ACEA S.p.A. ($ACE)

Ladies and gentlemen, good afternoon. This is the Chorus Call conference operator. Welcome. Thank you for joining the presentation of ACEA for the results of 2025. [Operator Instructions] At this time, I would like to turn the conference over to the Head of Investor Relations of ACEA. Please, you have the floor, sir.

Ladies and gentlemen, good afternoon, and welcome to the presentation of the 2025 results of ACEA. Fabrizio Palermo, General Manager and CEO; Pier Francesco Ragni, Deputy General Manager; and Valentina Bracaglia, CFO, will illustrate the highlights and the main results of the group. I'll give the floor to the CEO, who will make an introduction to the presentation.

Well, thank you very much, Dario, and good afternoon, ladies and gentlemen. I will start my presentation by expressing a high satisfaction for the results reached in 2025, which really represent an all-time high for the ACEA Group. Let me give you the details. ACEA reached a pro forma EBITDA of EUR 1.420 billion, up 10% versus 2024 by outperforming in this manner, the industrial plan targets where we announced an average growth of EBITDA by 5% a year. Such result is at the upper end of our guidance range that was provided and which was plus 10% versus 2024. Now I need to remind you that the guidance had already been reviewed upward in 2025 versus the initial target of plus 2%, 3%. As to the debt-EBITDA ratio, pro forma debt-EBITDA ratio, 2025 was closed with a ratio of 3.28 below the guidance, which was 3.4, 3.5x. As to CapEx, in 2025, we have closed the year with EUR 1.5 billion of CapEx, of which EUR 1.2 billion net of subsidies. Now let me now move to the next slide, dividends. And we are going to propose the dividends to the next shareholder meeting. Now considering the strong results reached by the group in 2025 and considering the solid financial structure, the Board proposed -- the Board decided to propose a distribution of dividends equal to EUR 1.20 per share growth by 26% versus the 2024. Let me remind you the dividend policy of our plan envisages an average growth of dividends by 4%. Last year, we distributed a dividend of EUR 0.95 per share, growing by 8% versus 2023. The dividend of this year of EUR 1.2 per share includes a one-off of EUR 0.25 related to the all-time high results and also the capital gain due to the disposal of the high-voltage grid to Terna. Now here, you see the results of the last 3 years. During this period, we have gone through a strong operational and organizational transformation. Now the path allowed us to strengthen the efficiency and competitiveness of our companies. And we have been able to establish our role of player with a focus on regulated infrastructure business. In these 3 years, we have a strong accelerated the CapEx plan and maintained, at the same time, a strong financial structure. The debt-to-EBITDA ratio at the end of 2025 was equal to 3.3x, which is strongly lower versus what the main rating agencies envisage. By the rating agencies, we were recognized our performance. As a matter of fact, Moody's raised our creditworthiness from Baa2 to Baa1, whereas Fitch improved our outlook from negative to stable. The market, I have to say, also reward the results that we reached and the growth trajectory that we have gone. The total shareholder return has grown by 176% between 2022 and February 2026 when ACEA went above EUR 5.6 billion of market cap. This is a result which testifies also the trust of investors and the effectiveness of our strategy with the industrial plan launched 3 years ago. Now in this next slide, we shall go through the performance achieved by the main businesses of our group, driven by major CapEx and on the other hand, driven also by the improvement of the operational dynamics of the group. In the water business, EBITDA EUR 820 million, up by 23% versus the of 2022. As to CapEx, we have accelerated strongly in this business. In 2025, CapEx amounted to EUR 891 million, up 46% versus 2022. Now this momentum allowed us to launch a number of strategic operations to modernize the infrastructures. Such infrastructures will be up and running in the next few years, although the projects have already started. For instance, the Peschiera project, which is the biggest water operation, biggest water plant in Italy