Endesa Sa Madrid

Good morning, everyone, and thank you for joining us today for our first half 2026 results presentation. With me today are our CEO, Gianni Armani, and our new CFO, Daniele Caprini. Before we start, let me remind you that after the presentation, we will move to the Q&A session. And starting from today, we will only take questions submitted in advance by email or through our website. In addition, given the busy earnings calendar with a large number of companies releasing results today, we aim to limit the duration of the call to one hour. Thank you once again and now I would like to hand over to Mr. Armani.

Thank you very much, Mar. The first half of the year delivered solid financial results. BDA increasing by 20% and net income growing by 41%. This performance reflects growth across all businesses supported by higher contribution from regulated activities including both distribution and non-mainland generation. These results highlight the resilience of all our businesses and the disciplined execution of our strategy. Growth has been supported by continued efficiency efforts, allowing us to improve profitability and maintaining solid financial ratios. At the same time, we continued to accelerate the execution of our investment plan with network remaining the main focus. Overall, the robust operational and financial performance delivered with more than 60% of full-year EPS target already achieved together with the strong visibility that we have for the remainder of the year In the first half of 2026, EBDA increased to 3.2 billion. More importantly, the contribution of our regulated businesses increased from around 40% to approximately 50% of total EBDA. This reflects the weight of networks and other regulated activity within our portfolio, further strengthening the quality and resilience of our earnings. This stronger earnings profile translated efficiently into solid bottom line results. Net income reached 1.5 billion euros, implying 45% EBDA to net income conversion, while EPS increased 46% to 1.44 euro per share. Lastly, cash generation remained strong with ABDA to FFO standing at 70% and FFO to net financial debt reaching 38%, supporting a strong financial position. Turning to market conditions, on slide 5, Power prices fell almost 20% despite the energy market being clouded by uncertainty and volatility stemming from the ongoing geopolitical tensions This decline has partially offset by the significant increase in ancillary services costs since one year after the blackout event the TSO Thank you very much. against this backdrop electricity demand showed a modest growth with largest increase on the residential segment mainly due to temperature effects followed by services and industrial demand still affected by the uncertainty of geopolitical scenario. This reinforced our view that further investments in the grids will play a critical role in enabling economic growth, supporting electrification and unlocking future demand. In this sense, the Royal Decree approved yesterday, of which we don't have yet the final text, significantly raised distribution investments CAP, providing additional headroom to accelerate CAPEX deployment in the coming years. As we can see in slide 6, we continue to accelerate our investment plan with gross CAPEX increasing by 14% year-on-year to 1.1 billion. Networks remained our main investment area representing more than half of total CAPEX. This increased investment effort has already delivered operational improvements with lower network losses and TAP remaining or even improving when exceptional weather related events are excluded. In renewables, the output reached 11 TWh, with 86% of mainland output coming from emission-free technologies. In supply businesses, the total customer base stood at 11.3 million, while free power customers increased to 6.3%. Spanish retail market remains highly competitive although we expect a more rational environment going forward as regulation tightens and market conditions evolve Thank you very much. We continue to reinforce our physical presence through the expansion of our directly managed commercial footprint enhancing customer relations and strengthening control over customer experience. At the same time, we continue to drive customer growth and loyalty through our digital initiatives while leveraging on Mass Orange partnership, exploring new opportunities for customer acquisitions and enforcing loyalty and enhancing commercial offering. Let me now hand over to Daniele for the financial results. Thank you, Daniele.

