Societatea Energetica Electrica S.A. (EL) Earnings Call Transcript & Summary

Hi, everyone. This is Raluca here with the entire Electrica management team. We'd like to thank you for joining us for the Q1 2025 financial results presentation. Those of you who are connected only by phone, you can download the presentation on our website under the Results and Presentations section. You can find more details than we will present here. We will present here the financial results. For anything else, you have a lot of pages to look through. The participants connected online can address written questions on the live webcast or can intervene live on the Q&A session at the end. Please kindly note that the entire conference is being recorded. [Operator Instructions] We'll publish the recorded presentation on our website latest tomorrow, most probably tonight, and the transcript as well, as soon as possible in Romanian and English. Now, we'll begin the presentation, which, as I said, will be followed by a questions-and-answers session at the end. At this time, I would like to turn the conference over to our CEO, Mr. Alexandru Chirita. Thank you.

Thank you, Raluca. Dear ladies and gentlemen, thank you for joining us. On behalf of the Electrica team, welcome to you to the presentation of the results for the first quarter of 2025. The results for the first quarter of 2025 confirm the resilience of our business model and Electrica's capability to perform in a complex economic and operational environment. The solid growth in EBITDA and net profit is mainly supported by the contribution of the distribution segment, as well as by the balanced performance across all our business lines. At the same time, we are accelerating investments in infrastructure and renewable energy projects with the clear objective of strengthening our position as a key player in Romania's energy transition. I am confident that our operational discipline, long-term vision and the professionalism of my colleagues will enable us to deliver sustainable value to all stakeholders and contribute to building a secure and green energy future for Romania. The first quarter of IFRS consolidated net profit is RON 195.7 million, 53.2% more than the one in the first quarter of last year. EBITDA for this quarter reached RON 459.3 million, increasing therefore by almost 15%, again mainly due to the operational performance of the distribution segment. And the operational profit increased about 25% compared to last year's first quarter, reaching RON 313 million, reflecting effective management and strategic marketing positioning. We managed to perform the investments in the network that we targeted in this first quarter for the benefit of our nearly 4 million network users. I believe this shows the effectiveness of our strategy and our team's determination to strengthen the company's position in the energy sector. On the supply side, we remain cautiously optimistic and prudent in this transitional period toward market liberalization, trying to solve the challenges ahead and take advantage of the opportunities. Operationally, our distribution segment recorded yet again a notable performance with a 14.8% increase in revenues, driven by higher distribution tariffs and increased distributed volumes by 4.8% compared to the previous period. In the supply segment, revenues increased this quarter by approximately RON 203 million compared to the same period last year, and this is due mainly to increase in volumes supplied on the retail market by 3.7%, higher subsidy revenues due to increased purchase costs and regulatory adjustments regarding subsidies calculations. I remind you that our sustained efforts to strengthen the financial position of the group were appreciated by the Fitch Ratings agency, who, at the end of March this year, improved the outlook of our rating from negative to stable, one notch above the sovereign rating. Since we last met, another crucial step was taken in our strategy for financial consolidation for optimizing financial structure of the group and for ensuring the stability of our current and future operations. At the end of April, we signed a RON 3.1 billion syndicated loan, which includes a credit facility intended to finance eligible green projects and support the sustainable business model. This loan will be used to partially refinance existing bank exposure, support infrastructure investment plans and develop the renewable energy production portfolio, meant to contribute to Romania's energy sustainability. Electrica continues to prioritize investment in renewable energy projects, having approximately 300 megawatts capacity in various stages of development. We also remain actively involved in securing non-reimbursable funds to support our strategic objectives and enhance the sustainability of our growth. As to our renewables production, for the 2 photovoltaic parks, Satu Mare 3 and Bihor 1, with a total capacity of 136 megawatts, we are very close to signing the EPC contract, and we already have submitted requests for funding through the Modernization Fund. The investment value for the 2 projects is around EUR 87.5 million. In February this year, our shareholders approved an investment of EUR 253 million for Crucea Wind Park, around 121 megawatts capacity, and we are working on the EPC tender. We'd like to remind you that this project has been designated among the winners of the first round of the auction for the state aid scheme in the form of contracts for difference. Satu Mare 2 photovoltaic park of 27 megawatts is close to entering the testing phase. The EPC tender for our storage project in Fantanele should start soon as well. Looking ahead, we hold a positive outlook for 2025 and are committed to exceeding expectations with regards to our results and investment objectives. Investments in network infrastructure, digitalization, renewables production and improvement of our internal processes remain our highest priorities. We firmly believe our strategy will bring added value to shareholders, investors and partners, paving the way for sustainable and robust long-term growth. I will now pass the presentation to our CFO, Stefan, who will provide detailed insights into our financial performance. At the end of our presentation, we invite you to actively participate and address any questions you may have. Your insights and perspectives are highly valued. Thank you. Stefan?

