Terna Rete Elettrica Adr

Good afternoon, ladies and gentlemen, and welcome to Terna's first half 2026 consolidated results. At this time, all participants are in listen-only mode. Please, we advise that today's conference is being recorded. I'd like to hand the conference over to our host speaker today, Fabrizio Ragnacci, Head of Investor Relations. Please, go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen, and welcome to DERNAF's first half 2026 results presentation. The call will be hosted by our CEO and General Manager, Pasqualino Monti, and our CFO, Francesco Beccali. In the presentation, we will provide some highlights of the period, and then we will walk you through the operation and financial performance. Following the presentation, we will have the Q&A session. I kindly ask you to send any questions to our email address. investors.relations.terna.it Thank you and now let me hand over to our CEO, Mr. Monti.

Thank you Fabrizio, good afternoon. We start with some opening remarks on the first half of 2026. Solid execution in the development of our grid infrastructure was the main priority. We have achieved a relevant progress on the perennial link. with the completion of a submarine cable installation on the eastern section and we are on track on the major development milestones of our industrial plant. Terna continues to play its key role in the Italian electricity system in adding renewables, integration and ensuring grid security. Over the first six months of the year we have integrated around 3.4 gigawatts of the renewable capacity and more than 1 GWh of storage. As the energy transition continues to gain momentum, trillions guaranteed to connection requests show visible growth, up by 1.2 times of renewables and by 1.4 times for storage year-to-date. Sustainability is at the core of our strategy. and our global leadership continues to be recognized by leading international institutions. Looking ahead, we are starting to work on the update of the industrial plan. As you know, by 2027, ARERA will update the current regulatory framework, which expires at the end of next year. Our internal work on the strategic plan must be aligned with the timing of the regulations. With the regulation visible and defined, we will be in a position to share with the market the new industrial plan in due course in 2027. And now let me hand over to our CFO, Francesco Beccali.

