A2A S.p.A. (A2A) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to A2A's First Half 2026 Consolidated Results. [Operator Instructions] Please be advised that today's conference is being recorded. Now I would like to hand the conference over to our host, Marco Porro, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us. Today, our CEO, Renato Mazzoncini; and our CFO, Luca Moroni, will present our first half 2026 results, which confirm the group's operational and financial strength and the progress of our strategic investments. We will be happy to take your questions at the end of the presentation. Let me leave the floor to Renato.

Okay. Thank you, Marco, and good afternoon, everyone, and thank you also from my side to -- for you for joining us. So reacting effectively to change delivers results today, challenging change over time is what builds sustainable results tomorrow. It is what distinguishes short-term responses from long-term value creation. And I think this perfectly encapsulates the first half of '26 for A2A, continuing to deliver today while building the foundations for tomorrow's growth. And to illustrate this, let me start with some of the key achievements delivered during the first half of '26 across both our 2 pillars of energy transition and the circular economy. On renewables, we further scaled our platform, adding 35 megawatts of wind capacity and bringing installed capacity in wind from resources to over 300 megawatts. We also continued to develop our PPA platform. This is really key for me with agreements signed with Sosteneo and Polytechnic of Milano, so large platform, as well as the launch of our first A2A open PPA designed to support the small business enterprises through long-term contracts. Through these initiatives, A2A promotes the development of renewable by making green energy more widespread, more accessible and less exposed to market dynamics. This is also a concrete example of how PPAs enable the integration of renewable sources into industrial consumption, promoting long-term procurement models that provide greater stability and sustainability. And today, really A2A is the only energy company that try to change this paradigm of renewable with products for every kind of customers long term. So the PPA mass market, 120,000 contracts signed, more or less 260 gigawatt hours sold with this kind of PPAs, of course, PPA classical B2B and now also this small business enterprise that is a kind of customers super interesting that without standard PPAs can really arrive to the change of paradigm of renewable. Also in this case, the duration of the contract is 10 years or 20 years depending on the negotiation. And so we are really very happy to have in our market, let's say, a product PPA for every kind of customers. At the same time, we increased our role as a strategic infrastructure operator. Some example of the 250 construction sites that we have in this moment active. For example, Monfalcone construction site is running is PGT super large 870 megawatts of thermal capacity is running at full capacity, supported by extended shift partner with commercial operation confirmed for next year. Power network capacity increased by 5%, reaching 9,300 megawatts ampere and 2 new wastewater treatment plants have the treatment capacity for the equivalent of 30,000 inhabitants. In this context, grid capacity is not just a technical metric. It is what makes the transition executable. By reinforcing our networks, we create the condition to connect more renewable energy, support new electric uses, so the demand and ensure continuity and quality services for the community that we serve. As water resources come under increasing pressure also in this month in Italy, wastewater treatment plays a key role in protecting water quality and increase the resilience of integrated water cycle. But delivering today's results is only a part of the story. At the same time, we are advancing a number of strategic initiatives that underpin long-term value creation. So let's start at Slide #3, talking about our data center platform. So let me now turn in one of the areas where our industrial approach can unlock significant future potential exactly the data center. Today, the sector is benefiting very well from a number of favorable structural trends. Growing attention to data sovereignty and digital infrastructure resilience is driving demand for domestic and European data center capacity, making digital infrastructure and increasing strategic asset. At the same time, Lombardy, our core area, an area in which A2A is incumbent for both generation and network offers a particular supportive environment for development promoting brownfield redevelopment and recovery solution, so this heating, let's say, 2 areas that are fully aligned with A2A's industrial footprint and long-term strategy. Against this backdrop, we believe A2A is a unique position to capture this opportunity. And our approach is based on energy-efficient power shell solution developed on A2A owned sites near our electrical production generation. We will connect them behind the meter, leveraging our generation assets. This enables us to offer faster time to market, lower energy cost and reduce environmental footprint. And so let's say, also looking the new DC