REN - Redes Energéticas Nacionais, SGPS, S.A. (RENE) Earnings Call Transcript & Summary

Hello. Good morning, ladies and gentlemen. Thank you for attending REN's 2025 Results Conference Call. Joining us today are the members of our Executive Committee, Rodrigo Costa, our CEO; Goncalo Soares, our CFO; and Joao Conceicao, our COO. Rodrigo will start with his opening remarks, and Goncalo Soares will guide you through the main operational and financial highlights of the year. In addition, we will also provide an update on our strategic priorities for 2026 and 2027. After the presentation, we will open the floor for a Q&A session, and we're happy to take your questions. Thank you very much.

Thank you, Madalena. Good morning, all. 2025 was a very challenging but a good year both from an operational perspective as well as a financial perspective. We believe we did quite well and achieved very good results. On my notes regarding 2034, just a year ago, I did a list of the challenges we went through in the last years and there were many. We had COVID, we had a lot of local political turmoil, we had the beginning of the Ukraine war, we had a spike on energy prices, critical drought for a couple of years. And of course, the usual licensing processes delays to develop infrastructures and some challenges in the front of regulation and also high taxes. In '25, we had a blackout in Spain that took our system down. We had multiple storms because not just the ones we had very recently, we had them also in the fall of last year. And of course, with all these, we have been quite busy. But the truth is that we have been consistently delivering in our plans. Quarter after quarter, the numbers speak by themselves. We keep delivering consistent results and meet the expectations. On top of the good operational and financial work, we saw some important progress with [ sale ]. Also on the tax front, we were able to take advantage again of a regimen that is now more favorable to business. We are also doing well in Chile, developing the business according to the plans you are aware. We believe that our sector remains very interesting and full of opportunities. Our government remains committed to the energy transition, and that's, of course, is quite positive for us. Energy is at the center of the world development and we are core for that development. We are a catalyst of the energy position, and we are doing what we are supposed to do, developing projects, managing existing infrastructures and being efficient and persistent. And with that, I will move to Goncalo.

Thank you, Rodrigo. Welcome to you all for the 2025 results presentation. Moving to Slide #4. So I think that's -- what you have before you is a set of very positive results that consolidate the year 2024, clearly ahead of the business plan that we have a defined for you that year. EBITDA is growing 2% this year around that, this is both on the back of growth in Portugal and in Chile. Net income is growing a little bit more almost 5% and this is the result not only of the increase in EBITDA, but better financial results and stable taxes so almost EUR 160 million of this growth of 4.8%. Net debt is stable, but we are improving metrics as the recent upgrade showed you. In terms of CapEx, the signs of acceleration, we are increasing CapEx and this is something that we are going to maintain, but this is already a positive sign as Rodrigo mentioned. But before I go into a little bit more detail, let me pass to Joao, our COO, so that he comments more on the operating side. Joao?

Thanks, Goncalo. Good morning to you all. On Slide 5, you have the summary of the main points from the operational perspective. And I would highlight the last one on the regulation point, which is the new regulatory framework for electricity. We will go in more details later on in the slide. But to tell you that we've got an improvement versus the previous regulatory framework on the different components. The most important one, the rate of return, which has a starting point of 6.19% base rate, plus incentives and plus some other upsides that we will detail later on. Jumping to Slide #7, you have the main indicators. I would highlight the fact that we increased the electricity consumption by 3.2% versus last year, and this 53 terawatt hour overall, the 2025 was the highest consumption ever registered in the Portuguese electricity system. Renewable share is approximately the same as the one we got in 2024. There is a slight decrease, and the reason is very simple. As you might remember, we had these blackouts on the 28th of April. And after the blackout, we were forced to generate some electricity with combined cycle plants in order to ensure the necessary levels of security of supply of the system. This is something that we are evolving that affected the renewable share. And it's the reason of the increase on gas consumption of 11.1%, which is basically justified by this increased need of generating electricity with gas sources. In terms of quality of service and in summary, nothing special to report. We were in line with the previous years. Obviously, considering the blackout as a special event, not affecting the necessary indicators for quality of service. And with that, Goncalo, I give back to you.