Thank you, Alexandru. Thank you, ladies and gentlemen, for attending our conference. Now, I'll make a deeper dive in the numbers and try to explain the drivers for the evolution of the profitability. And I'll ask my colleagues to go to the first slide of summary of financials, which is Slide 12, and I will speak a little bit here to explain the evolution of quarter 1, 2025 versus quarter 1, 2024. In terms of revenues, we had an increase of revenues, which is driven by increase of distributed energy in the DSO segment with 4.8%, increase of tariffs for distribution with 12.5%, and also an increased supplied energy in the supply segment of 3.7%. This translated in better profitability in terms of both EBITDA and net result compared with previous year. At the level of the indebtedness, you can see the level is pretty much stabilized. We are in the context in which we expect for the future to have a decrease of the level of indebtedness following the end of the support scheme. You could see later on also in terms of evolution of indebtedness for the supply subsidiary that this is decreasing. In terms of DSO, for sure, we'll have new drawing for loans because we have the CapEx plan to be developed along with the fifth regulatory period. Moving to the next slide, please, Slide #13. We have the evolution of consolidated EBITDA and net result. Basically, compared with the result of last year, we had an improvement in energy margin of 78%, which had been mostly the result of almost RON 100 million improved margin on the supply segment. We had there RON 200 million positive impact from the increased tariffs and increased distributed energy, compensated partially by RON 105 million increase in expenses with the network losses -- difference of price for network losses. It should be noted that compared with quarter 1, 2024, we had, at that time, the mechanism of MACEE centralized acquisition functioning. After 1st of April 2024, MACEE became optional, and basically, in a couple of months, was not significant anymore, while in this quarter we had the context of purchasing the energy from the market. In terms of the margin for the supply business, we have a positive effect related to the increase of the energy supply to the customers with 3.7%, but which was -- and the positive effect related to the increase in the revenues due to the higher subsidy revenues compared with quarter 1, 2024 related to the change of the guide ANRE. And then, we had a negative impact, which was compensating for the positive effect, and in fact, generating a minor negative effect, minus RON 22 million, which is related by the increase in the energy prices on the market. Another element to be mentioned is the evolution in OpEx, had an increase in OpEx of RON 26 million, which was mostly deriving from personnel expenses related to the distribution subsidiary. Also, we had some increases of repairs and maintenance costs in distribution and service segments, and then a positive effect partially compensating that from the supply segment due to the decrease in the expenses with penalties. Most of the evolution of the net result is explained by the evolution of EBITDA. So we have RON 68 million increased profit in quarter 1, 2025 compared with quarter 1, 2024, mainly for the evolution of EBITDA. We had minor variances in terms of depreciation and profit tax expenses. Moving then to the next slide and describing the situation for the business lines. In terms of distribution segment, you have here the summary, including the part related to the increase of revenues and the overall margin with the network loss cost increase by RON 105 million. I have explained already this. What is to be mentioned here is that we have the net debt evolution, which is covered in a graphic form in the next slide, increased with RON 278 million in the context of increasing of bank loans, but with the change of the structure with having more put on long-term loans and less overdraft drawn. This is aligned with accessing the loans which are needed for financing the CapEx plan of the distribution subsidiaries. Moving then to the next slide, you have, as a reminder, the composition of the regulated risk asset base of the -- remuneration of the regulated asset base analysis for the distribution segment, starting from the RRAB and then getting to the gross results as a split analysis for the level of the year. We are giving you this so that you have a perspective to the next slide. But as previously explained, we cannot really split this into quarters as this is -- it cannot be really mapped on the amounts agreed with ANRE. But going to the next slide, you have the quarter 1 result going from the total net revenue