Terna Rete Elettrica Adr

Good afternoon, ladies and gentlemen, and welcome to China's Q1 2026 consolidated results presentation. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I'd like to hand the conference over to our host, Stefano Gamberini, Head of Investor Relations. Please go ahead, sir.

Thanks a lot. Good afternoon, everyone, and welcome to CERNA's first quarter 2026 results presentation. The call will be hosted by our CFO, Francesco Beccali, and 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 address, investors.relations at CERNA.it. I leave the floor to Francesco, please.

Thank you Stefano, and good afternoon everyone. Let me start by sharing with you the key highlights of the first quarter of 2026. The urban infrastructure. In Q1 2026, 10 projects aimed at developing the national transmission grid were authorized by the Ministry of the Environment and Energy Security and the relevant regional authorities, for a total value of approximately 167 million euros. This confirms our ability to streamline internal processes and our constructive collaboration with the authorities, enabling shorter approval timelines. In terms of execution, let me remind you that, in early January 26, the installation of the first submarine cable of the Terranial Links Western Branch between Sisi and Sardinia was completed, reaching a record depth of 2,150 meters. In addition, in April we completed the installation of the eastern section of the Tyrrhenian Link, making the conclusion of submarine walls between Campania and Sicily. Finally, in line with the strategically focused outline in the update of our 2024-2028 industrial plan, in February we signed a binding agreement for the sale of 100% of Ferna Peru as part of the enhancement of our power transmission assets in South America. The transaction is valued at approximately 15 million US dollars, with closing expected by the third quarter of 2026. Coming to finance, and confirming once again the group's strong commitment to a business model that reinforces sustainability as a strategic lever for value creation, in January we issued an 850 million euros hybrid green bond, achieving a record low subordination premium for corporate hybrid instruments in Europe, below 60 base points. In addition, in March, Perlas signed an ESG-linked credit facility agreement for a total amount of 100 million euros. The facility has a five-year maturity with an interest rate also linked to Perlas' performance against specific environmental, social and governance indicators. On the ESG side, our continuous commitment to sustainability is also recognized externally by different institutional bodies. In the first quarter of 2026, Terna achieved the top 1% distinction, the highest possible recognition in the Sustainability Yearbook 2026 of S&P Global, based on the results of the 2025 Corporate Sustainability Assessment, where Terna ranked first worldwide. In the same period, Standard Ethics, a leading international non-financial accrediting agency, confer Ternas W Plus corporate rating corresponding to a very strong assessment, positioning the group in the top sustainable range and among the leaders in the utilities sector. We have also recently learned that MSCI has upgraded Ternas ESG rating to AAA, the highest possible level, thereby placing the company among the leaders in the utilities sector. Moreover, Terna was confirmed in the main ESG indices, in which it is already included, the Stoz Global ESG Leaders Index, where the group has been listed since 2011, the Euronext Sustainable Index and the EMIB ESG Index, Italy's blue-chip index dedicated to best practices in environmental, social and governance matters. Let me now briefly touch on the evolution of the Italian electricity system. Since the beginning of the year, we have already seen encouraging progress. Starting with renewables, more than 1.6 gigawatts of new capacity have been installed over the last three months. Overall connection requests remain broadly stable, but, more importantly, projects that have been secured preliminary connection solutions rose to about 84 GW, from 79 GW at the end of December. The ready-to-build pipeline also edged up to around 12 GW, versus about 11 GW at the end of last year. Turning to storage, around 1 GWh of new capacity was installed in the first quarter of the year. In addition, with decree number 95 of 27 of March 2026, the Italian Ministry of Environment and Energy Security approved Terna's proposal for a new maxi-auction for the 2029 delivery. Approval of the auction volume, up to 16 GWh, is expected shortly. and the auction is likely to take place by year end. As for the storage pipeline, overall collection of requests remained broadly in line with December levels at around 300 GW, while projects that have obtained a preliminary authorization increased to around 63 GW up from 56 GW at the end of December. Ready-to-Build projects also increased, reaching around 8 GW compared to 6.8 GW in December. Let's