Redeia Corp U/Adr

Good morning, ladies and gentlemen. We're now going to start our presentation of the earnings from the first half of 2025. So welcome, everyone who's following us by telephone and on our website. Along with us today, we have Roberto Garcia Merino, our CEO, and Emilio Cerezo, our CFO. So I'll hand over now to our Chief Executive Officer. Good morning, everyone, and welcome. Thank you for attending this presentation. Today we want to share the most significant milestones of the first half of 2025 with you, looking at Renea's performance and all the results achieved by the group during the period. And we'll wrap up the presentation with our vision for 2025. And you may remember that's the last year of our current strategy plan. At the end of the presentation, we'll have a Q&A so we can address any questions you might have. So, I'd like to start by identifying the highlights of the period. Firstly, as you're all aware, at the end of April there was a total power outage on the peninsula mainland, which I'll discuss in greater detail later, but once again it highlighted the importance of electricity grids and the need to strengthen the electricity system with additional flexibility tools. and that's why we're continuing to boost our investments in the national transmission grid. These investments will enable us to achieve energy independence, supporting the development of the very fabric of industry and production. In this regard, during the first six months of the year, TSO investments exceeded 560 million. That's 34% more than in the same period of 2024. with a particular focus on international interconnections, links between islands and energy storage, moving towards the goal of exceeding 1.4 billion euros by the end of the year. That's the largest investment in the history of Refélectrica. This enormous investment effort has been supplemented by optimal management of the facilities, achieving a transmission network availability rate of close to 99% nationwide. Quite apart from the aspects related to the incident of 28 April, one of the main milestones of this half-year was the divestment of Hispasat at the end of January. for which the process of obtaining regulatory approvals is still progressing. And we do expect to complete the transaction in the fourth quarter of the year, which is when we will collect the €725 million. I'd also like to highlight the support of major financial institutions such as the European Investment Bank, which will enable us to roll out strategic projects such as the Salto de Tira and the electricity interconnection between Spain and France. We've also signed additional loans for 800 million euros with various financial institutions, thereby strengthening our financial capacity to tackle the new investment plan we are starting with. In terms of sustainability... You should note that Renea has been recognised in the S&P Global Sustainability Yearbook 2025, ranking us among the top 5% of the world's most sustainable companies and standing out as one of the best in the electricity sector worldwide. Moreover, we've updated our Green Finance Framework to align it with the European taxonomy and the 2025 Green Principles. The framework seeks to ensure that our financial activities can support the projects to promote respect for and conservation of the environment. So now I'd like to focus on the incident that occurred last April. As you know, at 12.33pm on Monday 28th April, there was a widespread power outage affecting mainland Spain and Portugal. Regarding the events that led to the peninsular electricity system reaching zero, starting at 12.03 a.m. on April 28th, there was a first forced oscillation caused by abnormal behavior at a power plant in the province of Badajoz, which was repeated at 12.16, and then another inter-area oscillation at 12.19. both of which forced the system operator to adopt protocol measures to mitigate them. These measures were effective, but resulted in a very different configuration of the electricity system to that initially planned for 28 April. Likewise, there was generation that was incorrectly disconnected when the voltages in the transmission grid were within the permissible ranges, according to regulations, and several generation facilities did not comply with the voltage control obligations imposed on them by operating procedure 7.4, which was in force at the time. These circumstances caused an increase in voltage and a cascade disconnection of more generation facilities, which brought the system to zero. Regarding this incident, then, we can highlight that the grid was not the problem, but part of the solution, as demonstrated by the rapid restoration of supply. Thus, from the very outset, Red Electrica, together with other companies in the sector, worked to restore electricity supply throughout the peninsula as quickly as possible. The restoration process was carried out swiftly and without any significant incidents in the transmission grid managed by Retelektrika, and power was restored to most of the affected areas during the course of that same day and earlier the following night. On 17 June, the Committee for the Analysis of the Circumstances that Led to the Electricity Crisis, chaired by the Minister for Ecological Transition and the Demographic Challenge, issued a report approved by the National Security Council. Likewise, RedElectrica, as system operator and in compliance with current regulations, specifically the Operating Procedure No. 9, on 18 June presented the report resulting from the analysis carried out, which also proposes measures to be taken to prevent a similar incident from occurring in the future. Both reports conclude that the incident had multiple causes, with a series of cumulative circumstances that far exceeded the N1 safety criterion and led to a power surge and a cascade of power outages. A technical report on the causes of the incident is still pending from ENTSOE, although the Association of European TSOs, despite being in the preliminary stages of their investigation, have published the