to the IFRS results of 2025 and going through the regulated results, then making the adjustments with the differences between accounting depreciation and regulated depreciation in order to get the operating result, then financial result and the result both as statutory and then with the adjustments to IFRS, the final result is IFRS of RON 214 million, which is the main driver of our profitability at consolidated level. If we move on to the next slide, you have right here, the summary related to the numbers for the distribution segment in terms of distribution tariff evolution, evolution of the volumes. Also, we should mention that for quarter 1, 2025, we are having realization of CapEx of 137% compared with ANRE plan, and also compared with the budget. We will detail also this in the following slide. With the budget, we are at 100% of the budgeted CapEx for the quarter 1. And remember -- I would like to remind you that basically compared with ANRE-agreed CapEx in our CapEx plan, we have also additional amounts included for the network asset works that can appear during the year, in addition to our regular CapEx plan. Then moving on to the next slide, here you have the details about the evolution of the CapEx plan. And then, you have also some details about the evolution of the price of energy and the increase of price of energy, as explained before, related to the fact that in quarter 1, 2024, we had the benefit of MACEE centralized electricity mechanism of purchasing or procurement of energy, while in quarter 1, 2025, we are not having this. But still we are quite happy and confident about the evolution of our acquisition of energy and our results. Moving on, next, we have the business of supply. On the business of supply, we should mention that for the first quarter, we do have a minor negative result compared with quarter 1, 2024. This is mainly related to 2 things. One of the things is related to the limited recognition of the balancing market costs, which, as we have explained affected us also last year. And then, we have also an effect driven by the financial result with a negative impact of RON 7 million in terms of the financial results. As Alexandru was mentioning, we are expecting a significant reduction in the yearly interest costs with the new syndication being accessed. And then, the other aspect to be mentioned is that for the second part of the year, once the support scheme is finalized, we expect that the pressure on getting this financed and on the net debt of the supply subsidiary will decrease, and this can be also seen in the evolution of the net debt. As you see, this is decreasing compared with the end of the year with RON 200 million roughly. Moving to the next slide, we have the details about the market context for Electrica Furnizare in the total market share, but also in the competitive market. We are on the first rank of the total market share. And on the competitive market, we are on the podium, the third rank. We should mention that the hierarchy is also changed by the fact that PPC merged supply companies. So it adds up for them in terms of only one company. Now moving to the next slide. These are the details about the key aspects of supply. What I would like just to point out is that in terms of quantities supplied and in terms of numbers of consumption places, you could see that we are quite stable. So basically, we are conserving our portfolio. It's not a matter of losing from our portfolio and be on the competitive, universal services, or supplier of last resort market. Also, if you compare electricity volumes and electricity revenues, you see that the proportions are pretty much similar in terms of competitive, universal service, and supplier of last resort. Next slides are summarizing the financial impact of the electricity market perspectives evolution. I would go to the Slide 24, the one with the graph, and I would point out the evolution of the prices of 2024 and compare with 2025. What we can see is that this year started with some higher prices on the Day Ahead Market, but this is basically mitigated from our point of view, but the fact that we have a significant proportion of energy already purchased at prices which are clear and on average than the evolution of the Day Ahead Market. And then, you can see that on the balancing market, things have come down. For January, we have a price which is significantly lower than the price for the balancing market for last year and even significantly down than the average price for the Day Ahead Market. So the issue related to the balancing market prices that affected us and all the supply companies last year is coming down with this year. [Technical Difficulty]