Thank you, Gianni. Before we begin, let me say that I am very pleased to be joining this call in my new role as CFO of Endesa. Turning to slide 8, let me briefly highlight once more the outstanding economic and financial performance delivered in the first half of 2026. EBITDA increased by 20% year-on-year, Thank you very much. Looking at the main drivers behind the strong financial performance, first, network EBITDA increased by 24%, mainly supported by the new regulatory framework in force since the 1st January of this year, and the effect of positive previous year resettlement resulting from the update of certain remuneration parameters booked in 1st January. Generation Supply EBITDA increased by 16%, driven by, first, higher customer EBITDA with the resilience both in gas and power margins, despite ancillary services cost increase, together with an improvement in fixed cost. Second, stable renewable EBITDA as the negative price effect from lower references was offset by better volumes and lower fixed costs. Then, in conventional generation, EBITDA also rose by 18%, supported by both margin expansion and cost containment. was driven by 0.2 euro billion improvement in non-mainland generation margin supported by the favorable regulatory framework which enabled future greenfield investments in this business as well as by prior years resettlements. This was partially offset by the normalization of the gas management margin. Operating costs decreased by 45 million euros, further contributing to EBDA growth. Turning now to our network business and I'm now on slide 11. As mentioned before, the new regulatory framework drove an improvement in earnings with the network's EBDA rising 24% to 1.2 euro billion. Representing 36% of total EBITDA, Networks continues to increase its contribution to earnings, further enhancing the visibility, resilience and the quality of our results. At the same time, we significantly accelerated investment, with the Network CapEx rising to 38% year-on-year to €0.6 billion, This reflects the increasing needs for grid reinforcement and expansion to support the energy transition and growing electrification trends. This investment effort is translating into continued growth of our regulated asset base, which reached 11.4 euro billion, providing additional visibility on future regulated remuneration and reinforcing the long-term growth profile of the business. Focusing on the retail business on slide 12, our retail action plan continues to deliver visible benefits, improving both the efficiency of our commercial model and the quality of our customer portfolio. We are seeing the benefits of a higher share of pool-driven acquisition and a lower cost to serve, reflecting a more efficient and disciplined customer acquisition approach. These improvements are also supporting stronger customer quality indicators, in particular, early churn decreased by 5%, while bad debt levels also continue to improve. Together, These trends are enhancing the quality, profitability and sustainability of our retail earnings. Now I'm on slide 13 and turning to our integrated power and gas unitary price margin. The free power margin remained broadly flat in absolute terms, absorbing the impact of higher ancillary services costs. Combined with the lower liberalized sales volume, this drove the unitary margin up by 6% year-on-year to €56 per MWh. We also reshaped our hedging approach to achieve a more flexible alignment between generation and supply profiles. This enhanced matching capability allows us to optimize the management of our energy position, strengthening the value of our integrated business model. Looking ahead, we expect the free power margin to remain in line with our full year 2026 guidance. Meanwhile, the gas margin remained broadly flat. Lower sales volumes dropped the unitary margin to €11 per MWh, up 7% year-on-year. Our high hedging levels in both power and gas continue to provide strong visibility with limited exposure to market volatility. Moving to slide 14, efficiencies continue to translate into tangible savings with fixed costs decreasing by 8% year on year. Efficiency gains more than offset inflationary pressures and the costs associated with business growth, supporting a continued reduction in the cost base. This performance reflects the ongoing execution of our transformation program, with more than 500 initiatives focused on simplifying the way we work, streamlining processes, optimizing assets, and accelerating digitalization. Across areas Such as workforce optimization, operational simplification, IT and software license optimization, asset management, procurement and commercial activities these initiatives are already delivering tangible productivity gains. We expect them to progressively materialize throughout the year. Moving now to slide 15, net ordinary income reached 1.5 euro billion, up 42% compared to the first half of 2025, reflecting the strength of underlying operating performance and positive, no recurrent effects. This resulted in an improvement in the net ordinary income to be the conversion ratio to 46% from 38% a year ago. DNA and provision remained broadly stable at 1.1 euro billion, as lower bad debt partially offset the increased amortization linked to higher investment. Financial results improved by 0.1 euro billion year on year, mainly driven by late payment interest income recognized following several favorable administrative and judicial rulings. Finally, the FTC Tax rate stood at around 24%. Turning to next slide, cash generation continued to be robust with the FFO reaching 2.3 euro billion implying a remarkable 70% cash conversion in spite of a transitory negative effect in working capital. Net financial debt remains quite stable as the strong cash flow generation was almost enough to fund investment needs as well as 1.2 euro billion of shareholder remuneration including both the interim dividend paid in January and the share buyback program which represented the cash flow outflow of approximately 550 million euro. It's worth highlighting the remarkable Thank you very much Daniele.

Thank you, Daniele. Let me now turn on to shareholder remuneration and provide an update on our share-by-back program, a key pillar of our capital allocation strategy aimed at maximizing long-term value. By the end of June, we had already completed more than 50% of our 2 billion share-by-back program. Keeping the execution firmly on track, indeed on July 15th we started the execution of the sixth trend amounting to 500 million, further reinforcing our commitment to enhance shareholder returns. Beyond the attractive effect of the buyback, our commitment to shareholder value is also reflecting the confidence in the earnings outlook for 2026, as shown in slide A19. As highlighted earlier, following the strong performance delivered on the first half of the year, including the positive contribution of certain non-recording items, and given our confidence in the outlook for the remainder of the year, We are upgrading our 2026 earning guidance. We now expect net ordinary income to exceed 2.4 billion comfortably, above the upper end of the original guidance range, translating into a higher earning per share and supporting enhanced shareholder returns. Before we conclude, let me leave you with some key messages. First, electrification remains the greatest opportunity for Spain. Unlocking a significant demand awaiting for connection will require accelerating grid investments, not only to support economic growth and energy transition, but also to improve Thank you very much. Providing resilience, mitigating market exposure and supporting sustainable long-term value creation. Thank you for the attention and we will now open to Q&A session.