first findings of their analysis. This analysis identifies the events that occurred on the 28th of April, which basically coincide with those outlined in the reports from the Ministry and from Retelektrika, also confirming that the voltages in the transmission grid were within... operational limits at the time of the first disconnection of generation. It also confirms that the actions taken by the TSOs to mitigate the serious situation caused by these oscillations were those established in the defined protocols. In addition, the investigation into the incident is continuing both in the CNMC and at the National Court. In this context, the incorporation of measures to reinforce the electricity system is essential. Thus, in its report of 18 June, Retelektrika proposed a series of recommendations, including the provision of greater capacity and more resources so that the system can control voltage continuously and dynamically. It's also necessary to incorporate mechanisms to reduce sudden changes in energy flows, as well as to review the adjustments to the overvoltage function in the generation and evacuation networks and provide the system operator with greater system observability. We're confident that a consensus will be reached in the coming months on the implementation of these measures. And in this context, the Council of Ministers has approved a new specific amendment to the 2021-2026 Electricity Transmission Network Development Plan, the second after the one approved in 2024. This includes 65 actions aimed at incorporating additional tools into the networks to facilitate voltage control, stability in the event of oscillations and, in general, the reinforcement of the electricity system throughout Spain. The investment associated with these actions is €750 million, bringing the total investment for the 2026 plan to €8.2 billion. In addition, the planning process for 2030 continues to move forward. Finally, it should be noted that the Royal Decree regulating the direct granting of subsidies from the Recovery, Transformation and Resilience Plan funds of €931 million has been approved, which will give financial support to the investment effort in coming years. Moving on to remuneration. At the beginning of July, we learnt of the CNMC's proposal on the methodology for calculating the financial remuneration rate based on the weighted average cost of capital for the next regulatory period, 2026 to 2031, which sets it at 6.46%. Now, that's an increase of 88 basis points compared to the current 5.58%. A public consultation process is now open, during which the corresponding feedback can be submitted until 4 August. To calculate the rate, the CNMC uses the methodology established in Circular 2-2019, although it does introduce certain modifications that support the increase in the rate to levels close to 6.5%. However, in the new calculation of the parameters of the proposed methodology, certain issues have been identified on which we will convey our views within the established deadline for consideration in the methodology finally approved. The coming months will be very intense in terms of regulatory activity. Following the aforementioned public consultation on the financial remuneration rate, the Ministry may issue a report on the suitability of the proposal in line with the Energy Policy Guidelines, which point out that it was necessary to establish appropriate signals to encourage electricity transmission and distribution activities, particularly to meet new demand and integrate growing renewable generation. Once the feedback period has ended, after analysing the comments received, the CNMC will draw up a new proposal which will be submitted to the Council of State for its opinion. The deadline for issuing the opinion will be two months if it's processed as a general matter, and 15 days if it's processed as a matter of urgency. Finally, after taking into account the feedback from the Council of State, the new circular will be definitively approved, and that's expected to happen in the final quarter of 2025. Moreover, the proposal for the revision of the methodology for remuneration of electricity transmission activities is due to be published shortly, initiating the corresponding feedback period with a similar timetable to that of the TRF. The entire regulatory review process is expected to be completed in the second half of the year and implemented at the beginning of 2026. So, let's now discuss the results achieved by the company during the first half of the fiscal year. As you can see, the results obtained in the first half of the fiscal year are in line with market expectations, with positive performance across all lines, now that we've left behind the effect of pre-1998 assets. Total investments amounted to €603 million, and debt at 30 June stood at about €5.54 billion, which is €170 million more than the €5.37 billion at the end of 2024, due to the heavy investment during the period. of the total investment volume, I should highlight the investment in the TSO, which reached €564 million. That's 34% higher than the investment made in the previous year. And it suggests that the year-end investment volume should be over the €1.4 billion in regulated activity in Spain. And I'd also like to remind you that following approval by the General Shareholders' Meeting, a supplementary dividend of €0.6 per share was paid out on 8 July against the 2024 earnings, thereby fulfilling our market commitments and reaching a total dividend for the past year of €0.8 per share. Now we can look at the income statement in its entirety, as we did in February 2018. The 2024 financial year includes a reclassification of the various items in Hispasat's income statement attributable to Redella into a single line item called Profit from the Period from Discontinued Operations. The sale of Hispasat brings the percentage of the groups that beat them from regulated businesses both in Spain and internationally to 89%. I'll now give the floor to Emilio Cerezo, who will be analyzing these results in greater detail. Emilio.