development, this is a key point. On our data center platform, we are well on track with our strategic road map. You remember the 12th of November with the update of industrial plan, we launched our platform, where we are now? The 2 sites, Lamarmora, Brescia is designed for around 20 megawatts of IT capacity, so 30 megawatt electrical megawatts, serving AI workloads and colocation services with a behind-the-meter connection to our waste-to-energy plant. Our waste-to-energy plant in Brescia is around 70, 80 megawatt so is ready to feed this new data center and proximity to our district heating network that means to have a data center with PUE super low and WE approx to 0. Cassano Data a province of Milano is also moving forward with preliminary design already completed site, our site, once again, a site in our property for at least 80-megawatt IT at least is designed to support workloads with potential for modular densification. It would benefit from a behind-the-meter connection to CCGT plant, once again, more or less 800 megawatt of CCGT plant. And from the ability of existing gas peaker as backup power, 110 megawatt of peaker that can work as backup power, providing potential advantages in terms of permitting time lines that means no environment impact assessment required. So in this case, the time to market for this plant is really incredible because we have the connection in high voltage. We have the generation to feed the baseload the plant, and we have a backup and we don't need environment impact assessment. Okay. In Slide 4, we underline our strategic partnership with Equinix because as our data center platform continues to progress, we are, of course, also advancing our role as an energy partner. And our partnership with Equinix is a clear example of this. We are in near Milano once again, Settimo Milanese, and we will transform the heat produced by service hosted at Equinix campus in Settimo Milanese into the energy resources for local communities. The model is going forward and effective. It generated as a byproduct of data center workloads is captured by Equinix and transported to A2A energy center where A2A upgrades it with 72 megawatts of large-scale heat pumps because the temperature coming out from data center is not enough, backed by storage, water storage, 6,000 cubic meters of thermal storage. The heat is then delivered into the Milan district heating network. To understand the dimension of only one data center like this, expected contribution is incredible up to 225 gigawatt hours of recovered thermal energy per year, enabling further network expansion and increasing the carbonized heater distributing in Milano around 20%. So more 20% of district heating in Milano. That is also, let's say, the only way really to decarbonize Milano because it's not easy with the typology of building that we have in Milano to substitute the thermal plant with heat pumps in every kind of building. It is a pioneering partnership with Equinix that illustrate how strategic collaboration can pave the way for future opportunity. Looking Slide #5, let me turn now turn of our first half results. These results, despite the different trends across our businesses highlight the value of A2A's diversified industrial platform, enabling us to mitigate external pressure while capturing opportunities across our portfolio. The EBITDA remained broadly stable at EUR 1.2 billion despite higher concession fees for hydro and less favorable energy price environment. Excluding this effect, group EBITDA would have a growth by around 2% year-on-year. This was supported by the natural hedge in hydro generation, in particular, in this case, between Northern and Southern Italy and by continued EBITDA growth in electricity distribution driven by ongoing investment because in this half, the relative production in the Southern Italy either was much, much higher than the average level of the last year. In the North we had a reduction due to less snow in the winter in the month. So strong financial discipline with net financial position to EBITDA ratio at 2.6 in line with our target, supported resilient results and continued strategic evolution. So look Slide #6 to our investment program. In the first half, we continue to execute on our strategic road map with CapEx reaching in this half EUR 718 million, up to 5% year-on-year. This was mainly driven by the ramp-up of investment at the Monfalcone CGT expected to be completed next year with an EBITDA contribution of EUR 120 million once fully operational, so in the second half of '27. With an allotment of new Corteolona wind to energy plant province of Pavia, Lombardy expected to be commissioned in '28 with a full run rate EBITDA of EUR 40 million and a continued investment in electricity distribution and regulated assets. And I want to underline that we reached EUR 4 billion of RAB considering the RAB coming from a power grid, the most important gas grid and the water cycles. Development CapEx increased by 17%, confirming the progress of projects that will drive our future growth. Importantly, 59% of our future big investments are aligned with the EU taxonomy, confirming the strong sustainability profile of our growth plan. With that, let me turn to Luca for a more detailed analysis of our results. Please, Luca.