Thank you, Joao. So Slide #8 is just the main financial slide. And let me just go through a little bit more detail in them. So on Slide #9 in EBITDA, what you can see is this increase of 2%. So on assets and OpEx remuneration, it's basically an increase in the amortizations revenue that we have due to the investments, plus also an increase in OpEx revenue that did increase this year. Other revenues increased a little bit more this year, mainly driven by corrections from previous years, okay? So these are typically cost that were not accepted for some reason or some assets that were not accepted. This year, that impact is around EUR 6 million. So it explains almost everything in this line was a little bit higher than normal, but it happens. So it's an unusual, I'd say, element, but it was slightly higher than normal. Core OpEx, basically, it's a mix of -- and of the increase in personnel costs around EUR 2 million. And then basically, it's also other costs, mainly operational maintenance. I'll go through those. In terms of the [ weight ], you can see a slight increase in the international. So as you know, we are slightly ahead there in terms of the weight that it had [indiscernible] Moving to Slide #10, basically, no news. We already knew the rates of return since October. So here, things are more or less stable. In Slide #11. So as I said, this is clearly showing acceleration mainly in electricity. We are growing transfers to around more than 10%. We are growing CapEx around 13%. Actually, if you look at electricity, CapEx is growing close to 16% despite, as Rodrigo mentioned, several approval headwinds. So it's still difficult to prove certain in CapEx, but we are still pushing through and accelerating the deployments, which will continue to happen in the next years as we'll comment a little bit after. In terms of RAB returns, I'd say on Slide 12, it's very clear. So basically, in electricity, the positive impact comes from the asset base evolution. And in gas, there's a big decrease also from the asset base evolution, nothing out of the ordinary. The only thing is that here in this line in electricity, we don't see the impact of solar, but it also exists. Slide 13 in OpEx, as I told you, the evolution is a little bit [ brief ], both to core external and to personnel costs. Personnel costs increased around 3%, 1.2% of that is increase in headcount, so just more people, and the rest is more the general increases that we are giving. So this increase in [ people ], let's say that in '26, you will see that happen, it will start to taper off eventually. External costs. It's mostly O&M cost and this is derived from -- yes, a little bit of increase in price, but also the increase in the network as we are building more network. Bear in mind that these costs are then reflected in the regulation and recuperated versus the [ regulation ], although sometimes the increase occur before than the reflection in regulation, okay? There's also a little bit of increase in IT, but it's mostly electricity O&M. Looking at Chile in Slide 14. So strong performance and the gas part, it's increasing a little bit, but it's basically stable, and we are coming also from record year. So let's say, stability is the key numbers here. Electricity is growing quite a bit. So EBITDA growing almost 34%. This is on the back of the acquisitions also that we did, but not only is the net income almost doubled or more than doubled, and this has to do with also an impact of exchange rate that was positive this year. In 2024, it was slightly negative. And so actually, it has a higher year-on-year impact. But then this is one of the reasons why financial results are also better. But here in Chile. So we continue our focus of now integrating the small assets that we acquired in 2025 and continuing to pursue our organic growth agenda as we have defined. And so this is accounting almost for 5% now of our EBITDA. [indiscernible] so in Slide 15, no major news in depreciation, as always, financial results. So it's a mix of several things. So as I said, it's -- first of all, an improvement in terms of the average cost of debt that came from 2.7% to 2.5%. But also, there is a large impact of exchange rates, a positive one this year. So it's slightly about EUR 4.5 million. But given the fact that last year was negative, so the year-on-year impact is almost EUR 6 million. So that's why it's also on a year-on-year basis impact a little bit more here. I'd say that's perhaps the explanation that you are missing from the numbers. Then we have also the impact from dividends that we received, but that's a more normal kind of event. In terms of taxes, no major news. So what we see is that this year, we still paid the full levy amount versus last year we have a difference in the levy because in '24, we did have, in the account, some positive impact of court cases that we won. We already won more court cases during the year, but they are not completely final. And as usual, we'd rather be more conservative and not put it in the accounts. So we have not accounted for any court case winnings in 2025. That doesn't mean that there was any change actually, we continue to win court cases in the gas part. In the electricity, there are no news but in the gas part, we continue to win court cases. But since they were not completely finalized, we didn't put anything in the account. But we are expecting that they will start to have in impact now in 2026 again, okay? So that's why in terms of levy, there is a difference in terms of the tax incentives for capitalization is now around EUR 34.5 million versus EUR 35.9 million in the previous year. We actually have guided you to around EUR 30 million. So this year is slightly above. We are not changing, I'd say, the overall estimate of around -- average of EUR 30 million because we think that in the following years, this is going to come down a little bit more. I'd say that on average, the number that we gave you of EUR 90 million should be more or less the same that we are going to get. It's not going to be higher. So I'd say that effective tax rate of 8%, very much in line with what we have in 2024, so positive tax rate also in 