Thank you, Pasqualino. And good afternoon, everybody. We've delivered another solid set of results in the first half of the year. Performance improved across all our key financial indicators. Showing once again the solidity of our business model. I will deep dive later in the presentation on the main drive. We continue to accelerate investments to support the development of the electricity system, while maintaining a disciplined and sustainable financial profile. Let's start with CapEx, turning to the next premise slide. In the previous, CapEx amounted to 1.6 billion euros, marking a 20% increase compared to the same period of last year. Out of this amount, around 1.5 billion was invested in regulated activities, with 60% devoted to development, almost 30% for asset renewal and efficiency, and the rest for different CapEx. Among the main projects of the period, our investment efforts mainly focused on the Tyrrhenian Link, the Stakhoi Pei, the interconnection Italy and Tunisia, the Cerro Monte Gurtisimina power lines, and the so-called Adriatic Link. On defense, investments totaled around 172 million euros in line with our defense plan, with the aim of ensuring great resilience and security. through the installation of synchronous compensators, shunt reactors and dumping resistor systems. Non-regulated and older capital reached around €115 million, of which about €4-1 million of non-regulated investments and €76 million of capitalized financial shunts. As of today, about 92% of the projects included in our business plan are covered by contracts awarded and 93% and completed the authorization process. Let us now move to the main figures of the PNN, turning to the slide number 7. Let's start with our revenues per quarter. In the first half of 2026, group revenues increased by around 12%, reaching 2.1 million euros and improvements of approximately 219 million euros compared to the same period of last year. The net revenues reached 1.66 billion euros, with an increase of 4% vis-a-vis previous years. The growth was mainly driven by higher output-based incentives, a rapid increase and reorganized depreciation from new assets entered on screen, and also all of this partially offset by a lower sasmonic component, forming the update of the emotional capitalization rate, for the 2026-27 regulatory period, and no more revenues recognized during the period compared to the first half of 2025, which included the estimated settlement of the tariff decoupling mechanism. Let me remind that, in the first half of 2025, we did 17 million euros one-off related to previous years of pleasure recognition, following the shift to HICP for larger evaluations. Net of this effect, revenues in the first half of 26 would have increased by 13%. Non-regulated revenues reached 451 million euros, up 50% year-on-year. The improvement reflects the higher contribution from the energy services segment, following also the consolidation of FEE energy in the second part of 2025, and also the contributions from the equivalent segment supported by a strong market environment and higher order intake with both Brook Cable and Tamini Group as key contributors. Now, let's go through operating cost analysis. Total operating costs came in 647 million euros, up 21% year-on-year, marking an increase of around 112 million euros compared to the first half of 2025. In the regulated segment, the cost base increased by 3%, mainly reflecting higher outcomes, costs, and increased external services and other operating expenses. This increase was largely obsessed by higher shaft allocations. As for non-regulated activities, the evolution of operating costs was mainly driven by the increase of perimeter in the energy services business and higher volumes on the equipment segment. Let me now move to EBITDA as the following slide. Group EBITDA reached around 1.5 billion euros in the first half of 2026. up 8% per annum, corresponding to an increase of approximately €117 million. The increase was mainly driven by regulated activities, recording an EBITDA of €1.4 billion, up by €60 million versus previous year. Non-regulated activities recorded a strong performance, with EBITDA increasing by around 81% to €106 million. This translated into an EBITDA margin of 24% compared with 20% in the first half of 2025, highlighting the improved profitability of the business. The strong EBITDA performance recorded in the period highlights the solidity of the business model and represents the foundation for the achievement of our full year guide, which we see where we have reached. Let's now take a closer look at the rest of the PNL, turning to the next slide. Year A amounted to €560 million, the increase versus last year was mainly due to the impact of Newark's communal stream during the period. As a result, EBIT reached €961 million, up 5% year-on-year. Net financial expenses were 94 million euros, up by around 17 million euros versus last year, mainly reflecting the higher average cost of debt compared with the first half of 2025. Taxes stood at 274 million euros, 25 million euros higher versus last year. Attribute the law to the higher profit before tax and to the temporary 2% tax points increased in the ERAP tax rate for 2026 and 2027. Our tax rate was 31.6%, which will be 29.3% in the first half of 2025. As a result, group net income reached €591 million, 1% higher versus last year, adjusting At the end of June 2026, net debt stood at 12.6 billion euros. Around 0.5 billion euros below the current 25 year end level. Reflecting on a specific financial manager. This figure also contributes to benefits from the 850 million euro million European Green Ivy Loan issued in January, which is accounted for as extra. The cash flow generation was around 1.7 billion euros, enabling us to fully fund our investment program while maintaining a sound financial position. Looking at our debt profile, around 72% of gross debt was at fixed rate at the end of June, while the average debt maturity stood at approximately 50%, confirming the resilience of our liability structure. As previously mentioned, during the first part of the year, the focus strengthened our sustainable finance profile. In January, we successfully placed an 850 million euros European Green Iron Don, which received orders of more than 7 billion euros, almost nine times the amount of the transaction represented the first Green Bond Standard Iron issuance in the Italian market, and achieved the lowest subordination premium and other reporters for a Euro-denominated corporate advertising firm in Europe. Below 60 best quotes, confirming the strong confidence investors place in Perna's credit profile. In addition, we continue to expand our Sustainability Link Funding Framework, creating a styling in March of a new €100 million ESG link-grade facility with financial conditions linked to specific ESG targets. Finally, in June, we increased the size of our EMTM program from 4 billion to 6 billion units, further enhancing our financial flexibility and strengthening our access to international capital markets. Overall, our fine-grained structure remains well diversified and fully aligned with the group strategy, providing the financial flexibility needed to support our investment conditions. And now, some closing remarks. In the first half of the year, we have continued to make strong progress across all our channels of application. On infrastructure, we are advancing the development of the grid in important milestones achieved on our main projects, confirming our strong focus on execution. On the financial side, we delivered once again a strong performance, with double-digit revenue growth, solid EBITDA expansion and continued cash generation, while maintaining a disciplined approach to capital allocation and financial money. This is only a strong separate result, and thanks to the high level of visibility we have for the rest of the year, we can fully confirm our 2026 cap. Thank you for your attention, we are now ready for the Q&A session.