and in Europe as well. Now we won all of the water tenders launched with 870,000 inhabitants more versus 2022. And then the budget law of 2026 of Italy [ the ] possibility of the extension for 10 years of the duration of ATO2 Concession, [ thus ] giving us a better regulatory visibility to all of our business. As for the electricity business or the grids and public lighting business, EBITDA EUR 449 million, up 27% versus 2022. CapEx growing here even more rapidly, reaching EUR 385 million, up 43%. We have then completed the strategic asset rotation [indiscernible] by disposing the grid of the high voltage of -- to Terna and ACEA Energia disposed and sold to Eni Plenitude such operations favor a more focalized business on regulated businesses. As to the environment, EBITDA goes up to EUR 87 million, up [ EUR 37 million ] versus [ 2027 ], whereas CapEx reached EUR 116 million, up 152%. We started our works for the WTE of Santa Palomba. This is a WTE, which is going to be [indiscernible] the biggest of WTE with a forcing capacity of 600,000 tonnes a year. At the same time, we started works for the fourth line of the San Vittore and WTE, which will be up and running next year. As operational efficiency, we launched a number of projects in the field of robotics and automization of plants, which will give us results in the next few years. We are the only water utility in the steering committee of the plan, thus being able to expand our presence abroad. We have been awarded the tender for a project aiming at planning water infrastructures in the capital of Congo Brazzaville. Moreover, in the water business again, the acquisition of Aquanexa, which is a platform of water services. Well, this acquisition will help us to manage in a more efficient manner, water resources and help us to further consolidate our competencies in this business. Now let me now move to the next slide. Here, we are focusing our attention on the main drivers of our growth over the past 3 years. First of all, people. For the first time, we have been able to get among the top 20 employers in Italy -- this is a very important recognition, which I believe recognizes the commitment that we have taken to improve the well-being and the growth of our people. We then strengthened the programs devoted to talent and talent growth, and we signed an agreement with the Luiss Business School for Corporate Master and a talent program involving 84 colleagues. We have then managed in a very structured manner the generational turnover for the period 2023-2025. The group then invested considerably on systems by accelerating digital innovation, robotics, also by the launch of a.Quantum, a company with which -- company that we reached an agreement with the Istituto Italiano di Tecnologia, Italian Technology Institute for the creation of a Joint Lab to robotics. And we have then experimented a number of user case with artificial intelligence with 12 different technology partners. In the field of cybersecurity, we implemented a digital resilience plan, which aims at safeguarding and protecting our infrastructure, which are critical, and we are now aligned to the requirements of NIS 2 regulation, strengthening the digital resilience of the infrastructure for which we operate. As to processes, we set up an A.Evolution, a new structure devoted to the centralization and optimization of services, and we have defined a new energy transition plan of the group which guides our strategy towards a more sustainable model also from the energy point of view. As to credit, we have introduced a new management process, which led to a considerable improvement with an increase of collections by 26% versus 2022. I believe another major step was the update or renewal of the brand identity through which we have redesigned the whole digital ecosystem as well to make it more modern, more recognizable and consistent with the transformation, which is now ongoing. I believe that such results over the past 3 years are not merely isolated initiatives, but they are the result of a structural change of the group which makes ACEA continue along this direction going forward. This is something that we are building on to allow ACEA to grow in the future. I'll give the floor to the CFO, Valentina Bracaglia, who will give you the details of the results.