Thanks, Renato. Good afternoon, everyone. As Renato just highlighted, our first half results once again demonstrate the value of A2A diversified and integrated business model. The slide shows how the strength of our portfolio allow us to balance different market dynamics to seize opportunities and mitigate headwinds. As a result, we delivered an EBITDA of EUR 1.181 billion, broadly in line with the last year. This reflects 3 main factors: higher solar and wind energy production, the ability to capture trading opportunities and strong energy management performances, solid contribution from our regulated business, mainly electricity distribution and resilience in the market business despite the challenged competitive scenario. Albeit mitigated by the impact from higher hydroelectric concession fees and lower our production, the lower waste contribution and the nonorganic reduction in gas distribution. Now I will unpack our results in more detail, starting with Generation & Trading, where I walk you through the main driver of our performance. In Slide 8, Generation & Trading, increased wind and solar production and a strong performance in energy management helped offset the impact of our concession fees. EBITDA was EUR 394 million, a decrease of EUR 26 million compared to the first half of '25. Starting with renewables, we delivered high wind and solar production. However, it was partly offset by 2 factors: higher hydroelectric concession fees, which had a EUR 37 million impact, including around EUR 25 million related to prior years and lower hydroelectric production. On hydro production, there is also a positive point worth highlighting. Lower water availability in the Northern Italy, particularly in May and June, was partially offset by better hydrological conditions in Calabria. This once again shows the value of our diversified generation portfolio and its ability to reduce local volatility. Moving to flexibility, a good performance in trading and energy management confirmed our ability to capture market opportunities. To sum up, our operational performance remains solid with our production volumes and effective trading execution, while higher concession fees and weaker hydro condition represented a headwind during the semester. Let me now move to market. Looking at the market segment, the first semester confirmed the persistence of our commercial performance. EBITDA was EUR 232 million with an increase of EUR 3 million compared to the first half of 2025. Performance was primarily driven by our electricity volumes, particularly in the free market segment. At the same time, unit margins were lower than last year, reflecting a more competitive market environment. While competition remained high, we have seen progressive reduction in churn rates over the last few months, in particular, in June, July. Overall, the business delivered another solid set of results with volume growth offsetting margin pressures. Let me now turn to performance of the circular economy. Adjusted EBITDA was EUR 293 million, a decrease of EUR 29 million compared with the first half of 2025. The decline was mainly driven by temporary factoring waste, lower availability of Parona waste-to-energy and other treatment plants due to maintenance activities, new Acerra service contract signed in February 2025, higher cost fuel cost in collection. On the positive side, treatment prices showed a slight increase, while the integrated water cycle benefited from higher and lower revenues. In district heating, performances were lower year-on-year, mainly due to the lower volumes and reduced contribution from white certificates. Overall, the softer results reflect temporary operational factors, primarily related to plant maintenance in waste. Excluding these effects, the underlying performance of the business remained broadly robust with a support from integrated water cycle, partially offsetting the pressure on waste. Then let me turn to Smart Infrastructure. In Smart Infrastructure, the overall performance reflects growth in allowed revenues that more than offset the negative perimeter effect in gas distribution. EBITDA of this business unit was EUR 285 million, an increase of 3% compared to the first half of 2025. In electricity network, EBITDA benefited from higher allowed revenues driven by the new ROSS tariff methodology, the regulatory lag alignment and the continued growth of RAB driven by CapEx deployment. In gas network, we saw a negative year-on-year contribution, mainly due to the disposal of gas distribution assets completed in July 2025 and the absence of nonrecurring OpEx recognition that benefit the first half 2025. Okay. We have unpacked the results for each business unit. I'd like to conclude by illustrating the combined contribution to our EBITDA mix, group net profit and cash flow. So Slide 12, starting from EBITDA of EUR 1,181 million D&A amounted to almost EUR 500 million, up EUR 21 million versus last year, mainly reflecting the continued deployment of CapEx. Provisions were EUR 41 million, slightly higher than last year, mainly due to our result in the market business. Net financial expenses stood at EUR 87 million, broadly in line with last year. Despite ongoing market volatility, the cost of debt remained stable at 2.7%. Adjusted taxes amount to EUR 165 million, EUR 18 million lower year-on-year. The tax rate stood at 29.5%, excluding the impact of the ERAP increase introduced by Energy Decree, which has been accounted for as a special item. As a result, adjusted group net profit came in at EUR 374 million compared with EUR 419 million in the first half of '25. In the first half, we continue to deliver solid returns with a return on investment and return on equity around 9% and 11%, respectively, well aligned with our targets. Let me move to cash flows. In the first half 2025, the group recorded negative change in net financial position of EUR 312 million. As of June 30, our net financial position stood at EUR 5.8 billion with a leverage ratio of 2.6x, which confirm the overall stability of our financial profile and remain fully aligned with our capital structure target. Looking at the cash generation, we delivered an operating cash flows of EUR 749 million, fully supporting the financing of our organic growth during the period. So let me briefly walk through the main drivers. Starting with the net working capital, the variation of minus EUR 287 million was mainly driven by 2 one-off events. The first was the reduction in payment terms to CSEA following the 2026 energy decree, the Decreto Bollette. And the second was the payment of the past due state concession fees for hydroelectric concessions. Moving below operating cash flows, we paid EUR 145 million of taxes, EUR 76 million and net financial expenses, EUR 69 million. After accounting for EUR 718 million of CapEx, the operating cash flow before dividends amounted to EUR 31 million. Following the dividend payments, net free cash flows stood at EUR 295 million -- minus EUR 295 million. The change in the consolidation perimeter had a negative impact of EUR 2 million, mainly driven by EUR 27 million related to M&A, partially offset by the EUR 25 million price adjustment related to the partial disposal of our gas asset to Ascopiave completed in 2025. Finally, after also having taken into account the EUR 15 million spent on our share buyback program, the overall change in net financial position for the period amounted to minus EUR 312 million. Looking ahead, we remain confident that the strength and the diversification of our integrated business will continue to be a key competitive advantage. It provides the flexibility needed to navigate changing market conditions. It reduced our exposure to market volatility. It bolsters the stability of our cash flows and net financial position. So now I hand back to Renato for the final part of the presentation.