now turn to the overview of the electricity demand evolution, moving to the next slide. As you can appreciate from this chart, in the first quarter of 2026, National electricity demand continues to confirm the upward trend observed since last September, reaching around 80 TWh, up 3% year-on-year. During the period, renewable sources covered about 36% of total demand, improving versus last year, when the share was approximately 34%. National net electricity production amounted to around 68 TWh, up 4.1% year-on-year, and with renewables covering roughly 42% of domestic production from around 41% in the first quarter of 2025. The growth in renewable electricity generation was mainly driven by photovoltaic and wind, which increased their production by 19.2% and 26.3% respectively. Given that data center deployments are expected to be a key long-term driver of electricity demand, let me briefly update you on data center connection requests. As of end March, data center connection requests totaled around 83 GW, up by approximately 13 GW compared with end 2025, confirming that Italy is increasingly perceived by investors as a reliable platform for energy-intensive digital infrastructures. Turning now to the main figures of the period, in the first three months of 2026, The group achieved satisfactory results across PNL lines. Indeed, group reviews and EBITDA rose by 10% and 7% respectively, equating to increase of €87 million and €46 million compared to the first three months of 2025. We also reported a group net income of 277 million euros, broadly in line with the same period of last year, despite higher ERA taxation introduced by the energy decree for 2026 and 2027. Adjusting the first quarter 2025 figures for this effect, net income in the first quarter of 2026 would be up 4%, Group capex amounted to 511 million euros, down 9% versus the first quarter of last year, due to a different timing of investment. At the end of March 2026, net debt stood at 12.2 billion euros, approximately 800 million euros lower than the value registered in 2025 year-end, of about 3.13 billion euros. mainly as a consequence of the 850 million euros earned each month accounted as equity. For the deeper analysis of the first quarter figures, let's now turn to the next slide. Revenues fostered a significant increase of around 10% in the first quarter, reaching 989 million euros. Regulated activities grew by 5% to 795 million euros, while the most significant acceleration was driven by non-regulated activities, which rose by over 30% to 194 million euros. Let me now take a closer look at the evolution of revenues, turning to slide number 9. Regulated revenues reached 795 million euros with an increase of 5% compared to the same period of last year. The growth was mainly driven by the higher RAP and the recognized depreciation from new assets entered on stream, a change in consolidation perimeters following the acquisition of Pasqual Rome's high-voltage grid from Acea, closed in September 2025, and only partially offset by lower fat money component following the update of the notional capitalization rate for the 2026-27 regulatory period. No change in revenues, however, arises from the WAC, which remains unchanged at 0.5%, in line with the previous period. Non-cooperative revenues reached 194 million euros, up 32% versus last year. The equipment segment grew by around 20%, supported by a strong market environment and higher order intake, with both Groot Cables and Tamini Group as key contributors. The revenues for the energy services segment grew by 25 million euros following also the acquisition of STE Energy in May 2025. Now let's go through operating cost analysis. As you can see in this chart, total operating cost stood at around 291 million euros, 17% higher than last year. In regulated activities, the cost base rose by 11%, mainly due to higher external and other costs. Labor was up by 4%, largely due to a higher average account. This increase was mostly offset by higher capitalizations. Non-regulated objects dynamics were mainly impacted by higher service costs related to the development of activities in the energy services and equipment segments, and higher raw material costs. Let me now analyze EBITDA moving to the next slide. Thanks to the acceleration in revenues, in the first quarter of 2026, Group EBITDA reached 698 million euros, 7% higher than the previous year. The increase was mainly attributable to regulated activities, which contributed for about 26 million euros more versus last year, showing an EBITDA of 652 million euros. Non-regulated activities EBITDA rose by approximately 80% to 46 million euros, plus 20 million versus last year. The increase was led by the equipment business, reflecting both stronger market revenues and margin expansion. Energy services also reported very strong acceleration, mainly thanks to the consolidation of LTE energy from May 2005. Let's now have a look to the lower part of the P&L, turning to the next slide. Linares