Thank you, Fabrizio, and good afternoon. Let's start from the regulatory and market context. Here, it is important to remind you that in the water business, ACEA was awarded bonuses for quality and contractual quality for EUR 36 million. And then the update of the WACC for 2026-2027 has seen a considerable stability and therefore, we are around 6.1%. As to electricity distribution, there was no activation of the return on capital trigger for 2026. And therefore, the remuneration of invested capital remains stable at 5.6%. As to commodity prices, electricity and gas prices in 2025 went up by 6% and 8%, respectively, versus previous year, and it is well known that interest rates over the last quarter confirmed the trend recorded in the first 9 months of 2025 with a decrease of average rates versus 2024. Now let me now move on to the highlights of our group of the results. So the group results are strongly growing in all economic indicators, thus confirming the soundness of our financial strategy and the effectiveness of our strategy. As the CEO said before, the approval of results for the first 9 months of 2025 in line with international accounting principles. The ACEA Energia perimeter were classified keeping into account discontinued operations. We then exposed the pro forma results, simulating the deconsolidation of discontinued operations and off talk about the net profit and operating cash flow. Net profit, EUR 481 million, which is an all-time high, and it is up 49% versus the previous year. And this is also due to the capital gains achieved following the disposal of the high-voltage network to Terna. The net profit is also growing by 15% versus the previous year and this follows the dynamics reported at operational level. The operating cash -- free cash flow is positive EUR 206 million, thus allowing us to maintain a sound financial structure with an Net debt/EBITDA pro forma ratio equal to 3.28. Next slide, we see the main indicators of the dynamics. And you can see all results are growing strongly. As to EBITDA, ACEA concluded the year with growth by -- with a growth of 8% versus the results of 2024 adjusted for one-offs and changes in the perimeter. CapEx net of public subsidies are equal to EUR 1.2 million, of which EUR 68 million related to activities, which are being disposed. Net of discontinued operations of ACEA Energia investments or regulated CapEx represent 94% of the total. Net profit, which includes the contribution of discontinued operations goes up by 15% on a recurring basis and which reflects the very good operational performance. The net financial position is basically stable, and this allows us to maintain a debt-to-EBITDA ratio stable as well. Let's now move on to the next slide where we can see the EBITDA. Now in 2025, gross operating margin recorded an organic growth by EUR 108 million versus 2024. The main drivers here are the tariff growth and the operating efficiencies in the water business. The contribution of grids and public lighting, which thanks to investments are growing and the increase of production, both because of the price dynamics and because also of higher volumes produced. On the right, you see the main one-offs and change in EUR 38 million overall in 2024 relating to the recognition of previous tariffs referred to 2022-2023, which were recognized in 2024. As to 2025, the one-offs relate mainly to bonuses for technical and contractual quality that we mentioned at the beginning. Now as to the recurring net profit, the growth equal to EUR 49 million is related to a higher operating performance and also thanks to the financial management, which is stable year-on-year. As to the EBITDA, you can see on the slide on the right, the one-offs which shows the most important one, which is the disposal of the high volt tension for EUR 100 million. Now let's move to the next slide, the CapEx considering the contribution of ACEA Energia in the first part of the year. In 2025, we invested EUR 1.5 billion, up 6% versus 2024. such investments, 91% are referred to the regulated business, water, grids and environment. Net of the perimeter of ACEA Energia, that is the operations subject to disposal, the contribution to regulated business to total CapEx was equal to 94%. Now here, you can see the main initiatives that were in the year, among which the widening of the water and sewage pipelines and the strengthening of the distribution network for electricity. Now here, you can see the cash flow, which is equal to EUR 19 million in 2025, which reflects the CapEx, the payment of dividends and taxes. As to M&As, EUR 267 million that you see on the slide show among other components, also the cash in by Terna, the amount of money for the disposal of the high voltage network, which was equal to EUR 227 million, whereas the cash in of the contribution is expected in 2026. Here, you can see the financial structure, and you can see that the debt -- the average cost of debt in '25 was [ 2.7% ] versus 2.6% of the previous year. The cost of debt is also affected partly by the reduction of variable rates connected to the Euribor, which is such that is around 20% of the total. Here, you can see the [ Acqua tania ] results. Let me tell you that the results of 2024 were recalculated because we had to take into account the reclassification of the [indiscernible] in 2025, EBITDA, recurring, EBITDA adjusted for bonuses has gone up by 8%, growing by EUR 58 million. Such dynamic is supported by tariff growth, CapEx results achieved by the consolidated companies and operational efficiency. Net of public subsidies, CapEx recorded a growth by EUR 25 million, up 4% year-on-year and related to investments made on Aquadex and water treatment plan and the maintenance of network net of the investment related to Aqueduct Fiora, the yearly growth is EUR 57 million. RAB at the end of '25 goes up to EUR 5.4 billion. Let me now move to Slide 18, where you can see the grid and public lighting business. Now despite the reduction of WACC by 40 basis points in 2025 versus 2024 EBITDA -- recurring EBITDA rose by EUR 32 million to EUR 457 million. The main drivers are CapEx carried out and the update used to reevaluate RAB starting in 2025. CapEx net of public subsidies around EUR 312 million in 2025 is growing by 5% versus 2024. RAB is stable at EUR 3.1 billion versus 2024. And this is due to the disposal of the part of the high-voltage network. Now let me now move to the environment business. And here, net of one-off EBITDA grows by 6% year-on-year. And this result is related to higher margins of the WTEs. CapEx in this area are growing by EUR 8 million year-on-year. And let me remind you that in 2024, CapEx included the effect of the WTE Terni revamping operations. you see the production business. The recurring EBITDA grows by EUR 12 million because of the more favorable energy scenario and the greater production coming from hydroelectric and photovoltaic plants. The energy produced or generated goes up by 18%, thanks to hydroelectric and photovoltaic business. In 2025, CapEx were EUR 33 million, up EUR 8 million versus 2024. Let me give the floor back to -- I do apologize. As to 2026 guidance, EBITDA is envisaged to grow between 3% to 5% [indiscernible] the one-offs and the change in the perimeter that we talked about before and excluding the contribution of the high voltage grid and then disposed of in '25 and [ phvicantposed ] 2025 and then Publiacqua, which is now to be disposed. As to 2026 EBITDA, we have not taken into account the contribution of ACEA Energia, which is to be disposed. We have included the contribution of Aquanexa considering the deal will be closed in the second part of the year. As to net debt-to-EBITDA ratio, the guidance is between 3.5 and 3.6x. Thank you. The presentation is now over. We can now start the Q&A session.

