Terna Rete Elettrica Adr

Good afternoon, ladies and gentlemen, and welcome to TERNA's consolidated results first half 2025 conference call. At this time, our participants are in listen-only mode. Please be advised that today's conference is being recorded. I'd like to hand the conference over to your host speaker today, Mr. Stefano Gamberini, head of Mr. Relations to begin. Please go ahead, sir.

Thanks a lot. Good afternoon, everyone, and welcome to TERNA's first half results presentation. The call will be hosted by our CEO and General Manager, Giuseppina Di Foggia, and 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 email, investor.relations at terna.it. Please, Giuseppe.

Thank you Stefano and good afternoon everyone. Before looking at the figures, I'd like to take a moment to highlight some of our most recent achievements. In March, we presented the new 10-year National Development Plan. This plan outlines the main grid development projects requiring investments of over 23 billion euros by 2034. Shortly after, we published the updated 2024-2028 industrial plan, which sets out investments totaling 17.7 billion euros. These investments are aimed at improving the efficiency, resilience, sustainability and security of our grid while also supporting the integration of renewable energy sources. In doing so, Terna continues to reinforce its role as a key enabler of the energy transition, helping the system move towards decarbonization and reducing reliance The 7% increase in capex compared to the previous plan is mainly driven by the security plan, which focuses on enhancing grid resilience and renewing assets. It also includes new projects that promote digitalization, the use of advanced technologies, and the adoption of artificial intelligence. Turning to grid development, in May, Terma Indicto, the Greek TSO, signed a memorandum of understanding as part of the Italy-Greece Intergovernmental Summit. This MOU lays the foundation for a new HBDC interconnection between the two countries. The new link will represent a strategic infrastructure for both Italy and Greece, supporting their decarbonization goals and strengthening their position as energy hubs in the Mediterranean. Project Execution Let me remind you that on May 8 we completed the laying of the first submarine cable of the Terranial Links Eastern Section, one of Italy's most important power infrastructure projects which will connect Campania and Sicily. From a regulatory perspective, in May Avera published a consultation paper 210-2025. The paper proposes adjustments to how certain aspects of the ROS base regulation are implemented, particularly regarding tariff recognition of CAPEX and DOPEX. It also introduces the first guidelines of the Ross Integrale Mechanism, including requirements for companies to present business plans and outline three new incentive schemes, two of which are expected to apply from 2026, while the third will be introduced at a later stage. Let me briefly touch on innovation and digitalization where we launched several initiatives in June. On June 19, PERNA signed a memorandum of understanding with Microsoft to develop strategic projects supporting our digital transformation. This partnership will allow us to leverage artificial intelligence, next-generation data platforms and hybrid digital infrastructures to advance our mission. Then, on June 23rd, we launched the Terno-Agiatic Innovation Zone in the Marche region. Our new innovation hub was created to help transform the Adriatic area into a center of technological excellence and to promote innovation in support of both the energy transition and local business development. In addition, PERNA has partnered with the Polytechnic Universities This program is part of the Polytech Lab, the new high-skilled polytechnic network. Launched in April, the collaboration is designed to promote research Innovation and Advanced Training, generating