Ladies and gentlemen, thank you. We apologize for a small holding. We will begin again shortly. Thank you. Ladies and gentlemen, thank you for holding. Management, please proceed.

Do you hear me?

We can hear you. Please proceed.

Is that better?

Yes, we can hear you. Please proceed.

I guess, you don't hear me.

We can hear you. Please proceed.

Okay. Thank you. So moving on from this Slide 24, we will make an analysis then on the supply on Slide 25 in respect of the evolution of the receivables analysis. In terms of receivables analysis, we have an increased amount of receivables, which is mostly related to the fact that in accordance with Law 213/2024, we are obliged to cancel, to reverse all invoices which were issued at the end of last year and re-invoice them without the adjustment component. And this process, as explained also in terms of the financial results for end of the year, was lengthy and was basically completed only in mid-February 2025. So basically, the receivables increased not because we have problems of collections from the customer, but because we needed to cancel the invoices, to reverse the invoices and reissue them, which is a process which took time. In terms of IFRS 9, most of the amounts which are included in the respective analysis as a bad debt allowance is related to procedures which are old, which are older than 5 years, mostly litigation insolvency. So there is not necessarily any issue about collecting from the customer. Moving to next slide, one word on the Electrica Serv subsidiary. Here we have a quarter 1 result with the positive result compared with last year. There is a minor profit of RON 1 million. This is aligned with the efforts that we are doing there to get contracts and benefit of this evolution of the photovoltaic power plants in the market that there is a competition there, and we are trying to get part of this market. Moving to production segment. Production segment is in development. We are having good evolutions in terms of making the steps to commissioning and beginning the production for some of the plants for the Vulturu, Vrancea photovoltaic park. It was completed in October, and it's connected to the national electricity system during the trial period according to the regulation. Then we have also Satu Mare 2, which is in the final phase of execution to be entering the trial phase also in the future. Basically, for all the 5 projects, we are having a calendar with detailed elements related to commissioning in the next 2 years, authorization of construction for all of them during the bidding process for the EPC. In terms of result, it shows a negative result, mostly because of the fact that this is a part of start-up, which we are continuing to invest in the various other projects, although we have already production for part of them in trial or for the next production in commissioning stage. There is a RON 4.7 million adjustment related to deferred tax from the moment in which we merged the SPVs, that is Electrica Energie Verde and GECI and EPE in ELSA. So this is why it shows this negative result. Next slide, in terms of group liquidity, we have a very comfortable position of liquidity, which is related also to accessing the new loan from EIB, but also about the improvement of collection. We have a positive level of cash of RON 885 million, which was never achieved since the scheme is in place. And since we are having to refinance the support scheme. We are continuously monitoring this and focusing on improving and optimizing the liquidity, including through the effort of having the syndication signed, which I believe was one of the most rapid syndications signed in this market and one of the largest. Then you have the detail about the distribution of dividends with an increase of the dividend per share compared with last year, and then the annexes related to main corporate events. I will stop the discussion now and ask for your questions.

[Operator Instructions] The first question comes from the line of Andrei Ioana with Alpha Bank Romania.

I will start my first question regarding the potential cash inflow from state subsidies. When and what amounts do you expect to collect? Is there a deadline for collecting all the amounts due? My second question is regarding the trade receivable situation. Where do you consider a reasonable trade receivable position? I understand the reasons for which it was high at the end of the year and the first quarter, but what to expect next? And my third question is regarding the CapEx plan for the production side over the next 5 years. At what amount should we look at? And what is the amount financed via EU fund, just for the production side, please? That's all from my side.

So let's take them one by one. In terms of subsidies collection, I'll put this a little bit in perspective. If you look historically, out of RON 7 billion we have asked until now on the support scheme, we already collected some RON 6 billion. If you look historically at the last 2 years, we have collected roughly approximately RON 2 billion in each year. For this year, until the date of this financial situation, we have collected some RON 200 million, which are reflected there. There is another roughly RON 150 million that we collected in the meantime. And basically, we are considering that once the support scheme is ending, we'll probably get to the end of this year with a decreased amount of subsidies, which will be probably roughly half of what we had at previous end of years. Most realistically, probably the whole amount will be cleared during next year. We will also, during next year -- there is this mechanism that is now in place with all the suppliers in which we are doing reconciliation and regulation of the amount. From this amount, most suppliers will ask for additional amounts to be reimbursed. And probably, in a nutshell, subsidies at the end of the year to be half of what it has been in the previous end of years, and then with the rest to be collected next year. In terms of trade receivables, I don't have any other issues in terms of normalizing the amount, unless there are other changes from the authorities and the regulator, which will ask us to delay the invoicing, because in all this history of the 3 years, until now, the only moment in which we piled up some trade receivables was in the moment in which, for various reasons, we needed to stop the invoicing. We needed to implement the new algorithm of support scheme or to cancel some invoices and reissue them like it was the case at the end of the year. But otherwise, we are quite confident in terms of our process of invoicing that this is not creating an issue and should have normalized amount of collection. In terms of the CapEx for the 5 years for the production, usually, we don't make publicity of plans forecast more than the annual budget. Probably more communication on that will be later on when we look at financing this through some of market instruments. But the idea is, you know the capacities you have in our presentation. You can be sure that we are negotiating as tight as possible for the EPCs. So I guess you can make the calculation by yourselves.

And if I may, regarding the EU funds, are there any funds available for the production side?

Can you please repeat because it was very --- we didn't hear it.

I was asking if you can mention the funds. Are there non-reimbursable funds for the production side?

What are the amounts that we access as funds as non-reimbursable?

Yes. But just for the production side, not for the distribution.

Yes, just a sec. We are speaking about -- it's not accessed yet. We just want to -- the amount under the project?