Okay. Thank you, Luca. And our guidance is confirmed. I'm really confident to confirm our guidance for '26 with an adjusted EBITDA between EUR 2.210 billion and EUR 2.250 billion and adjusted net profit between EUR 0.63 billion and EUR 0.66 billion, reflecting the robustness and visibility of our business mix. The resilience of our diversified business portfolio and our ability to capture opportunities leave us really fully confident in achieving this target our progress. And so let me conclude by bringing together all these elements that we have discussed. Our strategy aims to deliver today while continually building tomorrow's growth. It is a strategy built on disciplined execution, industrial excellence and future-fit growth. So disciplined execution underpins our ability to deliver our commitments with clear priorities and rigorous capital allocation and we are on target. Industrial excellence is rooted in the strength of our integrated portfolio across energy, environment and infrastructure, and we are on track and future-fit growth comes from investing in platform that respond to long-term structural trends from decarbonization and electrification to digitalization, and we are on trend. In short, this is an architecture built to last, resilient, integrated and designed to convert opportunities into sustainable growth. So thank you very much for your attention. And now let's open the Q&A session.

[Operator Instructions] The first question comes from the line of Javier Suarez Hernandez of Mediobanca.

I have several. The first one is on the generation business. There are probably 2 different dynamics. One is higher electricity prices and probably higher contribution from ancillary service activity positively impacting your activity. So I just wanted to have latest data on forward selling for electricity in 2026 and 2027 and what this upward pressure on electricity prices may be impacting your business. On the contrary, probably hydro conditions during the second quarter has been lower than versus previous year. So which is your expectation on the company production with hydroelectric facility by the year-end how that assumptions compare with your assumption in the recently presented business plan. That would be the first question. And the second question is more strategically is on the interest on renewable energy. So can you help us to understand your latest views on developing new renewable energies in Italy, is value for the group and the relative preference for brownfield assets versus greenfield assets and also latest views on new battery system. And the third question is, if you have any comment on the consultation document opened by ARERA implementation for gas distribution in Italy from 2028?

Javier. Talking about generation, consider and you know very well that we hedge our production. So for '26, more or less is all hedged not all because with flexibility exactly in the hydro production, we maintain a margin to be able to -- not to arrive in a situation of over hedging. But the prices was fixed months ago. And also for '27, considering that the scenario in this moment seems high, but the volatility is super high. So it's enough that as probably all we hope tomorrow between Trump and Iran may try to find a solution and the scenario prices come back normal, let's say. And so we have 70% of the production '27 all covered with a price higher than EUR 100 per megawatt. So it's fine, but is on budget, let's say. And talking about the hydro condition in this moment for its way in this first half worked super well the south. Consider that in March, as probably I said in the last call, we beat all the production of '25. And for this reason, in this moment, our forecast is around 3.9 terawatt hours compared with an average of 4.1. So yes, there is a little reduction, but absolutely not really material. Talking about renewable, I think that absolutely, we need in Italy and in Europe to increase the renewable production because it's the only way to come out from this incredible situation of external dependencies in particular from gas, petrol and so on. And for a company like A2A, let's say, works well, both brownfield and greenfield. Overall in Italy, of course, we need new renewable because that means also repowering. For example, for wind, repowering is surely the key element to increase the total production. And so we are absolutely committed in our plan of EUR 3.7 billion of investment for another 3 gigawatt of renewable production in the next year. And our pipeline is solid, is interesting and is well balanced between sun and wind. Talking about battery is a good question. I think that the business of battery can work inside mass tender because mass tender is really too difficult to imagine to develop this business. The next tender is in November, as you know, we are working to participate. You'll see in which way, in which configuration. But A2A, like other large energy company has some plants, some sites already connected with high voltage power grid that is key to develop large-scale storage plant, battery plant. And so we think to be able to participate to the next tender with an interesting proposition.