a positive social impact for the electricity sector and for the country as a whole. Finally, on the sustainability front, I would like to mention that during the period we published our first ever consolidated sustainability report, fully aligned with the new corporate sustainability reporting directive framework. From a financial standpoint, let me remind you that S&P upgraded the long-term rating of Terna to A- in April, following the upgrade of the Italian Republic from BBB to BBB+. In June, Moody's affirmed Ferna's long-term rating at BAA2, a notch above the rating of the Italian Republic. Furthermore, Moody's upgraded Ferna's outlook from stable to positive, reflecting the company's solid financial profile despite the increased CapEx plan. On the 10th of July, the European Investment Bank in Cesar San Paolo, Sace and Serna signed agreements totaling 1.5 billion euros to finance the construction of the Adriatic Link, the submarine power line that will connect the Marche and Abruzzo regions. The project is strategically important for Italy's power grid, promoting the integration of renewable energy sources and increasing Italy's energy autonomy and security. On the 15th of July, Terna successfully launched its first European Green Bond under the new 4 billion euro EMTN program listed on Borsa Italiana's electronic bond market and approved by CONSOB. The issuance has a nominal amount of 750 million euros and received a very favorable market response with demand outstripping supply by almost five times. Finally, as far as the remuneration of our shareholders is concerned, on June 23rd we paid the 2024 final dividend of 27.70 euro cents per share, bringing the total dividend for the year to 39.62 euro cents per share, including the interim dividend paid last November. After this brief introduction, let me give you an overview of the Italian electricity market. Turning to the next slide. As you can see from this chart, in the first six months of 2025, national demand was about 153 terawatt hours. essentially in line with the level recorded in the same period of last year when national demand was about 152 TWh. Over the period, renewable sources covered about 42% of national demand, slightly lower than last year, mainly due to a drop in hydroelectric production following an exceptionally strong performance in the previous year. It is worth highlighting that in May renewable sources covered 56% of the electricity demand, the highest ever value on a monthly basis. Moving to national net throttle production, this stood at 131 terawatt hours, up by 4% compared to the same period of 2024. In this first half, renewable sources accounted for about 49% of the national net total production, down from 53% of last year. However, let me highlight the considerable increase in solar production, which grew to around 22.1 terawatt hours, up 23% versus the first half of last year. Now let's move to the main figures of the period. In the first half of 2025, despite the complex and challenging macroeconomic environment, we delivered positive results across all the lines of the PML and the solid capital growth. Indeed, group revenues and EBITDA both grew by 8%, increasing by approximately 140 million and 103 million euros compared to the first half of 2024. We also reported a group net income of 588 million euros with an increase of 8% versus the same period of last year. Group capex reached 1,319 million euros, marking an increase of 27% versus the first half of last year, accepting a new record in Ternas history. This confirms once again our solid capex acceleration to serve the system needs. To support this CapEx acceleration at the end of June 2025, net debt stood at 12 billion euros, slightly higher compared to the value recorded at 2024 year-end of about 11.2 billion euros. Now, let me leave the floor to our CFO to have a closer look at the results. Please, Francesco.

