Terna Rete Elettrica Adr

Good afternoon, ladies and gentlemen, and welcome to TELNA 9-month 2025 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.

Thank you very much. Good afternoon everyone and welcome to the presentation of Terna's 9-month results 2025. This call will be hosted by our CFO Francesco Beccali. Following the presentation, there will be the Q&A session, so we kindly ask you to send your question to our email address investor.relations at terna.it.

Thank you Stefano and good afternoon everyone. Before looking at the fears, I'd like to take a moment to highlight some of our most recent achievements. Let's start with grid development, where we have made significant progress across multiple fronts in the past few months. Starting with the Tyrannian Link, one of the flagship projects in our 2024-2028 industrial plan. Let me remind you that before the summer we completed the laying of the first submarine cables of the Eastern Section and on September 16th, Terna and Nexan began the first installation phase of the Western Section, connecting Sicily and Sardinia. Once completed, it will set a world record for the deepest high-voltage subsea cable installation, reaching 2150 meters below sea level. This project will also represent a significant step towards Italy's decarbonization target. On October 21, The Ministry of Environment and Energy Security formally launched the authorization process for the Central Link project, which plans to rebuild the 220 kW backbone between Umbria and Tuscany, a crucial step to enhance transmission capacity, grid robustness and renewable integration. Shortly after, on October 27, the Ministry initiated the authorization procedure for the Sardinian Link, a project to reconstruct and modernize Sardinia's grid infrastructure, strengthening the island's transmission capacity and ensuring a more stable and resilient electricity system. These projects are included in the development plan and are scheduled beyond the business plan horizon. A distinctive feature of both the central and Sardinian links will be the use of Terna's proprietary five-phases technology in their construction, an innovative design that represents a major step forward in the evolution of transmission infrastructure. These new pylons are lighter, more environmentally integrated and capable of increasing transport capacity while reducing electric and magnetic fields, contributing to a more efficient and sustainable growth of the grid. Moreover, with regard to the authorization updates, We signed a five-year memorandum of understanding with the Marche region to enhance the planning of new infrastructure, and the Ministry kicked off the approval process for overhauling the city of Ferrara's electricity grid. Lastly, in September, Terna completed the acquisition of part of the high-voltage fleet in Rome from Acea for 227 million euros. An operation aimed at strengthening the continuity and security of the electricity transmission service. This acquisition will also allow for more effective decision-making on renewal and development investments across the Central Italy transmission network, while having only a limited impact on Terna's financial leverage and remaining neutral for our credit rating. Beyond infrastructure development, we have also made important progress on the procurement front. Let's move to the next slide. We continue to effectively manage potential supply chain risk through timely and efficient mitigation actions. As of today, around 88% of our 2024-2028 CAPEX plan is already covered by procurement contracts, up from more than 80% in March. All major projects, including the Tirrenian, Adriatic and Sakhoi III links, are fully contracted. For the helmet interconnections between Italy and Tunisia, the cable portion is already secured, while tenders for the converter stations are currently underway. The residual and sourced portion of plant procurement contracts primarily relates to projects scheduled for the latter part of the period, whose procurement will naturally be finalized over time. Turning now to regulation. A few days ago, ARERA published resolution 476 of 2025, verifying whether the conditions for the activation of the trigger mechanisms for 2026 were met. As the variation in market parameters of the formula remained below the 30 basis point threshold defined in the regulatory framework, the current WACC of 5.5% for electricity transmission will remain unchanged in 2026. As regards to ROS mechanism, the regulator published in August the resolution 390 of 2025 Launching the experimental phase of ROS Integrale mechanism for 2026 and 2027 period. In October, TERNA submitted to ARERA its 2026-2027 business plan and proposals for incentives linked to operational and performance efficiencies. The business plan will be the reference for the fast money-slow money mechanism and for the new incentive-penalty mechanism introduced by the Regulator for the accuracy of capital. Still on the regulatory side, in October ARENA also published resolutions 440, recognising interna 93 million euros of output-based incentives for additional interzonal transmission capacity and investment efficiency. Finally, regarding shareholder remuneration, today the Board of Directors approved the 2025 interim dividend at €11.92 per share, flat compared to last year's interim dividend. Please note that the new dividend policy communicated to the market in March sets a minimum dividend per share equal to the 2024 dividend for the entire duration of the 2024-28 business plan. Now, let me briefly give you the usual overview of the Italian electricity market, turning to the next slide. As you can see from the chart, In the first nine months of 2025, national demand was about 233 TWh, recording