2025. Slide 16. So it's just basically the different impacts, okay? So positives of EBITDA and financial results, depreciation coming down as it goes up in EBITDA, fairly slightly negative for the explanation that I told, okay? In terms of net debt, Slide 17, we see very strong stability and without the tariff deviations, which are now stabilizing slightly below EUR 100 million. You have a small increase of net debt, but clearly slightly better than what we had expected and in line with expectations. Cost of debt improves as we only issued also the debt this year. So it's normal that in '26 and '27, it may go up a little bit because of the issuance of the bond. Debt bond issuance have other impacts. You see that at the end of the year, we have a maturity of 4.7. I can anticipate to you that these maturities, given the recent bond issuance, will go up. It's already up to 5.4. So we want to maintain at 5, so around 5, and so that is the aim. You don't have it here in this slide, but we also have at the end of the year, slightly more variable than usual fixed rate. We were also waiting for the bond issuance and this is going to change, okay? And so we are going to have more fixed than variable. I'd say that it's going to set in the kind of normal range. So we'll have around 60% fixed perhaps by the end of the quarter. As the interest rate environment also is changing, so we are now becoming slightly more fixed again, which was what we were aiming at. We have this -- but more importantly, also, we have this positive development with S&P, we were upgraded, that shows that rating agencies are looking at the improvement in our credit metrics in a positive way, okay? Slide 18 is just the share price evolution. So you all know that we have a good share price evolution. Share price has continued to perform well in the beginning of 2026. We have been now in the range of slightly above 3.7%. So we continue to improve in the stock market in line also with the sector or slightly above the sector, okay? So just going over our sustainability agenda and metrics in Slide 20. We ended up the year stable or reducing slightly scoped 1 and 2 emissions. And this is in the face of, as Joao mentioned, an increase in use of gas given the blackout. So we were able to still improve a little bit, which makes that we are now at minus 57% versus 2019 with a now objective of minus 60% in 2030. So we are well on our way to perform this. The same in Scope 3, we are at minus 29% and with -- our objective is minus 30%. So we are basically there already and carbon neutral [ 2030 ] we are clearly on track. So I think that this shows that we continue to deliver. You have the details of this in Slide 21 but I'm not going to go in detail over this. And in Slide 22, you see the main -- yes, the standard. So we don't work for this for the standards themselves, but it's good that they recognize the hard work that we do in this area and the commitment. So either we maintain because we are already at the top level or we are continuing to train the improvement in S&P Global. So looking a little bit and doing a summarized version of what is the strategic update, so this is important because we have been delivering members that are better. Bear in mind that this is a subset of the slides that you have in the longer-form version of our presentations so not all of the slides are here. Of course, and specifically to the analysts, we are going to be meeting you face to face and you have and that information already in the site with some additional information to what I'm going to say so that I don't have to go through all of the slides. But the main messages are going to be the same, okay? But of course, when we meet you early next week and the following week, we'll be happy to go into all the details that we -- in this call is a little bit more difficult to give you. So on Slide 29, and before going into the update -- I'm sorry, Slide 24. And before the giving you the update, it's important to register that we are delivering and outperforming versus what we gave you. So this is something that nowadays is important to refer because it's not always the case. We clearly came on target in EBITDA. We clearly came very much ahead in net profit. We clearly came on the low range of net debt. We clearly came above the interval and within the interval and ahead of schedule on the CapEx deployment. So this is important to give you that idea. Of course, only in -- we are only giving you some numbers for '26 and '27 not because we don't want to give more visibility that this is the normal timing. Next year, we are going to revise the full business plan. So we are not giving you now a new business plan once. What we are giving you is revision of numbers for these two years. And then next year, we will revise the business plan with all of these components. But looking at Slide 25, what can we see in the numbers that we are giving you now? First of all, it is an acceleration of CapEx. So clearly, we are giving you and telling you that we are going to be deploying more CapEx already in '26 and '27, okay? And what we are saying is that this CapEx growth is coming basically from electricity. So there is an increase in the electric CapEx, there is actually a decrease in gas CapEx versus what we have in the business plan. This is extremely well aligned with what happened within our regulation. So we are -- this is what is happening now at the time were also regulation from electricity came out positive, as we have already mentioned before, in the end of the year. So it came off with a very healthy rate that allows us now to deploy CapEx with more confidence and to be able to accelerate knowing exactly the returns that we are going to have. So I think that there's this kind of multiplication effect of both things happened at the same time, more CapEx and improved regulation. Then what I can tell you is that on the fiscal and funding, we are consolidating what we have before. So fiscally, there is a major upgrade in terms of the taxes that is what we have been seeing from the past years with the [indiscernible] gas now going away with the corporate tax rate improving. So there's a lot