Okay, thank you Gianni. Let's now move to the Q&A session. We received a lot of questions for the call that we have tried to summarize by topics. In particular, we received questions from Alberto Gandolfi, Goldman Sachs, Fernando Garcia, RBC, Jorge Alonso Berzing, Arturo Mourua, Jefferies, Rob Poulain, Morgan Stanley, Peter Vistiga, Bank of America, Jenny Ping, Citi, Mikey Becker, HSBC, Paolo Cuadrado, JB Capital, Pedro Alves, Lacasa, Davide Candela, Intesa, and Javier Suarez, Mediabanca. Thank you to all of you for participating. The first one is, could you quantify the impact of non-recurring items book on the first half results? I think, Daniele, that is for you.

Thank you, Mar. Approximately 0.2 billion of the 3.2 billion EBITDA report in the first half of 26 was driven by positive non-recurring items. This included around 0.1 billion in distribution related to the prior year remuneration resettlements and further 0.1 billion in non-mainland generation, primarily reflecting the favorable Supreme Court ruling on historical fuel remuneration. The next question is also on the first half results. Can you explain the evolution of the non-male and generation EBDA? Thank you very much. As well as from the lower O&M costs registered in the period. It's important to emphasize that the new remuneration framework for this business is considerably more investment friendly, enhancing the attractiveness of future investments.

We have received some questions asking for more details on how the supply will be in the second quarter.

The improvement in retail EBDA in first half 26 reflects to a large extent the benefits of the commercial and pricing action implemented over the past two months in our electricity retail business to address an exceptionally challenging market environment characterized by unusually high ancillary services costs. These measures progressively gained traction during the period and were further supported by lower energy sourcing costs, particularly in the second quarter. In addition, the gas retail business delivered a strong performance, especially in the B2C segment, providing a further contribution to earning growth. Finally, continued efficiency initiatives led to a meaningful increase.

Next, we have received a couple of questions about the efficiency plan evolution. The first one is how is the efficiency plan progressing? And on the same topic, how artificial intelligence is contributing to the efficiency plan?

Hello. Fixed costs in first half 26 evolved in line with the efficiency plan presented in February. As shown on slide 14, efficiency gains more than offset inflationary pressures and the costs associated with business growth resulting in a continued reduction of our cost base. In addition, we continue to implement further efficiency initiatives that are expected to progressively materialize throughout the year, supporting the achievement of our cost discipline targets. About the EA initiatives, the efficiency plan is increasingly driven by AI initiatives that at the moment cover approximately 50% of business processes so far. The adoption is focused on high-value use cases across customer operations, network management, asset maintenance, Software Engineering and Cyber Security, Workforce Productivity and Service Quality, Operational Resilience and so on. But some of our most advanced applications are already delivering tangible benefits in generation and in distribution, particularly in predictive maintenance, network monitoring and fraud detection.

The next question is about the hydro. How sustainable is the stronger hydro performance in the first half?

Well, hydro performance in first half 26 was slightly ahead of our initial expectation with the output reaching 5.4 TWh. Particularly not worthy was the contribution from pumped storage facilities up 29% versus first half 25%. This stronger hydro contribution provided additional support to generation earnings and overall integrated margin during the period. Looking ahead, our outlook remains constructive but fully consistent with the business plan assumption on a favorable hydro year in 2026. Reservoir levels remain healthy and comfortable above the 10-year average, providing good visibility for the remaining of the year.

We move now to the hot topic of the call that is the update on guidance. The first question is what gives you confidence in upgrading net ordinary income target?

We are upgrading our net ordinary income guidance on the back of a strong first half performance combined with the good visibility on the expected evolution of the business for the remainder of the year. The first half of the year delivered Solid results supported by positive operational performance in all business lines. In addition, we benefit from no recurring positive effects, both at the margin financial results left, which were not embedded in the guidance range presented at the Capital Markets Day. Taking all these factors into account and based on our current expectations for the second half, we now expect net ordinary income to comfortably exceed The following question was precisely about the main operational drivers for the second half. Well, the drivers are more or less the same. We don't expect any changes. but operationally we expect the second half to follow a trajectory broadly similar in distribution and mainland generation we will continue to benefit from the positive impact of the updated regulated framework applied to a growing asset base in the liberalized business we expect to maintain free power margin broadly in line with the first half 26 level landing at approximately at Thank you very much.