Thank you, Roberto. Analyzing the revenue performance in detail, we've seen a growth of 2.2%, mostly due to the 24 million increase in TSO. This increase comes from the new financial remuneration rate in line with the recent draft published by the CNMC for assets subject to N plus 2, according to the accrual criterion. Revenues from new additions net of subsidies were offset by the amortization of RAB under the current remuneration model. In the international business, we can highlight the positive performance of Chile and Peru, although this does not seem to be enough to offset the negative impact of Brazilian real's exchange rate on Argo's performance in Brazil. At the same time, the fiber optics business was affected by contract renegotiations in a context of market concentration, partially compensated by the effect of inflation on contracts linked to the consumer price index. Turning to operating expenses, we see a growth of 3.1%. However... If we exclude the expenses offset by other operating incomes, such as Salto de Chira and projects for third parties and others, growth was slightly lower, specifically 2.4%. Staff costs increased due to a larger average workforce required to meet the challenges arising from the strong growth of groups' regulated assets. As for other expenses, we observe a moderate increase of approximately 2 million euros. In this context, the evolution of income and expenses leads us to an EBITDA growth of 2.8% compared to the previous year. The positive contribution of TSO was offset by a slight decline in international activity coming from the mentioned performance of Brazilian Real, which at a constant exchange rate grew by 2 million euros. It is also due to the aforementioned performance of the fiber optics business. To conclude the income statement, our net profit was 269 million euros in line with the first half of the previous year, although profits from continuing operations grew by 1.5% compared to 2024. The performance of profit can be explained by several factors, not just the EBITDA performance already seen. On the one hand, amortization and other items increased, mostly due to higher operating assets. In addition, the financial result was worsened by $10 million due to lower financial income compared to the first half of 2024 due to lower placement of cash surplus. The corporate income tax remains in line with the previous year with an effective rate, excluding the result of investee companies, of 24.6% compared to 25% during the first half of last year. Finally, the income reduction from discontinued operations for 4 million is due to the positive results of HSPASAT in the first half of 2024. Now, in 2025, and depending on the contractual agreement for the sale, Hispasat's results will not affect the group's income statement. And going now into investments, during the first half of this year, 603 million euros were invested, out of which 564 million were in the TSO, thus exceeding the investment made in the previous year by 34%, and thus consolidating the serious effort the company is making to accelerate investment in the transport network. With regard to TSO strategic projects, we could highlight the following. The electricity interconnection between Spain and France via the Bay of Biscay, which continues to progress with the aim of reaching the milestone of commissioning the first link in 2027. Also, the new Peninsula Balearic Islands interconnection also moves ahead, including the new high-voltage direct current link between the peninsula and Mallorca, and other actions like synchronous compensators in Mallorca and a battery system on the islands of Menorca and Ibiza. Also, work continues on the interconnection between Tenerife and La Gomera, a strategic infrastructure for the smaller island electric system. In addition, progress is also being made on the Peninsula, Ceuta, and Galicia-Portugal interconnections. All these projects are expected to be commissioned by the end of this year. Furthermore, other projects relating to asset renewal and renewable generation evacuation measures continue, as well as the distribution support. As for our Salto de Tira project in Gran Canaria, civil works continue. as do works for the hydraulic conduit of the construction of the pressure pipe and the installation of the pumping station in Ume. 94% of our investments are eligible under the European taxonomy, thus reinforcing Redea's commitment to sustainability. Turning to financing now, the group's financial net debt at the end of the half year stands at $5.539 billion. That's $169 million more than at the end of 2024, and the generation of a solid operating cash of $548 million partially offsets the group's heavy investment and the interim dividend payout. This cash flow of $548 million comes mostly from the following aspects. First, the generation of a positive FFO of 473 million euros and the reduction in working capital, which involved a cash flow of 75 million euros, mostly due to lower payment of balances payable to other companies and