 deflator for tariff will not defer substantial from the current 5.9% which was set [inaudible]

Could you comment about what expectation for 2025 onwards, please?

The WACC value for the period of 2025 to 2027, will be updated by ARERA by year-end. The observation period for the update of the main macroeconomic parameter concluded in September. Current mark-to-market, including the application of the graduality rule set for calculating the allowed cost of debt and assuming any change in fiscal and beta parameters would lead to a 5.4% WACC. By the end of the year, ARERA will issue the resolution with the final value, including the decision on meta and tax rate.

Okay. Now we have a question about storage system. Could you provide an update on the Italian Max -- so-called Max framework, please.

Sure. As you know, to ensure the development of the required storage capacity, Terna has been working on the design of the Max, the long-term procurement mechanism dedicated to storage technology. The Max then, which has been drafted in compliance with the legislative decree 210 of 2021, has been approved by the Ministry of Environment and Energy security at the beginning of October. This message will ensure that new storage capacity will be procured progressively over time and the first option is expected to be held by the first half of 2025.

Okay. So there are also a few questions about the progress of procurement and authorizations. Could you give us an update on that?

Regarding authorization, I can say that we are on the right path. And the CapEx plan is strong and very solid. All the main HVDC projects are authorized. For more concerned procurement, we are sensitive to potential shortages and bottlenecks along the relevant supply chains investing in the industry. We manage this risk setting up an array of actions to handle possible drawbacks in a timely and efficient manner. So also on the procurement side, we are very well on track, given that we have already locked in, almost all the procurement needs till the end of 2024, also thanks to group contribution. Indeed, of the 2024-2028 CapEx plan, more than 80% has been already authorized, and more than 75% is covered by this existing procurement contract. This percentage increased to more than 80% if you include procurement contracts, which are under negotiation because the tender is ongoing.

We have seen a few questions about potential CapEx update and the main new green development projects. Could you comment on that?

Well, we are now in the process of shaping the new national development plan that will be presented during the first part of 2025. So for this purpose, we could be more precise on potential updates on future CapEx needs in the first months of next year.

Thank you. Now on the guidance increase just presented. Could you comment on the drivers behind 2024 target improvement and it will have an impact also on the future years?

Thanks to the strong set of results presented today. As we said during the presentation, the increase of our 2024 guidance is mainly linked to higher-than-expected contribution of the output-based incentive schemes related to a significant reduction in the MSD costs and the greater benefits for the system that we were able to generate. Let me remind you that the current output-based incentives framework will conclude at the end of this year. For this reason, our 2024 performance will not imply any upside in the following years.

Okay. Now on the dividend policy. Will the increase in 2024 guidance affect your dividend policy?

As you may remind, our dividend policy, which ensures constant and predictable growth as well as full visibility envisages at least 4% annual growth over the period taking 2023 as the reference year. Only for 2024, minimum dividend per share will be equal to the higher of the 4% growth versus 2023 and the 75% payout ratio. Let me remind you that any higher dividend in 2024 will not have any impact from 2025 onwards.

Okay. Let's move now on the deal with Acea. Can you please give some color on the rationale underlying the agreement with Acea for high-voltage grid acquisition you announced today?

Sure. In this agreement, as we said in the presentation, reaffirms Terna's key role within the National Electricity System, allowing for more efficient planning and operational management of the national transmission grid, especially in Romania to strengthen service continuity and security. Moreover, the acquisition of these assets will also support a better decision-making process in renewal and development investments for the national transmission grid again in Rome and Central Italy, unlocking potential new growth opportunities. This is a transaction which has a very strong industrial rationale. But let me also underline that this deal will be EPS accretive starting from year one.

Okay. What is the timing of purchase process, please?

We expect to proceed with the signing by, let's say, January 2025. The closing is expected to happen around mid-2025.

How will this deal affect your 2025 EPS?

As we said earlier, this deal is expected to be closed around mid-2025. So the impact will be limited. However, we expect it to be EPS accretive from year 1, with a contribution of few euro million starting from the closing date.

Okay. How large is the fiber optic network and what is the expected revenue contribution?

As we said, part of the network is contracted out to third parties. So we have a guaranteed revenue stream from year 1, and we can expand the network capacity further in the future.

Last two questions. What is the level of CapEx that you may add to your investment plans, thanks to this deal?

Let's say, the network included in this deal will require in the coming years, the necessary investments for the maintenance and renewal of the assets. In addition, there are further investments we may consider undertaking for the development of the network in order to improve the management of the system, strengthening service security and continuity.

Do you plan other acquisitions on Italian regulated assets?

As we said during the presentation, this deal is included in the ARERA resolution 616, 2023 perimeter, through which the authority incentivized distributors to divest certain assets. These assets are formally considered as part of the electricity distribution network, but from a technical point of view, they are more functional to the high voltage transmission system. Having said that, at current stage, we do not have any other potential deal in an advanced stage discussion. However, other smaller transactions are not excluded in the future.

Okay. So thank you very much, Francesco. There are no more questions. So Francesco, please.

Thanks, everybody, and see you next time.