a negligible contraction of 1.2% in comparison with the same period of last year, when national demand was about 236 TWh. Over the period, renewable sources covered about 43% of national demand, in line with the level registered last year. For what concerns national net total production, this stood at 201 TWh, up by 1% compared to the same period of 2024. In the period, renewable sources accounted for about 50% of the national net total production, essentially in line with the level recorded in the same period of last year when renewable energy sources covered about 51% of net total production. To conclude, let me highlight the remarkable increase in photovoltaic production, which grew by 23% versus the first nine months of last year, compensating the reduction in hydro generation. With renewables continuing to play a major role in Italy's power mix, flexibility becomes crucial. So, before moving to the financial results of the company, let's turn the storage to storage and the progress made under the MAXTE mechanism, moving to the next slide. As you know, storage is the next frontier of the energy transition, essential to ensure flexibility and a system increasingly powered by renewables. As of September the 30th, Intel's total electrochemical storage capacity stood at 17.4 GWh, mostly small-scale systems, of which around 4.4 GWh were installed since December 2024. While small-scale installations still represent the majority, we are now witnessing a sharp acceleration in large-scale battery projects. In September, we successfully held the first auction under the master framework. The auction awarded a total of 10 GWh of storage capacity, fully covering the demand. Results confirmed strong market interest in the maintenance, with bids exceeding demand by more than four times and average clearing prices around 65% lower than the reserve premium. around 30,000 euros per megawatt hour and year compared to a cap of 37,000 euros. The contracted facilities are expected to enter into operation by 2028, alongside renewable plants from the FedEx auctions, helping to balance the system and reduce reliance on fossil fuels for power generation, in line with the national decarbonization objectives. On this, the first octaves of the so-called Transitional Ferris closed in September, with final rankings expected by December 11th. It saw strong participation, awarding up to 12 gigawatts of wind and solar capacity to be commissioned by 2028. The second ferric suction, which focused on resilient photovoltaic systems, was held in October and offered an additional capacity of almost 2 gigawatts. The final rankings are expected by the end of December. Overall, these results mark a major step forward in Italy's energy transition. Now, let's move to the main figures of the period at slide number 8. In the first nine months of 2025, group revenues and EBITDA increased by 9% and 7% respectively versus last year, increasing by approximately 235 million and 134 million euros compared to the first nine months of 2024. We also reported a group net income of 853 million euros, with a growth of 5% compared to the same period of last year. Group capex reached around 2.1 billion euros, marking an increase of approximately 23% versus the first nine months of last year, and setting a new record in turnover history. This confirms, once again, our effort to accelerate investments to serve system needs. To support this capacity acceleration, at the end of September 2025, net debt stood at 11.7 billion euros, slightly higher compared to the value recorded at 2024 year-end of about 11.2 billion euros. Now let's have a closer look at the results moving forward. Let's start, as usual, with revenues analysis. In the first nine months of 2025, total revenues increased by 9%, reaching 2 billion and 882 million euros, up by 235 million euros versus last year. The growth was attributable both to regulated and non-regulated activities, which contributed for 135 million and 99 million euros respectively. Let's now take a closer look at the evolution of revenues, turning to the next slide. Regulated revenues reached 2,357,000,000 euros, with an increase of more than 6% versus previous years. The growth was mainly driven by the rapid growth deriving from the recognition in time of 2024 capital expenditure, including the update and revaluation of capital cost parameters. The early recognition in time of depreciation related to 2024 capital expenditure, one year in advance compared to the previous regulatory framework. And the fast money component. set on the conventional capitalization rate defined under the ROSM application. These factors more than offset the weighted average cost of capital reduction from 5.8% to 5.5% in 2025 and deliver output-based incentives contribution versus last year. Non-regulated revenues reached 525 million euros, recording a double-digit increase of 22.3% in comparison with the same period of last year. The improvement mainly reflects the higher contribution from the equipment segment, which includes Stamini and Bruckebos, and from the energy services segment. Now, let's go to operating cost analysis. As you can see in this chart, total operating costs stood at 856 million euros, 13% higher than last year. The regulated activities cost increase is mainly driven by the rise in the headcounts and the higher average cost of labor, partially offset by higher capitalizations. The non-neglected activities were primarily impacted by higher costs for material and services related to the development of activities, mainly in the energy services segment and equipment segment. These increases were driven by higher volume of activities, reflected also in revenues growth. Regarding EBITDA, moving to the next