Thank you. An additional question is if Endesa could capture any upside from higher wholesale power prices expected for the second half of this year.

Very limited, if any. At this stage, our inframural marginal generation is effectively fully edged through fixed price sales to our customer base. As a result, I heard full price would have little impact on full year 26 earnings.

On a different topic, and I think this is a question for our CEO, some analysts are asking if following the recent management changes in Endesa, do you expect the current strategic plan to remain unchanged, or could there be some adjustment in the next capital market day?

Currently, our strategy drivers remain unchanged. Clearly, investors expect continuity and our focus is in delivering the most out of the strategy plan that we have presented previously. At the beginning of the year, as a group and as Endesa, we clearly will communicate a new investment plan in a capital market day at the beginning of 2027 with new market developments and the new regulatory trends, but of course our focus continues to be In the same directions with the slight adjustments even in the future.

Okay. Regarding the survey back program, we have received three different questions. The first one is if we are committed to complete the current survey back program. Second is if we continue purchasing sales considering the current price, if it makes sense or not. and finally, if we plan to launch a new Selva back program after the completion of the current one.

Very briefly, as we shown in slide 18, we are fully committed on the plan. The plan is clearly on track. We believe that the investment still remain value creative given the performance that we are delivering Paolo Bondi, Marco Palermo Most of the analysts are asking for our view on the royal decree recently approved. It was approved yesterday.

which increase the cap on the network investments.

Yes, the Ministry with this decree is fully aware that electrification is enabled by extension of grids and this allows both electrification and the change of The new version of the royal decree, even though we don't have the final version, Thank you very much. Thank you very much. Of course, this is the main focus of our strategy and we believe that this is the right direction that the regulatory framework is going.

We have two additional questions also related to the grid. The first one is what's your opinion on the new grid capacity reservation regime set in the Royal Decree Law 7? and if we expect further regulatory intervention to free up grid capacity.

Yes, of course, in demand and supply of grid capacity is creating great tensions in the correct availability of capacity. This regime is clearly under review from the Ministry and the Royal Decree 7 of the beginning of the year is intended to modify the balance of the market imposing new additional burden for speculative connection requests. Unfortunately, the released capacity for the application of the decree has been limited to 1.2 gigawatts in distribution and 1 gigawatt more or less in transmission. and this is not very much compared to the 45 gigawatts that are the outstanding request for capacity only in distribution. We see that of course this situation will evolve but the real solution for this tight market is clearly to expand distribution capacity and accelerate distribution Thank you very much. of capacity that is not effectively used is clearly an inefficiency that the regulator has to validate and to adjust. There are several ways that can be done and we are studying together with the ministry ways to solve this issue.

Next, an update on data center. What is the main bottleneck for the development and which is then this approach to this business?

Clearly, data centers is going to be an infrastructure. Thank you very much Beyond the investment impact that may have on our grids and clearly being a potential customer it's really important to facilitate the expansion of this kind of infrastructure in the system and we expect The next question, what are the latest news on Spanish blackout? The administrative proceedings remain at the early stage and at present there is no visibility on the final outcomes. On this basis we don't assume any financial impact in our numbers. Indeed these proceedings mainly relate to historical technical compliance and do not establish a responsibility and a link between the behavior of specific infrastructures and plans for the blackout day. The opening of the investigation does not imply guilt and prejudice and therefore a specific outcome. We have already submitted all our allegations and continue to defend our position vigorously. The process is expected to continue for several months or years and potentially for a very long period of time at this stage and we believe it is important to separate the headlines from the actual risks. Our view is that the blackout was a system-wide multifactorial event linked to the voltage control system operations and the increased complexity of managing a power system with a renewable penetration. In this sense the Spanish system is at the Thank you very much. Enhanced voltage control requirements and additional stability mechanism and more conservative operating procedures aiming at strengthening system security. The fact that these measures were considered necessary suggests that the previous framework and scope had the possibility of improvement In addressing the risk that ultimately has materialized. At Endesa our position is unchanged. We maintain that our asset operated full compliance and with applicable regulations during the event. Therefore at this stage we do not see grounds Thank you very much. Thank you, Gianni. I think that we can move to a different cluster. We have received some questions about the retail competition in Spain. In particular, the first question is...

In terms of customer evolution, the evolution also of the chain race or the margins in our business.

As expected and represented in the presentation, the Spanish market, the retail market remains highly competitive with increased customer mobility and the pressure from new entrants. Despite this, ESA continues to deliver Thank you very much. Thank you very much. Thank you very much. and sustainable pricing practices. Going forward, we expect competition to become progressively more balanced and less stable positions to fall into distressed ones.