[Operator Instructions] Now the first question by Francesco Sala, Banca Akros .

Congratulations for your results. First question about the 2026 guidance. I wonder whether it includes subsidies or bonuses for the water business or whether it doesn't? And then second question, again, about the water business. What is the average tariff increase for 2026 for the water companies? And now another question about the hedging policy. How much energy have you already sold forward? Can you tell us something about 2026 and perhaps 2027? And then can you give us an update about the works of the Peschiera Aqueduct? Where do we stand there?

Thank you very much for this question. I start from the first question. In the 2026 guidance, as usual, we have not included any bonus for technical and contractual quality. The guidance includes an average of the growth of water tariff by 6%. As to Peschiera, the [ tender ] should be awarded in April. So this is state-of-the-art at the moment. And as to hedging policy, well, we are monitoring the situation very carefully. At the moment, we have an exposure of EUR 3 million of EBITDA for each increase of the ton of energy, but we are monitoring the market constantly for this purpose.

Now the next question, Javier Suarez with Mediobanca.

I have a few questions to ask as well, if I may. Now the first is a more conceptual or strategic question. Now the company has gone through a transformational change during the year. And now the company is very much -- is very much focused on regulated business. Now in your guidance, the EBITDA goes up to 3.6%. And I wonder whether you can speak about the company from a structural point of view and about the possibility to grow debt. But what is the level of the debt that you can reach considering the structure that you will have in 2026? Now second question is about the dividend. The dividend, as you said, is growing quite strongly. And this is related to the capital gains achieved from the disposal of the high-voltage grid sold to Terna? Now in 2026, you will also have capital gains related to the disposal of the supply business. Now will that capital gain be part of your dividend policy in 2026? And then I'd like to have some indication of 2026 below the EBITDA. Now the consensus I see is around EUR 350 million of net income in 2026. Do you feel comfortable with this guidance for 2026? And what's the impact of the energy decree that has been approved by the government?

Thank you very much for your questions, Javier. Let me start from the energy decrease. Now the growth of 2% or the growth by 2% of Europe will have an impact of EUR 6 million for us. This is a regulated business. We have to see the evolution to actually answer your question. As to the [ PN ], the change here can be estimated around 30, 35 megawatt hour. And this will have an impact of some EUR 10 million. However, it is included in our guidance because it is a very well-known factor in this moment. Then there is something which is related to the payment of the [ Ariat ] money by the distributor. This will be absorbed. As to dividends, as you heard, we approved extraordinary dividends because of capital gains and results. Next year, we will have capital gains certainly, but the only -- well, the only known element is the dividend policy at the moment. And then if we have to update it, we should see it next year. As to debt, well, that we now are a payer focused on regulated business. Well, this helps us. Now at the moment, our threshold that is around 3.7%, 3.8% because of the change of the perimeter of the business. We expect this will change, but we need to wait for the approval of the industrial plan. And we then should have to see what the rating agencies say. But as I say, the approval of the industrial plan here is what can help everyone in this direction. As to the guidance, we do not give any guidance below the EBITDA. But let me say that we do not expect any discontinuities below EBITDA.

Now the next question by Roberto Letizia with Equita.

I have a question about the debt guidance. Well, CapEx are going to be more or less the same as last year. CapEx is going to be quite high, EUR 1.5 billion gross, EUR 1.2 billion net. Is this a level of CapEx which is going to be structured as a level? Well, this helps us to understand the sustainability of the debt going forward. And then again, about debt, are there any special considerations about changes of the working capital for 2026? And the change in the debt guidance, does that include also the money collected in the water business? Just wanted to understand how the mechanics work here. Now as to the restructuring of the group, I wonder whether in 2026, also because of the acquisition of Aquanexa, is -- are there going to be M&A deals similar to Aquanexa? I'm just asking this question whether 2026, we will have M&A surprises or whether you are cautious about M&As in 2026. And then the sensitivity of the prices of energy, is that a sensitivity of the group or related only to power generation? Well, we know that there are increase in the procurement prices. I wonder whether the sensitivity that you gave us is an upside only for the power generation or considering the net effect on generation, we might have also the effect of the growth of procurement prices. Now -- and then another question of dividends. Can you tell us the capital gains that you expect in capital in 2026 so that we can then run our models for dividends? And then another question about the distribution companies.