slide. Thanks to the acceleration in revenues, 9 months 2025 Grupo BIDA reached 2 billion and 26 million euros, 7% higher than the same period of last year. The improvement was mainly attributable to regulated activities, which contributed for about 99 million euros more versus the first nine months of the previous year, showing an EBITDA of 1,923 million euros. EBITDA from non-regulated activities increased by 51% to 103 million euros. mainly driven by a stronger contribution from the equipment segment with improving margins from both the Tamini and Brook Cabot groups, as well as better results from the energy services. Let's now have a look to the lower part of the P&L, turning to the next slide. DNA amounted to 679 million euros. The rise versus last year figure was mainly related to the entry into service of new infrastructures. As a consequence, the EBIT reached 1 billion and 348 million euros, 7% higher versus the first nine months of 2024. The net financial expenses amounted to 132 million euros, The slight year-on-year increase of 27 million euros is mainly due to the drawdown of new financing and the lower financial income resulting from cash investments, partially offset by higher capitalized financial charges. Taxes stood at 362 million euros, 24 million higher versus last year, essentially due to improved results. Our tax rate was 29.10% compared to 29.4% in the 9 months of 2024. As a result, group net income reached 863 million euros, marking a 5% growth versus the same period of last year. Moving now to CAFEX analysis. In the first nine months of 2025, total capex reached around 2.1 billion euros, up by 23% year-on-year, confirming the solid capex acceleration in line with planned targets. We invested about 1.972 billion euros in regulated activities. Among the main projects of the period, it is worth mentioning the Terranial Link, the Adriatic Link, Stakoi III, the modernization of the high voltage grid in the locations due to host the Winter Olympics in 2026, and the Chiaramonte-Golti-Cimina power line. Moreover, we should consider the investments planned under the defence plan, which play a crucial role in reinforcing the resilience of the national transmission systems through the installation of synchronous compensators, shunt reactors and dumping resistor systems. Among CAPEX categories, development CAPEX represented 57% of total regulated investments, Defense capex stood at 13%, while asset renewal and efficiency was at 30%. Non-regulated and other capex stood at 115 million euros. This includes capitalized financial charges and other investments. Turning to the next slide, cash flow generation from the period amounted to around 2.2 billion euros. This was the result of around 1.5 billion euros of operating cash flow and around 700 million euros of working capital and other items. Net debt at the end of September 2025 was about 11.7 billion euros, around 500 million euros higher than 2024 year-end level, primarily due to the capital acceleration and the dividend payment. Let's now make a deeper analysis of our debt profile, moving to slide 17. At the end of September 2025, we registered a fixed floating ratio on gross depth of around 83%, with an average duration of approximately 6 years. Consistent with Terna's strategic approach of aligning capital allocations with sustainability goals to enhance long-term value, as of the end of September, Terna's sustainable financing portfolio included 3.75 billion euros in senior green bonds and 1.85 billion euros in perpetual subordinated hybrid green bonds. Let me remind you about the successful launch of the first European Green Bond, with a total nominal amount of 750 million euros made in July. This Bond, which received a very favourable market response, will pay an annual coupon of 3%. In addition, PERMA can rely on 2 billion euros in ESG-linked term loans, Three ESG-linked revolving credit facilities for a total of approximately 4 billion and 300 million euros and a 2 billion euro commercial paper program dedicated to the issuance of short-term conventional or ESG noses. To conclude, As already communicated to the market, in July, the European Investment Bank, Terna, Instesa San Paolo and such have signed agreements totaling 1.5 billion euros to support the development and construction of the Adriatic Link, the submarine power cable linking the Italian regions of Marche and Bruxelles. Thank you for your attention. Let me now conclude this presentation with some closing remarks. First of all, I would like to emphasize that we remain strongly focused on executing our industrial plan. As highlighted during the presentation, alongside delivering a solid set of results, we continue to make tangible progress across all our main projects, while keeping a disciplined approach on the procurement front despite a still challenging environment. All of this confirms once again our ability to deliver on our commitment. At the same time, the broader energy transition continues to advance rapidly. The recent FERICS and MAXE options have shown clear evidence of this progress, with over 12 GW of new renewable capacity awarded under the FERICS scheme and 10 GW of storage capacity contracted in the first MAXE option, both at competitive prices well below the respective caps. These results confirm the market's strong momentum and the standards of the regulatory framework supporting the transition. To conclude, we firmly confirm our full year 2025 guidance. We expect to achieve revenues of 4.03 billion euros, an EBITDA of 2.7 billion euros and a net profit of 1.08 billion euros. In terms of investment, the group has set a target of approximately 3.4 billion euros for 2025. Thank you for your attention. We are now ready for the Q&A session.