Thank you, Giuseppe. Let's start, as usual, with revenues analysis. In the first six months of 2025, the total revenues increased by 8%, reaching 1.894 billion euros, up by 140 million euros versus last year. The growth was mainly attributable to regulated activities, which contributed for 122 million euros, while non-regulated activities increased by 18 million euros. I will take a closer look at the evolution of revenues, moving to the next slide. Regulated revenues reached 1,594 million euros, with an increase of more than 8% versus previous year. The growth was mainly driven by the rapid growth deriving from the recognition in tariff of 2024 capital expenditure and the assessment of the tariff decoupling related to the update and revaluation of capital cost parameter. The early recognition in tariffs of depreciation related to 2024 capital expenditures, one year in advance compared to the previous regulatory framework, as well as the recognition of depreciation related to 2023 capital expenditures, in line with the two-year standard delay. In the end, the fast money component sets on the conventional capitalization rate defined under the ROS application. These factors more than offset the WAC reduction from 5.8% to 5.5% in 2025 and the lower output-based incentives contribution versus last year. Non-regulated revenues reached €300 million, 6.5% higher than last year. The improvement mainly reflects the higher contribution from the equipment segment, which includes Stamini and Brook cables, partially offset by the decrease in revenues from the energy services segment. The results attributable to the South American subsidiaries have been classified among assets for sale as in the first half of 2024. Now, let's go through operating cost analysis. As you can see in the chart, total operating costs stood at 534 million euros, 7.5% higher than last year. The regulated activities cost increase is mainly attributable to the rise in the outcomes and the higher average cost of labor, partially offset by higher capitalization. The non-regulated activities were primarily impacted by higher service costs related to the development of activities mainly in the equipment segment. Regarding EBITDA, we move to the next slide. Thanks to the acceleration in revenues, the First House 2025 Group EBITDA reached 1.36 billion euros, 8.2% higher than the same period of last year. The improvement was mainly attributable to regulated activities, which contributed for about 89 million euros more versus the first six months of last year, showing an EBITDA of 1,302 million euros in the first half of 2025. EBITDA from non-regulated activities includes by 29% to 58 million euros, mainly thanks to the higher contribution from the equipment segment with improving results from both the Stamini and Bruckebosch groups. Let's now have a look to the lower part of the P&L, turning to the next slide. DNA amounted to 447 million euros. The increase versus last year was mainly related to the entry into service of new infrastructure. As a consequence, EBIT reached 913 million euros, 9.2% higher versus the first half of 2024. The net financial expenses amounted to 76 million euros. The slight year-on-year increase of 13 million euros is mainly due to the signing of new financing only partially offset by higher capitalized financial charges. Taxes stood at 249 million euros, 22 million higher versus last year, essentially due to improved results. Our tax rate was 29.8% compared to 29.4% in the first half of 2024. As a result, group net income reached 588 million euros, 8% higher versus the same period of last year. Moving to capex analysis, in the first six months of 2035, total capex reached 1319 million euros, up by 27% year-on-year. This marks a new all-time high for the first half of the year, exceeding €1.3 billion and confirming the strong acceleration in investment. We invested about €1,243 million in regulated activities. Among the main projects of the period, It is worth mentioning the Tirrenia Links, the Sakhoi Tree, the modernization of the high-voltage grid in the locations due to host the Winter Olympics in 2026, the Colunga-Calenzano connections and the Adriatic Link. Last but not least, the investments of the Defense Plan, which aims to enhance our voltage control capacity and support grid stability, including synchronous compensators, shunt reactors and damping resistor systems. Among CAPEX categories, development CAPEX represented 54% of total regulated CAPEX. Defense CAPEX stood at 15%, while asset renewal and efficiency was 31%. Non-regulated and other CAPEX stood at 76 million euros. This includes capitalized financial charge and other investments. Turning now to next slide. Cash flow generation for the period amounted to around 1.1 billion euros and was the result of around 1 billion euros of operating cash flow and 100 million euros of working capital and other items. Net debt at the end of June 2025 was about 12 billion euros, around 800 million euros higher than 2024 year-end level, primarily due to the capital acceleration and the dividend payments. Let's now make a deeper analysis of our debt profile, moving to page 16. Our cautious and proactive debt management approach is focused on maximizing efficiency and maintaining a solid financial structure. As of the end of these first six months of 2025, we registered a fixed floating ratio on gross debt of around 88%. with an average duration of approximately six years. In alignment with Turner's strategy, which aims to combine investment and sustainability to drive growth and value creation, on July 15, Terna successfully launched its first fixed-weight, single-clutch European Green Bond issue with a total nominal amount of 750 million euros. The European Green Bond, which received a very favourable market response with demand on stripping supply by almost five times the offered amount, has a duration of six years and will pay an annual coupon of 3%. Musician was launched as part of Terna's new 4 billion euro medium turnout program listed on Borsi Italiana's electronic bond market. As said at the beginning of the presentation, in July, the European Investment Bank, Pernal, Tesa San Paolo and Sanchez have signed an agreement totaling 1.5 billion euros to support the development and construction of the so-called Adriatic Link, the submarine power cable linking the Italian regions of Marche and Abu. The operation is financially structured into three branches, all of which are covered by such as Archimede guarantee, for an amount exceeding 1 billion euros. In details, we have a 750 million euros loan granted by EIB to Terna with a duration of 24 years. Another 500 million euros credit line provided by Intesa San Paolo Terna with a duration of 7 years and an additional 250 million euros loan from Intesa San Paolo with funding made available by the EIB and a duration of 7 years. Finally, with regards to credit ratings, let me remind you that in April, Standard & Poor's upgraded Terna's long-term rating from BBB Plus to a minus, following the upgrade of the sovereign rating to BBB Plus. Moreover, in June, Moody's improved the outlook to positive from stable after the review of the assessment of the Italian Republic. The decision of the two agencies reflects Terna's solid financial structure despite the acceleration in investments provided by the industrial plan. Thank you for your attention. I move now the floor to Giuse for closing remarks.