Okay. Yes. Maybe the last question for the ARERA document of consultation, the gas distribution, I think you are referring to the introduction of the ROSS mechanism also on gas, which, frankly speaking, we think not affecting so much our network. I remember that we manage today only Milan network, and we already did the tender. So it is something that will affect player -- bigger player than us with point of delivery higher than 300,000. So it would not have any impact really on us.

The next question comes from the line of Emanuele Oggioni of Kepler.

The first one is on the guidance apart the numbers, the figures, what are the moving parts expected in H2? We know that, for example, apart the usual flexibility in the hedging volumes depending on the weather, depending on the water availability and the next weather, you are not included the potential positive effect for power prices. So what are the moving parts in general by business unit in waste, as there is a recovery in waste expected or higher pressure in other -- in energy supply in other business units. This is the first more qualitative question on H2 outlook. The second is on the ETS reform, the EU ETS reform, which came out better than expected or not so bad than feel by investors. So what is your comment and opinion on this? And the third one is on the market supply in Q1 you were able to increase by 1%, but in case it was still an increase, a small increase, but an increase in the free market customer base. While according to the H1 data, there is a minus. So you lost free customer base in Q2. So what are the current dynamics for you and this turn down compared with the Q1 in Q2?

Okay. Maybe Luca start the moving parts of the guidance.

Well, I will give you an answer on guidance and maybe some about market supply. So on guidance, we are pretty comfortable about the guidance. So we confirm it with some positive expectation on Generation & Trading business unit. Having also considered the negative impact related to hydro concession fees with an impact for the total year of more than EUR 50 million. So we are able to offset it and to stay in line with the result of the last year. Market, have you seen that it has been performing very well with strong resiliency on the marginality, even though they are slightly below last year, but with an increase on the volumes sold. The churn rate is going to improve in the next month with an expectation to stay below the end of the last year, at the end of 2026. And with -- as a consequence, with the opportunity to revert somehow the number of acquisition and the total customer, in particular, in electricity market in the free market. So we have positive expectation also in terms of marginality to stay slightly below or near the level of 2025. Smart Infrastructure, very good, very positive. The fact that the ROSS mechanism of the tariff have given us quite good result and opportunities for the first semester and also for the second one, offsetting the negative effect on the gas distribution. So all in all, with an opportunity to end the year higher than the last one. Circular economy, it is the business which is more suffering for the maintenance activities of the first part of the year with a shape of recovery in the second half and ending in line with 2025. So all in all, this is what let us comfortable on the ending of 2026 results.

Okay. Talking about ETS, the reform in this moment presented by the commission is better than our expectation for a couple of things. The first is that talking about the proposal of change, the merit order of the plant working on ETS, the answer from the commission was absolutely clear. So not to action ETS and what we need to really give to renewable the strong to win against the other sources. The second, on the opposite side is because one of the discussion was about the application of ETS on the waste-to-energy plant that was under discussion. And in this moment, the decision was to shift this hypothesis from '28 to '31 or later because, frankly speaking, in this moment, there are no technology worldwide to -- better than the waste-to-energy plant to phase the part of waste not the -- rather the new material. And so what we see is in ETS that try to be more useful for Europe but don't change the strategic rationale that brought ETS to be invented some years ago. Talking about supply, our strong commitment is on free market electricity. And also in the second quarter, so in the second -- in this first half, Decree Energy, pay attention, Decree Energy growth 0.2%, 0.3%. The little differences in this number is linked to our second brand, in particular, the multi utility ID in Brianza [ Achigray ] in the northern of Lombardy that has some brands that are not really able to stay with the strong competition in terms of marketing, advertising and so on. And we don't want to push second brand because it's absolutely inefficient. So frankly speaking, we are happy that with the situation of a churn rate so high like in the first half, the capacity of acquisition of A2A Energy remained high. In June and July and August, the churn rate fall down. And so we expect it to be able this year to grow also with our electrical customer base.

The next question comes from the line of Roberto Letizia of Equita.