Yes...

Because the projects are ongoing, but we have not drawn any non-reimbursable funds. So you want a flavor of the amount which we are about to...

Yes. Okay. That’s it.

Ladies and gentlemen, there are no further questions at this time, audio questions. I will now pass the floor to Electrica management. Thank you. Can the management hear us?

Let's go to the written questions, and then I'll get back to you with the calculation. We are compiling now from those. So EUR 8 million is roughly the amount for the non-reimbursable funds for the project under the generation, including batteries. But as I said, this will be -- to be collected in the future. Now, moving to the questions on the call. First question is from Cristian Petre. Congratulations for the results. I have several questions. Would you consider the results in the distribution above RRR? Are there any negative corrections to be made in the future coming from quarter 1? And then there is also, what are the main challenges in supply? So in terms of distribution, the results in distribution are good, especially due to the distributed energy. There should be -- there might be negative corrections in the following year if the annual distributed energy will be higher than the one which is approved in the phase. In terms of the supply, how to make supply profitable? The problem of stability of supply is the problem of the entire industry for the supply. Do you hear me?

Yes, we can hear you.

Okay. So the results in the supply would be helped by the liberalization of the market, so getting out of the support scheme. This will contribute to the increase of profitability, because we will be not having the issues related to costs which are not recognized, especially the costs related to the balancing market, and it's a matter affecting the entire industry, all the supply companies. The next question is from Caius from BCR. Thank you, Caius, for the appreciation. Can you comment on what you expect to be the impact of the liberalization of the market on the 2 main segments, distribution and supply? How much of the network losses quantities are already contracted, for which periods and, if possible, at which prices? So in terms of the prices for the network losses, we have roughly 50% of the quantity which is contracted, and the price is roughly around RON 500. To comment on the effect of the liberalization on the market on the 2 main segments; for the supply, I have commented before, we will see the positive result. On the distribution, we don't really see any impact. We see that the market has been stabilized. Prices at which we're acquiring energy are already in line with the -- very close to the ex-ante prices. So we don't necessarily see any impact on the distribution. Further, in fact, we see that the performance of our distribution is very good also last year, also quarter 1 this year. It should also be mentioned that for distribution, we have a sustained project base of investments, including more than EUR 400 million for EU funds, non-reimbursable funds, and this is connecting to the question before about non-reimbursable funds. Okay. How do you see the supply business after 1st July 2025 in terms of margin? Can we hope for a positive result in the segment? As we've mentioned before and considering the budget that we have approved for that segment, yes, we are counting on a positive result for the supply segment. It's a tough business in the supply. The margins are not very generous, but we expect it will be profitable. Then we have the question related to green bond issue. Yes, as you mentioned, we had this approval of the green bond issue in the second part of last year, or at the end of last year, up to EUR 500 million. And this is a project that we are looking at with attention and interest and monitoring the market conditions. But if and when we actually do the bond issue and the commercial parameters, it very much depends on the market conditions. You saw that we had significant volatility in the last couple of months. So at that moment, we will be more clear. And as always, when we have anything to announce, we will announce. Okay. One more question in the audio, I understand.

Yes. The next question is a follow-up question from the line of Andrei Ioana with Alpha Bank Romania.

I wanted to ask you if you can give us an update regarding what to expect from your participation in Electrica Esyasoft? Is something happening there?

Yes. Thank you for the question. We are working with our partners in order to secure the business lines that we got approved for. So as soon as we have any news that are worth mentioning, we will, for sure, keep you posted. We're currently doing the operational part, feasibility studies, consultancy and so on in order to get things actually moving, and we hope that we will have really quick results on this.

Ladies and gentlemen, there are no further questions at this time. I will now pass the floor to Electrica management. Thank you.

So we have one more question. The EUR 400 million in distribution around May numbers are not reimbursable funds, are related to the next 5 years? Yes, they're related until 2029. If there are any more questions, either audio or written?

There are no further audio and written questions. The floor back to you.

If not, we are, as always, available. If you want any more details, you can e-mail us, contact us, and we'll be at your disposal in order to answer any questions that you might have. Thank you so much, and I'll pass it back to Raluca.

Thank you, everyone, for joining us. We are here. You can reach us on e-mail, on phone. Whatever questions you may have, we are here to answer them. As we said before, the recording will be posted tonight or tomorrow morning and the transcript as soon as possible as well. Thank you for joining us, and have a great rest of the day. Bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good evening.