Thank you Francesco. Let me conclude this presentation with some closing remarks. First, I would like to highlight that we have delivered a solid set of results despite the increasingly complex and challenging macroeconomic and geopolitical environment. This reflects the robustness of our business model, our ability to adapt and the continued commitment of our people that allow us to keep our promises and even to exceed them. In this regard, Aterna is committed to the execution of its planned targets. This will allow the integration of renewable sources, the development of the network, and the strengthening of interconnections with the foreign countries. This effort will enhance the security and resilience of the electricity system, enabling the achievement of national and European targets and ensuring system stability. And before moving to the Q&A session, Let me underline that with the strong set of results just presented for the first half, we can fully confirm our 2025 full year guidance. Thank you for your attention so far and we are now ready for the Q&A session.

Very well. We can now begin the Q&A session. Let's start with first questions for you, Giuse. About ROS Integrale Framework, could you give more color about the consultation document published at the end of May and which are your expectations for potential new incentive scheme proposed?

Well, about the ROS Integrale Framework, Let me say that the document makes it clear that ARERA is really focused on making sure we deliver strategic, high-value energy infrastructure. It's not just about having a forward-looking business plan that outlines spending and targets. It's also about giving operators the chance to earn additional reward if they can meet the key system needs and cost saving efficiently. And now, while this consultation document does give us an early look at the incentive schemes under the ROS Integrale framework, I want to be clear. The detailed design of those reward mechanisms probably won't be decided as part of this round. That will likely come later, once RETA has reviewed the specific proposals submitted by companies.

Okay, thank you. What are your latest expectations with respect to the update in WAF for 2026?

Well, let me be straight. As of today, it is too early to assess if the threshold for the potential work update at the end of this year will be met. Since the observation period will finish at the end of September 2025. And according to the latest mass market calculation, the change in work value is still below the threshold of 30 basis points. However, since the values remain close to the threshold, we should closely monitor the parameters over the final two months as they could trigger a work update.

Okay. Now, can you give us an update on the installation of renewables As of June 30th this year, do you expect this trend to continue over the coming years?

Well, we have really seen the pace of renewable installations pick up in recent years. Just to give you some context, until 2021, the average was about 1 gigawatt a year. Then in 2022 that rose to around 3 gigawatts and the trend continued in 2023 with the 6 gigawatts and 2024 so another record with the 7.5 gigawatts sold. And 2025 is off to a solid start as well. There has been a slight slowdown compared to the first half of last year, but we have still seen about 3.1 gigawatts added so far, not far off from the 3.7 gigawatts installed in the same period of 2024. And this steady growth in installations is an encouraging sign for meeting the targets set out in the updated National Climate and Energy Plan. The one that Italy submitted to the European Commission in June 2024. And let me conclude. With the first PERIX auction scheduled for 2025, further momentum is expected from the upcoming incentive scheme.

Great. Let's move to another topic. Due to the penetration of renewables, do you think that the Spanish blackout might be an event that will occur more frequently in the system?

Well, let me start saying that the European electricity system is complex. It's complex and Italy is a key part of it. So, while we can't eliminate risk and We can see that the Italian grid is now much more resilient thanks to the investments Terna has made in recent years to improve grid security. Now, let's have a look at our investments on this. It's important to say that our 2024 security plan already included over 1.3 billion euros in investments for 2024 And this was increased to 2 billion euros for 2025-2028 in our industrial plan update last March. And it was confirmed again in the 2025 security plan update we sent to the Ministry of the Environment and Energy Security in May. These investments focus on both the energy transition and digitalization. For example, that is just an example through the use of synchronous compensators connected to the grid. And beyond the numbers, we have also deployed a full range of technologies to strengthen the national grid safety. And as renewables grow and traditional thermal capacity declines, system stability can be affected. And that's why we are planning even more investments in grid security. This is our twin transition. This is what I mean as a twin transition. And now let me conclude with the good news, Stefano. Italy already has a strong dispatching framework with the clear rules for how renewables must support system stability and balance.

Thank you, Giuse. Now another question. How is your investment plan progressing? Are there any slippages in the execution of major projects?

Yes, a key part of our plan, the execution, as I said many times. And the execution of our investment plan is going forward as planned. So, let me reiterate that we are on the right path and the CAPEX plan is solid and safe. All our main HBDC projects have received the necessary authorization and over 90% of the projects in the plan have completed the approval process. On the procurement side, we are fully aware of the potential supply chain shortages and bottlenecks affecting the industry. And to manage this risk, we have taken several steps to ensure continuity. Thanks in part to the support of Broad Cables and Community Transformers, we have already secured nearly all procurement needs to the end of 2025. And to conclude, looking at the full business plan period, about 85% of the 2024-2028 CAPEX is already covered by existing procurement contracts. Up from 80% in March.