differences in refunds in the system due to excess transport tariffs charged in previous years. Items pending refund to the CNMC for these provisional tariffs rise up to 351 million euros at the end of June. Considering the above and the investments made during the year, as well as the dividend payout, our net financial debt grew by 3.1%, showing solid financial ratios. As for our credit rating, we maintain an A- rating both from Standard & Poor's and Fitch, although Standard & Poor's recently placed Radea on credit watch negative, among other reasons, due to the possible effects that our heavy investments will have on the group's financial ratios. As for the makeup of our financial debt, it is worth noting its diversification in terms of financing sources, with 79% at fixed rates until maturity and the continued predominance of euros over other currencies. This structure has enabled us to maintain a competitive average cost of debt in the current environment, now standing at 2.2%. We also continue to have the support of the European Investment Bank, Thus, on June 16, an agreement was formalized with the EIB for financing 800 million of the interconnection with France, and we signed the first tranche of a loan for 400 million euros. Thanks to this, we have strengthened our financial position to carry out the significant investment plan we are facing. Over the next four years, we will be facing maturities of around 3.5 billion euros, most of which are covered by a solid liquidity position, which will be further strengthened following the completion of the Hispasat sale estimated to conclude by the fourth quarter this year. And finally, our ESG-related financing continues to increase, now reaching 80% of the total, thus bringing us ever closer to our commitment of achieving 100% sustainable financing by 2030. I will now hand it back to our CEO, who will conclude today's presentation.

Thank you very much, Emilio. Having analysed the first half of the year, we'll now discuss how we expect the company to perform in the second half of 2025. focusing first of all on the investments in our core business, the TSO. We closed the first half of the year with over €560 million committed to projects that will enable us to define a robust, interconnected and digitized network. And now we approach the second half of the year on the same positive path, and we estimate that we'll reach investment levels of over €1.4 billion by the end of the year. And that's what we committed ourselves to at the beginning of the year, if you remember. And that will mean we'll probably exceed the €4.2 billion in cumulative investment for the whole 2021-25 period, which is well above the target initially set. With us maintaining our commitment to the energy transition, ensuring investment in the transmission network as a catalyst for the transformation of the entire energy model towards a more sustainable, efficient and emission-free model. To wrap up, we confirm our financial targets for the 2025 financial year, offering attractive remuneration for shareholders and maintaining a solid financial structure. The Group's investment allows us to envisage estimated EBITDA of over €1.25 billion and net profit of over €500 million. Net debt will increase mainly due to the high volume of planned investments, although this increase will be offset by the €725 million received from the sale of Hispasat, with net debt estimated to be at around €5.7 billion at year-end 2025. And that's the presentation, so thank you very much for your attention, and we can now move on to the Q&A if you have any questions. Ladies and gentlemen, if you wish to ask a question over the phone, press asterisk 1 on your keypad. The first question comes from Javier Suarez from Mediobanca. Go ahead, Javier. Yes, good morning, everyone, and thank you for the presentation. I have got three questions. The first one. has to do with the blackout, with the outage. I'd like to know if you consider or if you might consider during the second half of the year the possibility of endowing provisions in order to cover the company against any future complaints that might come in from retail and wholesale customers regarding the blackout and the possibility of that having an impact on the payout policy. That's the first question. The second has to do with regulation. You talked about the possibility of improving the proposed return on invested capital. Now, could you be more specific? What are the factors that might be improved or amended in order to improve the regulator's initial proposal? And then the methodology for electricity transmission in Spain. When do you expect this will be published and what do you expect it to say? How will it improve on the current regulation? What do you think would happen? And then my third question has to do with the updating of the National Infrastructure Plan. When do you expect the plan to be enacted? And why? What's your opinion regarding the annual capex that the company ought to invest over the years of the plan? Thank you.