Thanks Francesco. Now we are ready to start with the Q&A session. Francesco, we received many questions regarding the press rumor about potential sale of transmission grid stakes. Could you comment about it?

Despite we do not used to comment on press rumors, let me be clear on this point. At current stage, this is not an option on our table. We constantly analyze all the possible instruments available to finance the development and maintenance of the national transmission grid and the results of this analysis are always reflected in the decisions set out in the industrial plan. In this sense, let me confirm what we have been stating since we presented the update of our plan back in March. Our CAPEX plan to 2028 is fully sustainable under financial standpoint. The upgrade of our rating to A-minus for Standard & Poor's and the revision of the outlet to positive form stable by Moody's, registered in April, are a further confirmation of our financial solidity. As of today, the range of flexibility tools we could evaluate are the remaining hybrid issuance capacity, which worth more than 2 billion euros, as well as seeking additional public contributions to strengthen the financial structure and considering options to valorize and monetize our non-regulated activities.

Now a move about the output-based incentives. What is the number of OBIs accounted in the nine months 2025? Is your expectation for the full year confirmed?

In the nine months revenues, there is no contribution coming from the out-of-base incentives related to dispatching services market efficiency incentives. These will be recognized in the last quarter when the when we will have full visibility and certainty, in line with the accounting principle. In the nine months, we have instead registered 16 million euros relative to the interest of all incentives. With reference to the full year, our expectations reflect the update in the performance estimated for 2025, which allows us to reach and possibly exceed the guidance already provided after the first quarter of 2025 of more than 50 million euros of OBI contributions.

Still about guidance, why are you not increasing the guidance for full year despite you are already at around 80% on full year net income guidance?

Well, the strong results we registered in the first nine months increase the visibility and the reliability of the guidance we communicated back in March. However, as I've just underlined in the previous answer, We still miss full visibility on some elements, such for example Dispatch Incentives, for which we need to wait the end of the year to determine the yearly performance with full certainty. Let me remind that this is the first year of the new Dispatch Incentives Framework renewal, so all the incentives, we will account for this in 2025, will depend on 2025 performance. Thank you.

Given resolution 440-2025 on interzonal incentives recognized to Tern, do you upgrade guidance on OBIs?

As we have already stated in the presentation, we wish to highlight that these around 93 million euros of interzonal incentives improve the visibility on 900 million euro guidance of total OBIs for the 2024-2028 period. As we always reported, these interzonal incentives will be accounted for over three years starting by next one. In the first half of 2025, we have already registered 16 million euros of interzonal incentives recognized from previous years. We did not disclose the breakdown of our OBI guidance among the different mechanisms. However, let me remind you that the overall amount mostly refers to existing output-based incentives framework, with a bigger contribution from the dispatching service and for a residual part relative to, instead, the ROS Integrale Scheme, back-loaded.