Thank you, Francesco. We can open the Q&A session. As always, we have received questions from the analysts, so I want to start by thanking all of the analysts for sending beforehand their questions. We have obviously grouped them by subject, by topic, trying to be as effective as possible. We actually start with a couple of questions on the OBIs. The first one is, the first one, the analyst is asking if we can provide some details on the output-based incentives that we have accounted for in the first half of 2026.

Sure, Fabrizio. In the first half of the year, we recognized approximately 76 million euros of output-based incentives, consisting of 43 million of inter-zonal incentives and 33 million euros related to the MSD incentive schemes for the 2025 performance. The last number figure reflects the final outcome of Carrera's regulatory assessment which conform an higher incentive amount than the prudential estimates recognized at the end of 2025, probably validating the assumptions and calculations previously submitted by Bernard to the authorities.

Excellent. Then the second one, the second part of the questions on the ODIs is if the CFO could remind what was the guidance for ODIs for fully-autonomous discipline.

What I can tell you is that out-of-base incentives in 26 will remain mainly linked to the mechanism for reducing dispatching service market costs. Four of the 26, considering both dispatching and interzonal, and including all the potential grants incentives, we expect to book more or less 200 million euros of incentives overall.

Then we... Switch a bit more to the regulatory side of things. The question is, when do you expect RERA to make substantial progress with its consultation and publications on the ROS system for electricity transmission?

Well, we see mainly two big regulatory milestones coming up. The first one concerns eventual steps ahead regarding ROS revolutions. to further align the PSO's objective with the system's interest. As of today, a consultation paper on these incentive schemes has not been published yet. And the second one will regard the next interview, which will start, as you know, in 2038. Therefore, the relative consultation process will likely be ended during 2037.

The next one is still on regulation, more on a technical aspect. What is the mark-to-market for 2027? Why do you expect the regulator to change the basket of tiers or the taxation parameters?

Well, from a mark-to-market perspective for 2027, and looking into the regressification service, which is the most sensible to potential seekers, The current estimates under the existing formula would point to lower work level. However, the geopolitical situation and the resulting volatility, as well as in macroeconomic conditions, suggest cut caution. As part of the consultation process on geodraming, ARERA could revise the current basket of comparables in case recent trends in interest rates, spread and training ratings proceed. However, let me point out that the regulator, as of today, has not provided any indication that such changes are being considered. In our estimates, excluding France, in any case, from the basket of competitors, current market values remain around to the threshold and could trigger a whack-up date. We are still on the edge. However, we could be more precise on the final potential outcome only closer to the end of the observation period due to the volatility that we were mentioning before. When values will be almost crystallized and we have more visibility on the crucial elements for the vaccination of some parameters, such as the basket of comparables for the country's food.

Thank you, Francesco. Now we change a bit the subject and we move to the financial structure. The question is if the company sees room to improve the current financial structure and if asset rotation or some other solution to decrease the leverage could be considered by the company.

As to the first question, let me put it in the right perspective. and let me start by highlighting that our financial position is extremely solid and our capital plan for 2028 is fully sustainable under a financial standpoint, as was confirmed by the rating application that we received in 2025 from both Standard & Poor's and Moody's, consequently to a similar rating action that happened on the solar. Having said that, we remain firmly committed to preserving a strong risk profile and trace that and we are ready to take any measures that may be needed to oppose that commitment. When we will update an industrial plant to reflect a revised capital curve, we will then reassess the financial instruments required to confirm the financial standards of the company.

Thank you. Still on the results and a bit of a deep dive, the analyst is asking which are the growth drivers behind the acceleration of the non-regulated business for the first half in terms of EBITDA, obviously compared to the same period of previous year.

Well, as shown during the presentation, non-regulated business performance is driven by, on the one hand, the acceleration in both energy service segments, which accounted for 54 million euros of the guitar, and both equipment segments, 33 million euros of total contributions. Most of this acceleration is related to the organic growth, mainly increased marginality of all devices. Only a reasonable part of it, We are talking about 10 million euros out of 160 million euros of total EBITDA is linked to perimeter effect following the consolidation of SDE in the energy services field. In general, looking at non-regulated activities at higher levels, they should not be considered as standalone businesses, but they are closely linked to and complementary to our regulated core business. They are increasingly becoming an industrial platform through which we can participate in key segments of the energy transition value chain while strengthening our execution capabilities and industrial know-how. This is also a message we want the market to better appreciate, because the growth of our market-based activity has not changed the turnout risk profile. On the contrary, It reinforces our core business by creating industrial synergies and enhancing skills and supporting the execution of our investment products. Guggenheim will continue to evaluate growth opportunities, including M&A, small M&A opportunities, but we will remain highly selective and disciplined. We will only consider transactions that are fully aligned with our core competencies, offer tangible industrial synergies, and generate appropriate economic returns for our shareholders.