Very well. The following question is for you, Francesco. Could you quantify the one-off revenues related to inflation upside?

Sure. For each variation of plus or minus 1% on the expected inflation using the rubber valuation, the impact on related revenues is about 20 million euros. Considering the updated value of 2023 and 2024 inflation, approved by ARERA in its last resolution, there is a total increase of about 2%, which leads to an increase in regulated revenues of about 40 million on tariff 2025 and a further adjustment of around 16 million on 2024.

Thank you. We received many questions about OBIs. What are the output-based incentives accounted in the first half? Is your expectation for the full year confirmed, also related to the evolution of dispatching costs? And what are your expectations about further OBIs that could be introduced through ROS Integrale Scheme?

Well, in the first half of 2025, There is no contribution coming from the output-based incentives related to the special markets efficiency incentives. It will be recognized in the second half of the year when there will be an higher degree of certainty about the possibility of reaching the targets, in line with the accounting principles. In the first half of 2025, we have instead registered 16 million euros related to interzonal and efficiency incentives. With reference to the full year 2025, our expectations reflect the update in the performance estimate for 2025, which will allow us to reach and possibly exceed the guidance already provided after the first quarter of 2025 of more than 50 euro millions of OBIs. Finally, let me also remind that our updated industrial plan assumes that OBI's contribution of about 900 million euros, considering also 361 million euros accounted in 2024, mostly referring to existing out-of-base incentives frameworks and for a residual part related to the new Ross Integrale schemes.

Thank you. And now move on the financing. What will be your cost of debt at the end of 2025, please?

Cost of debt will be around, for the first half of the year, is at around 2.6%. The cost of debt for 2025 will be slightly below 3%, since in the second half of the year we expect the net financial charges to increase compared to the first half, primarily due to the issuance of new debt at an higher cost vis-à-vis the average cost of the existing debt.

Regarding the acquisition of high-voltage assets, do you expect paradigms?

Well, we are aware of the public interest in the consolidation of high-voltage assets to achieve synergies and have a more efficient system overall, for which ARERA, as you know, has set an incentive scheme for deals closed in 2025 and 2026. For this reason, we cannot exclude undertaking other small potential transactions linked to market opportunities that should be fully aligned with our strategic targets.

Thank you. Could you remind us the remaining financial flexibility in terms of additionally hybrid instruments and would you still prefer hybrid to capital increase?

As you know, our ambitious CapEx plan could lead to a deterioration of the financial ratios in the future. As we already communicated to the market during the presentation of the update of the strategic plan last March, Despite this acceleration in capital, we aim to preserve a solid and sustainable capital structure, also through the issue of further hybrid instruments, if needed, up to the full capacity that we estimate to be at around 4 billion euros towards the end of the plan. Let's consider that we already have, at the moment, 1.8 billion euros of hybrid already issued. Furthermore, in order to protect our rating, we can rely on a wide range of further tools, such as, for example, public grants, that, if necessary, Perna could seek in an additional amount to reduce the company's debt and strengthen the financial structure. Please consider that in the current plan we already assume slightly above 1 billion euros of grants. We can also rely on CAPEX prioritization. PERNA indeed may prioritize expenses related to investment costs, seeking to defer some of them to later years. And finally, we can also consider the potential valorization of our non-core assets and the non-regulated activities. All the previous options are considered more efficient than a capital increase. Therefore, as already stated in the strategic plan presentation as of today, we do not see any strong rationale for a capital increase of the COP.

Many thanks, Francesco. Finally, we have received a last question for you, Giuse. Could you comment about the evolution of electricity demand in 2025 and the impact from data centers?

Well, you may recall, I already commented on the evolution of demand so far this year during the presentation. In recent years, we have seen a gradual change in consumer behavior related to the high temperature. Now, regarding data centers, as of 30th of June 2025, the total high voltage connection request reached approximately for this reason data centers will represent one of the drivers together with the electrification of domestic consumption, electric mobility, underlying the increase we expect to see in power demand in future years.

Very well. Many thanks for all the participants to our call. Our Q&A session is now over. The investor relations team remains available for any follow-up questions you might have. Thank you for participation and enjoy your summer break.

Thank you, Stefano. Hello, everybody. Goodbye.

Goodbye.