Let me start, first of all, from the question on M&As. Now ACEA as a group has an asset rotation, which was completed in 2024. Now as to further growth through acquisitions, well, as top managers of the group, we need to see whether there are opportunities in the market. And if there are opportunities, we need to grasp them. Our growth, however, is also related to a very strong organic growth in our businesses. The acquisition of Aquanexa is certainly a first step through Aquanexa, we acquired a unique platform in the water services. This certainly helps us to grow organically, but it could also help us to see whether we can acquire other competencies, which are becoming very important, considering that networks are to become more resilient and more safe. Now as to the internationalization, for instance, the contract for the planning of our water business. Well, certainly, there might be some operations internationally. But as I said, this is related to opportunities coming up on the market. Now Valentina will answer the other questions.

As to the debt guidance, this does not include the disposal of one of the company in the water business. Now we know that this company is to be disposed of, but we, at the moment, are waiting. As to the working capital, well, it is certainly positive. We certainly are to also cash in the money as a result of the equalization of the bills. As to CapEx, now with the approval of the master plan, we will be able to give you a clear indications. Now please remember that with ATO2, well, this helps us to plan CapEx and also consider what it takes for the power distribution. When I talked about the sensitivity, that was only related to the power business. But during the year, we do not expect further impacts. Now considering the procurement strategy in 2026, we do not believe that in 2026, there will be major material changes. We might have some impacts on the net financial position in the water business but nothing that can change our guidance in an unexpected manner or in a manner which cannot be managed. As to the capital gains, well, we should see when such capital gains are cash in, the level would be quite high. Now last question about the concessions. Well, there, we are waiting for the approval of the [ MA decree ] -- and at the moment, we do not have the visibility in order to give you greater or more ideas about this.

The next question by Emanuele Oggioni, Kepler Cheuvreux.

Congratulations for your results. Now I have a few questions. The first one is related to the management change. Now in the press, we constantly read that the top management of your group is going to change. Can you please make a comment about this? So then when are you going to update your business plan considering also the change in the perimeter of your group? And then another question about the investigation of the antitrust authority related to the disposal of a company to Eni Plenitude. Can you tell us something about this? You said that the whole thing is going to be closed before the end of the first part of '26. Then as to the tenders in the water business, now you in Italy won almost all of the tenders that were published in previous years, I mean 2025, I wonder which tenders are going to be issued or published in 2026? And if you can give us further visibility about this and whether there might be something relevant about volumes over and above the strategy, which implies moving towards new areas. But is there going to be a contribution to EBITDA? Again, about water concessions. Now the budget law mentions the possible extension by 10 years of the main concessions for ATO2 until 2032, but also for the subsequent 10 years. Can you give us more details about this? And then a very last question, if I may, about the synergies that you expect from Aquanexa. How much can the EBITDA go up, thanks to these synergies in the first 2 years, let's say?

Now let me answer your questions. Now the disposal of the supply business to, as you read in the press release, we have approved -- we have received the approval of the [indiscernible] this means a change in the perimeter of ACEA. ACEA will continue to manage the market of safeguarded or failed people. And this reviewed the enterprise value in a meaningful manner, revision of the enterprise value below 3%. As to the industrial plan, as we said often, the company is ready to present the industrial plan to the market. Now we are at the end of the mandate of the members of the Board. So we wait for the Board of Directors. Now the budget law has approved the extension of 10 years, the concession that we have [indiscernible]. We need to submit our CapEx plan, but this is very important. Then there is also the plan on the part of the government to extend the concessions in the electricity business by 30 years. The company is ready. The guidelines that we are to follow are very clear. and we will be more precise as to the new plan going forward. Now let me give the floor to Valentina, who will answer the other questions.

As to tenders, we know that the competition dialogue was completed for the [ Verbo ] tender, which envisages CapEx by EUR 2 billion. We are now waiting for the start of the third stage. Invitation letters will be sent will be published. In 2026, we expect that a tender will be published for the management of the integrated water service in North Naples. And here, we are seeing also a number of small initiatives related to public-private partnerships.

Well, let me step in as the CEO. We expect in the second quarter of this year, we expect to complete the acquisition that Vernentina mentioned. We cannot give you figures in this moment. Certainly, there will be synergies. At the moment, we are not customers of Aquanexa. But since we have a 16% market share in the water business, we are the main player in Italy here. . Well, Aquanexa could certainly be able to get some contracts and there will be service synergies that we can capture innovative technologies, services, which are more connected to the quality and the use of the water resource, which can also help us expand our business or grow our business.

[Operator Instructions] Ladies and gentlemen, we do not have any other questions in the conference call.

Well, then thank you very much for taking part in this presentation. Thank you, and have a nice day.

This is the Chorus Call conference operator. The conveference is now over. You can now disconnect your phones. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]