Thank you, Francesco. So now we switch more to some financial dynamics, and Anelis is asking on working capital dynamics for the semester, and what are the expectations on the figure for year-end?

As to the networking capital, its evolution in the first semester of the year benefited from lower cash outputs related to pass-through items, and from higher receivables associated with regulated activities and margin-related items. On top of this, let me point out that in the first half of 2016, We received about 300 million euros of grants in this context. Let me also remind you that, according to the new regulation, we are entitled to receive the financial incentive between 5% and 15% of the overall grant value. Looking ahead, we expect the net worth in Canada at the end to remain broadly consistent with the current trajectory. and with the execution of our investment plan while continuing to be mainly influenced by the evolution of pass-through items and receivables which are very difficult to project.

We move on to procurement. The question is if we see any risks that are particularly coming from the current tensions in the Middle East.

For what concerns procurement, let me start by saying that we are well on track, given that about 92% of the projects included in the 2024-2028 industrial plan are covered by contract award. If we talk about geopolitical tensions, Those may have some indirect effects on the cost of key materials and on supply chain dynamics. For these reasons, we are already implementing mitigation strategies to preserve both timelines and capital expenditure decisions. It is also important to remember that our regulatory framework provides protection against increases in raw material prices, since these are recognized in the RAT .

So, I think that given the message of strategy that was given at the beginning of the presentation, we focus the Q&A only on the operating and financial aspects of the semester, although we have received two questions which are more forward-looking, and I think we can stay on these two questions still with you, Francesco. The first one is... Can you provide a view about the EU proposal on electrification targets and the potential implications for thermal?

Sure. Let me start by highlighting that it is only a policy document so far, and that there are still no viable targets, either at EU level or at national level. Having said that, the electrification action plan, which indicates 46% from the current 22% are the European 24th target for electrification of final energy consumption. Further concerns may view the importance of electrification to strengthen the Union's energy autonomy and counter tensions on energy prices, as well as the Commission's determination to continue in this direction. This makes it essential to continue with a robust investment plan in transmission networks that we expect the regulators of individual countries will have to support. To this extent, it is worth noting that the electricity transmission cost in Italy is among the lowest in Europe. Coming back to the doctor, the Commission indicates that an accelerated energy transition in electrification at its core could reduce the imports of gas by more than 70%. and of crude oil by more than 40% by 2040. The EU could save up to 250 million per year by 2040 on its fossil fuel import yield, a possible reduction by 2040 of gas imports by more than 20% and crude oil imports by more than 40%. Thank you, Francesco.

We still remain with one question, the final one, before we're looking more on CAPEX. So, the question is, how do you think about the pace of CAPEX beyond 2028, and when do you expect to present the new 10 years development plan?

What I'm saying is the expected investment beyond the planned arrangements. and focusing on the development segment, which is, by the way, the most important one, the one that contributed the most to our total amount of capital, the biggest share of our investment, the latest National Development Plan, the one we published in 1955, provides for investment of more than 23 billion euros over the decade. On top of this, The new 10-year development plan will be presented in the first semester of 2027 and it will include all the development projects foreseen in the period 2027-2036.

Thank you Francesco, so this was the last question of the Q&A, so we can conclude also the Q&A session. I want to thank our management, CEO Pasqualino Monti and CFO Francesco Beccali for attending the call, and obviously for all of the analysts and investors that attended the call, the Investor Relations team is at your disposal for further questions or any clarification that you might need. Thank you.

Thanks Fabrizio, and thanks to everybody for attending the call.

Ladies and gentlemen, this concludes today's presentation. Thank you for joining us. You may now disconnect your line. Have a great day.