Indeed, we receive a follow-up question. What is your view on the tighter regulatory framework for energy retailers?

We believe that robust regulatory framework is essential to ensure healthy, competitive and financially sound retail market. This is going in the right direction, improving also the relation with the clients in the sectors.

Okay. We have one question on the island business. Will you participate in the new capacity auction?

We are currently reviewing the details of the tender and submitting our allegations in order to improve the conditions of the tender and of course allowing the tender to be successful. This will be by the beginning of August the submission of our allegation. The auction confirms the need of additional capacity, firm capacity in non-mainland systems. This could unlock investment opportunities for us and of course for competitors. We are positioned very well to contribute to the future of non-mainland generation business and we are aiming to do so.

Another hot topic of the call is related to the status of the nuclear extension request.

Regarding the extension of the operating license of Almaraz until 2030, the Nuclear Security Council has just finished its technical assessment. Thank you very much. We have now some questions on different topics, renewables. The first one is, do you see still attractive investment opportunities in renewables under the current market conditions? The economics of stand-alone solar projects are becoming more challenging due to the lower capture price and increased price cannibalization and a growing number of zero-price hours arising of curtailment. All this... is clearly showing a not favorable perspective for this kind of investments. As a result, the project selection and the asset configuration have become increasingly important. The market is shifting beyond the standalone renewables towards an integrated energy management model. where the combination of renewable storage, flexibility, hybridization and customer solution create clearly greater value. In this environment, Endesa, like other integrated utilities, is well positioned.

Next, and looking ahead, do you see a scope for additional investment on storage?

Clearly, storage is becoming an increasingly strategic component of our system and an important enabler of renewable integration. On top of the pumping storage already in our mix, we are also strengthening our commitment to batteries. and hybridization of plants. In our business plan, we have increased significantly the plant investments with a sizable pipeline of 300 million, more or less 400 megawatt battery capacity.

And the last one of this cluster, are you seeing acquisition opportunities in renewables?

We see increasing opportunities emerging from market consolidation, particularly in renewables. Some of the smaller developers and players face pressure from lower merchant margins and returns. Financial Constraints

Very, very limited.

The resilience of our first half results of 2026 are a proof of it. We are fully in line with pre-conflicting expectations, actually more than these expectations. This demonstrates the strength of our business model. and we do not currently anticipate any material impact on the performance for the remainder of the year. Let me add one thing. We actually can view in this situation the value that has been created by the sector in the energy market in Spain Broadly across Europe the impact has been significantly stronger even in the electricity sector. In Spain in reality the sector has created a shield over this geopolitical tension. and despite the recent price volatility we estimate that clients have been protected from an increase in the Energy costs up to 3.5 billion in the first half of the year, which is a significant protection given by the sector and the smart investment strategy that has been adopted in the last year.

Okay. In this context, are you concerned about the possibility of new extraordinary taxes on utilities?

We don't see a risk of further market intervention in Spain Prices have been stable and there is no extra profit to extract from market speculation that has been adopted in Spain

Thank you. We have one question regarding the capacity payment mechanism. When do you expect the first auction to take place?

The approval of the mechanism is clearly in line with the trend of regulation in Europe. The need for stable firm capacity even in a scenario where Renewables are prevalent is still very important and guaranteeing a stable revenue stream more similar to a regulatory scheme is important to guarantee this firm capacity. We expect the first auction by the end of the year as probably the ministry is planning to work on it.

Next, what's your view on the new European Commission regulatory proposals?

We see the initiatives that have been taken both on electrification plan and ETS reform in line with the strategy that has been adopted by EU, reinforced by the need that electrification drives, that is allowing... Energy Independence for the Continent. And of course, the electrification plan reinforces the strategy towards electricity and enhancing the consumption target of The last question concerns the wildfires seen in recent days and their potential impact. Wildfires and exceptional events are more and more frequent across Europe, particularly in areas and geographies like Spain. This is clearly an emergency that requires a different organization to manage these emergencies and also requires planning of infrastructure in order to be more resilient. All these events Put a huge strength on infrastructures, in particular energy infrastructures like electricity, and the technical requirements in terms of redundancy, resilience needs to be upgraded, some regulation... Some markets have already moved to reinforce the regulation in this sense.

Okay. With that, we conclude today's presentation. So thank you very much for taking part of this conference call. As always, investor relations team will be available for any follow-up question. And just to wish you all a wonderful summer break. Thank you very much.