Can you comment on the ROS Integrale expected incentives and potential timelines?

The last resolution published by ARERA basically confirms ARERA's focus on the need to incentivize companies to deliver strategic high-value energy infrastructure in an efficient way. ARERA allows companies to submit proposals for new, reward-only, output-based incentives as part of their business plan, which will be subject to the Regulator's scrutiny and approval. We do not rule out the possibility the Regulator will issue new incentives before the end of the current regulatory period.

Ok, now on data centres. Do you see any significant acceleration in data centre projects?

In Italy, the connection requests to the grid associated with the construction of data centers have experienced strong and continuous growth in recent years. As of the 31st of October of this year, the total high-voltage connection requests reached approximately 64 gigawatts, with around 378 active requests. Geographically, around 80% of connection requests are concentrated in northern parts of Italy, especially in Lombardy, around Milan, confirming the region as the primary hub for data center development. For this reason, data center will represent one of the drivers, together with electrification of domestic consumption and electric mobility, underlying the expected increase in power demand in future years.

Now, could you please provide an update of authorization and procurement status over industrial plan horizon?

Sure. The procurement process for our investments is progressing in line with industrial plan. Projects currently still in the authorization phase with expected completion beyond the plan horizon are not strategic and have a limited impact on total capital. The authorization processes For major projects planned after 2028 will be launched in due course. As of today, all our main HPDC projects included in the current plan have received the necessary authorizations and around 92% of the projects in the plan have completed the approval process. Moreover, we are actively working to complete all authorization procedures according to the planned implementation timeline. both for 2030 and for the longer term horizon towards 2024. On procurement, we are fully aware of the potential supply chain shortages and bottlenecks affecting the industry. To manage this risk, we have taken several steps to ensure continuity. Thanks in part to the support of Brook Cabot and Tamini Transformers, around 88% of 2024-2028 CAPEX is already covered by existing procurement contracts, up from the 80% in March.

Very well. Now, moving to the working capital, could you give a bit of color on the dynamics in 9 months 25 and your expectations for year-end working capital figures?

In the third quarter, the working capital and other items report a decrease of about 700 million euros, compared to the end of 2024. This variation has a positive impact obviously on our cash flow. This result is mainly attributable, on the one hand, to an increase of about 390 million euros in net pass-through energy payables, mainly due to higher debt from the essential plants for the security and electricity system, the so-called inter-essentiales, and the capacity market, partially upset by higher credits from the cost of procuring resources on the dispatching market services. On top of that, we have to take account of the increase in other net liabilities, essentially due to the increase in security deposits received from operators participating in the capacity market, and the higher planned subsidies received from third parties. Then we also have to take into account the decrease of about 156 million euros in the receivables resulting from regulated activities attributable to the collection of the previous year's Dispatching Market Efficiency Incentive, partially offset by the higher receivables attributable to the transmission revenues due to the Tariff Update set by ARERA Resolution 579 of 2024. This amount includes also the effect of the closing of the acquisition of high-voltage grid portions from ACEA. Regarding working capital forecasts for IRN, due to the ordinary seasonality, let me remind that we expect a significant reduction in working capital liabilities pending payment resolutions from ARERA.

Thank you. Finally, about regulation. When you expect a new board of ARERA, do you see any risk of ARERA changing approach towards the energy transition and those support for investment in the electricity networks?

Well, as we always say, the rationale underlying the energy transition in Italy is very strong because it basically allows to reduce the dependency of the country from imported energy and commodities. The energy transition could not go ahead without investment and we play a central role in such process. We understand that the new board of ARERA should be appointed before the end of the year and we do not expect a significant change in ARERA's approach towards the energy transition. Law 491 establishes that commissioners must be chosen among people of outstanding competence. We are confident that what we just mentioned represents good rationales to prevent regulatory risk.

Many thanks, Francesco. So, the Q&A section is now over. As always, the Investor Relations team is available to answer any follow-up questions you might have. Thank you everybody for your participation and have a nice evening.

Thank you everybody. Nice evening.