of small things that are improving tax and continuing to improve and sustain tax. And unlike other companies, we are actually improving credit metrics that the best sign is the upgrade from S&P. So it's a little bit unique versus other TSOs. We are actually improving. The credit metrics, which also allows us to build flexibility into the metrics so that if there is and we hope there is more upside in CapEx coming from in the future. We are going to be able to capture that opportunity as it unfolds. In Slide 26, you have a little bit more detail on what the CapEx step up is. So as you can see, it is basically a step-up in electricity, okay? So we are increasing in a material way the electricity CapEx range that we have versus the initial targets, right? So it's more than 50% of increase versus the targets. We are decreasing the ones in gas and basically because H2 development is growing at a slower pace, is not something that's consensus. We are deploying it in a conservative way. We are waiting for this to become a higher priority in certain agenda. So we are deploying it as it shows. But again, let me focus on the electricity CapEx. These strong increases across the board it's mainly linked to integrating more renewable capacity. It's the power supply to these new high demanding zones and the fact that most of these is going to be an [ asset ] in 2027. It's more modernization of assets. So it's more connecting to distribution network. So it's a whole range of things and that is pushing CapEx to grow a little bit more. To comment specifically on solar agreements, they are, as I had already mentioned, slightly delayed in the deployment, but we are expecting that between this year but mainly 2027 we are going to be catching up with the timeline that we have. In Chile, no major news. I'd say that the major change was that we acquired those assets last year so there is little bit less of organic CapEx that we deploy. Slide 27, most of this is already -- you already know. So there was a good improvement in electricity regulation and base rate is close to 6.2% with a premium on [ all that ] and we [indiscernible] conservative view on incentives. We should be at or slightly above 7% of return. That is a positive, and we were -- development and constructive development in terms of regulation. So we are much more comfortable with deploying CapEx now in electricity and I think that this is going to have a positive impact as we already know in EBITDA. So summarizing in Slide 28. So what we are seeing and giving you an updated target. In EBITDA, we are giving you -- and this is only for '26 and '27, a range of EUR 540 million to EUR 560 million. Bear in mind that before the maximum number in the interval was EUR 540 million, and this is now the minimum interval, so around an increase of 12%. So we think this is consolidating what we already were giving analysts as guidance. In net profit, clearly a very large upgrade. So we are putting around EUR 150 million to EUR 160 million. This year, we were at EUR 150 million. We tend to be always a little bit more conservative in the intervals that we give you, but this is a number that we feel now comfortable for the year. Although as I said, we are already at EUR 160 million in 2025. That's slightly more. We are spending a little bit more CapEx, it's normal that it increases. But the relevant part is that the metrics behind this are improving, okay? So it's not so much that the CapEx is improving or that the net debt is growing a little bit. The credit metrics are -- despite this increase, actually improving a little bit, which as I told you is shown by that rate that we recently have. In CapEx, we have this interval of EUR 350 million to EUR 450 million. We're increasing it to EUR 450 million to EUR 550 million. So we are increasing everything at EUR 100 million. So we'll see. Again, we like to be conservative. My colleague, Joao has a lot of work in this past few months just redoing what was the impact of the storms in Portugal. So it's a challenging year for his team on the construction side that they have not only to do a lot of new CapEx, but now they have to spend a lot of time redoing CapEx that was [indiscernible]. So we are always, I'd say, conservative in the way that we approach these numbers as we like to be. But we are confident that CapEx is going to accelerate already in the next 3 years. So concluding on Slide 29, accelerating growth. We are seeing these asset-based growth in electricity of around 9% with regulated and nonregulated assets and solar agreements. We saw this improvement in regulation. We've expected above 7% returns. We continue to see this favorable development in the fiscal part and we are not accounting for, in these numbers, this EUR 40 million a year is even being slightly conservative on the incentive that we have now at EUR 34 million. We are not considering in these numbers any recuperation of levy that we may have in the year. So again, it's a very positive number with upside on top and in funding, as I said, unique and has a position of improving credit metrics, although we are growing and accelerating. So finally, Slide 21, a very good set of results in 2025. I think that guidance shows you that we are committed, and we are seeing acceleration of growth. And as I said, although we are only giving you this for '26 and '27, this is something that we see continuing for the next year. But this was -- we are only giving this for the next two years. And also, since this is not a new business plan, we did not update everything. One of the things that we did not update as of now, we will update next year is the dividend policy. So we prefer also to maintain the current dividend policy. We have already anticipated growth one year. So we maintain the 2%, and we are proposing -- or the board is proposing to the AGM a dividend of EUR 0.16 per share. Price has been performing very well and rewarding shareholders. So I think that this is clearly keeping in line with what we have promised the market is 2%. So thank you very much for your attention. This was a little bit longer than usual, but let's open up to questions that you may have. Thank you.