amounted to 248 million euros. The increase versus last year was mainly due to the impact of new assets coming on stream during the period. As a consequence, EBIT reached 450 million euros, up 4% versus the first quarter of last year. Net financial expenses were close to 7 million euros, up 8 million euros versus last year, mainly reflecting a higher average debt level in the first quarter of 2036 versus 2025, along with higher interest rates on new financings compared to the average cost of existing debt. The cost of debt in the first quarter of 2036 was around 2.7%. Taxes stood at 125 million euros, 7 million euros higher versus last year, attributable to the higher profit before tax and to the temporary 2% increase in the year of tax rate for 26 and 27. Our tax rate was 31.1% versus 30.1% in the first quarter of 2025. As a result, group net income reached 277 million euros, broadly in line with the same period of last year. Adjusting the first quarter of 2025 figures for higher ERAP tax introduced by the so-called energy decree, net income in the first quarter of 2026 would be up 4%. Moving to capital analogies, in the first three months of 2026, Total Capes amounted to 511 million euros, down compared to the same period of last year. Of this amount, approximately 463 million was invested in regulated activities. Among the main projects of the period, it is worth mentioning the Tirrenial Links, the Cerra Montegul-Sicimina Power Line, the Sacoi Tree and the Adriatic Link. In addition, we should also consider the investments envisaged under our defense plan, which are essential to ensure grid resilience and security, including the installation of synchronous compensators, shunt reactors, and damping resistor systems. As far as CAPEX categories are concerned, development CAPEX represented 57% of our total regulated CAPEX, Defense CapEx stood at 10%, while asset renewal and efficiency was 33% of the total. Non-regulated and other CapEx reached 49 million euros. This mainly included capitalized financial charges and other investments. Let me underline that the year-on-year decrease mainly reflects a different timing of investment, with spending more concentrated in the second half of the year, as well as a higher comparison base in early 2025. Regarding net debt and cash flow analysis, let's now turn to the next slide. At the end of March 2026, Net debt stood at 12.2 billion euros, around 0.8 billion euros below the 2025 year-end level, reflecting our continued discipline in managing leverage. Cash flow generation was around 510 million euros, enabling us to fund almost all the capital spending during the quarter. Let me also reiterate that our financial policy focuses on efficiency and on maintaining a solid, sustainable capital structure. In this context, net debt at the end of March includes the benefit of the 860 million euros hybrid green bond issued in January, accounted as equity. Let's now make a deeper analysis of our debt profile, moving to slide 15. At the end of March 2006, the fixed to floating ratio on gross debt stood at around 75%. with an average debt duration of approximately six years. In full alignment with the group strategy, Terna aims to position itself as one of the leading players in the sustainable finance market, an approach that was further confirmed in the first quarter of 2026. As of March 2026, senior green bonds issued under our two euro-million tier notes These are complemented by three perpetually subordinated green hybrid bond issuances for a total of 2.7 billion euros, including a third tranche issued in January 2026 of 850 million euros just mentioned. This latest transaction represents Terna's first perpetual subordinated hybrid non-convertible European green bomb issued at a record low subordination premium per corporate hybrid instrument in Europe, below 60 base points. In addition, Ferna can rely on a solid ESG-Link loan structure, including ESG-Link term loans, for a total of 2.6 billion euros, as well as three ESG-Link revolving trade facilities linked to sustainability performance indicators for approximately 4.3 billion euros. This is complemented by a 2 billion euro commercial paper program, providing further flexibility in short-term funding. Before we move to the Q&A, let me briefly highlight that in the current context of rising geopolitical tensions, the expansion of renewables is crucial to strengthening energy independence and helping stabilize electricity price levels. In the first quarter of 2026, the energy transition advanced further, with around 1.6 gigawatts of new renewable capacity and 1 gigawatt hour of new storages added. Key pipeline indicators also continue to improve, notably ready-to-build projects as well as ones that have already secured preliminary authorizations. Regarding targets, given the strong performance delivered in the first three months, we confirm the full 2026 guidance shared in March. Thank you for your attention. We are now ready for the Q&A session.