[Operator Instructions] And now we're going to take our first question, and it comes line of Ignacio Domenech from JB Capital.

The first question is on the lower financial costs and the higher financial income in the quarter, I believe Goncalo you mentioned one-off of EUR 6 million but actually looking at the quarter, we're seeing a decline both in the financial cost, but also an increase. So I just want to understand what drove this one-off, which is quite material and to understand if it was a cash impact, okay, if everything was cash. And then secondly, on your CapEx plans, we saw a material increase versus the [ 2024, '27 ] targets, which you outlined in the business plan. So just wanted to understand here as well what is the -- if this is the right level of investments that we should expect going forward or post '27, we should expect this number to decrease as I assume that part of the CapEx includes the solar direct agreements, okay? Just to see if there is any upside risk there. Thank you.

So on the financial costs, the main change in the quarter is the thing that I mentioned, exchange rates because in the last quarter, it changed a lot in Chile, okay? So you have actually negative exchange rates until then on the third quarter and then they became positive, okay? Because of the elections and on the follow-up of the elections, there was a very strong reversal that became very positive. So that's why you see that change, which is a little bit again, more abrupt than usual. So usually, you would not see any change in this manner, but it's basically that, okay? So that's basically -- [indiscernible] can then give you the details, but it's basically from being negative almost EUR 4 million to being positive almost EUR 4 million. On the CapEx plan. So as I said, we were not giving you anything after '27. But yes, we are not expecting a decline. So we are expecting things to go up and to stay at a higher level, depending on any given year. So it's not going to be every year, it may be higher or lower. In '26 and '27, mainly there's a lot of CapEx to be done still in the first part of the first solar agreement and the second solar agreement will kick more in '28, so in a few years. But so there is a lot of CapEx. If you go and check [indiscernible] and plans that are given, you can see that there is a lot of CapEx. That CapEx is reflected -- part of it is reflected in the regulation already of the -- that is the OpEx model. So it's already there. So yes, we are expecting that it goes up and it stays higher, mainly in electricity, but it can vary on any given year, okay?

A follow-up question, if I may, on the recurring net profit of EUR 150 million, EUR 160 million. I assume this includes the tax capitalization incentives, right? But it does exclude any upside from tax recoveries from CESE. Is this correct?

It's correct. So we are assuming capitalization there. As I said, we are assuming actually an average that is below EUR 30 million for '26 and '27 and actually in '25 as well, was higher than EUR 30 million, so it's around EUR 28 million, EUR 27.5 million that we are assuming for those years. But it's just because we like to be conservative. We don't have the visibility. We have an expectation that it may come down a little bit. But again, we like to be conservative. On the levy, we are not assuming any change, we are assuming the same thing on 2026 minus the EUR 10 million of gas. And in '27, basically, you are already assuming a small decrease in the electricity levy because according to the budget, the new assets, the ones that you deployed in '26 are already not [ such to it ]. But you only see that reflected in '27 because these assets are being amortized. The old ones are being amortized and you pay less levy and the new ones you are not paying levy. So you'll see the levy come down, I don't know, EUR 1 million, EUR 1.5 million, EUR 2 million per year, okay? So that's what we are assuming, a very small decrease on the levy on the average for the 3 years, okay? But on a yearly basis, you could see it decreased EUR 1.5 million, EUR 2 million, okay? That's only on '27.

And the next question comes from the line of Jorge Alonso from Bernstein.

Just a clarification in one of your slides on -- regarding on the CapEx. I know that you're not going to give us any figure for '28, '29. But just to understand, the national transmission network plan that you put the EUR 801 billion between 2026, 2029, and then special CapEx for the [indiscernible] region to be deployed by [ '31 ]. Just to understand how overlap is that? So just to understand if basically the [indiscernible] CapEx are expected to be deployed already since 2026? Or it will be more back-end loaded starting maybe 2028 to 2031. That's the first question, just to how to allocate that extra CapEx. The next -- the other questions are regarding the tax breaks. If you can provide any color about it. Do you think that this can be extended one year more? If not, if any, when should we have news about that? And if you had any view about the potential complete removal of the special energy tax on electricity in the near future? If you think that the mood in the political landscape has changed, and this is now more likely than in the past.

In relating to [indiscernible] Joao can complement, but yes, it's clearly after '27. So before '27 and in the CapEx that we have for these two years, we have not even 10% of that investment. So I think that Joao is starting to going to be doing that in '27 but very small amount [indiscernible] So it's more '28, '29, '30, okay? And the government also is coming out now with a new process for basically new high-demand areas. These are basically linked, as we have said in the past, to data centers and things like this. We -- this is a process that is ongoing. We cannot give you any news now. So it can result in additional CapEx that we won't have in the network. But again, if it does and this is clarified along this year, it's only going to be deployed in '29, '30 and so it's not in the horizon for these 3 years. Next year, so when we can with the business plan for '27, '28, '29 and '30, we are going to give you -- and perhaps that is going to include most of this CapEx that we are talking about. But in these numbers, we have basically almost nothing, okay? so it's an upside that is longer term. On the tax part, on the tax incentive, we don't know. So it may be that it is extended. We don't know. We only know is it was created by the previous government, it was maintained by this one for already more than two years. So it is something that appears to have some kind of consensus that it is an interesting tax incentive for [indiscernible] that's the only thing I can give you. I am not revising any expectations relating to that. But again, another upside, it may happen. It's an upside, we like to be conservative on this. On the sales, there's no news, it's what I told you. And on the electricity side, we are seeing there is nothing new on the court side, there's no new news relative to any of the court cases that we have on the electricity are moving, okay? But there is -- there has been a change in the mood of the court, so we will see. The reality is that the budget itself already limited. So no new CapEx is going to have the levy. So even if they didn't change it once and for all, it's already going to be declining starting in '27. Again, I think that there is an upside here that you may read into it in a few years, this may change, but we don't know. So I think this is following the trend of the gas. I think that they are now consolidating that gas has changed. And then I think there's the court case. There is a point where the courts will have to also say that this is -- this doesn't make sense, but we are waiting and hoping that these changes, okay? But there is no specific new news to be to give you on this one.

Dear speakers, there are no further questions for today. And I now would like to hand the conference over to the management team for any closing remarks.

So thank you very much for attending. As mentioned by Goncalo, we are still going to be able to take any of your questions offline. And we'll be discussing these numbers over the coming weeks. So thank you again, and speak to you soon. Thank you.