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

Ladies and gentlemen, thank you for standing by the Electrica teleconference is starting now. Thank you.

Hi. This is Raluca Kasap, Head of Investor Relations at Electrica together with the entire Electrica management team. I'd like to thank you all for joining us again. It's a conference call and the live webcast, and we shall present and discuss the results of the first semester of 2025, according to IFRS-EU. Those of you who are connected only to -- by phone, please download the presentation in PDF format, which is available on our website in the section Investors Results and Presentation. [Operator Instructions] Kindly note that the entire conference is being recorded. [Operator Instructions] The recorded presentation will be available on our website starting latest tomorrow and the transcript as well as soon as possible. We kindly ask you to see the disclaimer in the presentation. We will bring the presentation of the financial results, followed by a question-and-answer session. In the presentation, we shall have more information than presented actually in this teleconference, please feel free to browse. At this time, I'd like to turn the conference over to Mr. Alexandru Chirita, Electrica's CEO, to begin the presentation. Thank you.

Thank you, Raluca. Dear ladies and gentlemen, thank you for joining us again. We're happy to tell you about the results of the first semester in 2025. I believe we managed to confirm our group's solid growth trajectory. The consolidated net profit is 4x higher than the one last year, over RON 420 million and EBITDA exceeded for the first time ever the threshold of RON 1 billion. This performance shows the efficiency of our strategic decisions towards an integrated business model. Our distribution continues to be the pillar of stability for the whole group and the investment in the grid accelerated according to plan. Our supply recovered in the second quarter. But let me remind you that the right at the end of this first semester started the fuller liberalization of the market. We are committed to overcoming the challenges ahead and intend to take advantage of the opportunities. The liberalization and the Romanian energy transition ahead, vigilance and continuous adaptation. So the real test will be to show that we can maintain this level of performance in the group's operations in an increasingly competitive and dynamic energy market. 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 BBB- rating from negative to stable a one notch above the sovereign rating. We managed in the recent past to consolidate our debt structure. We gathered RON 3.1 billion syndicated loan in April this year. In July 2025, we launched an inaugural green bonds issuance, which closed successfully and the bonds were admitted to trading on the Luxembourg Stock Exchange and then on the Bucharest Stock Exchange. Fitch Rating agency has signed a EUR 500 million at 4.375% senior unsecured green notes due July 14, 2030 at a BB- rating. We had an oversubscription of over 11.5x and it is the biggest corporate green bonds nonfinancial issuance in Romania. The listing of this record green bond issuance is a milestone in electrical strategy, aimed to support the energy transition and to strengthen our position in the Romanian energy market. The strong interest from international investors confirm their trust in our vision and in the company's ability to implement ambitious projects that accelerate the development of renewable energy and contribute significantly to the future of the green economy. This issuance enabled us to finance strategic investments in sustainable energy infrastructure and to achieve our long-term sustainable growth objectives. The funds raised through Electrica's first bond issuance will be used to finance and/or refinance Eligible Green Projects, which involve projects related to renewable electricity in accordance with the provisions of Electrica's Green Financing Framework and the prospectus approved by CSSF. Electrica continues to prioritize investments in renewable energy projects, having a pipeline of approximately 307 megawatts Green Production capacity and approximately 170-megawatt hour storage base capacity in various stages of development. We also remain actively involved in securing non-reversal funds to support the strategic objectives and enhance the sustainability of our growth. As to the renewable production, Vulturu PV Park has been fully operational since the beginning of July 2025. Therefore, at this time, we have approximately 20-megawatt peak installed capacity for operation. For the 2 photovoltaic parks Satu Mare 3 and Bihor 1 with a total capacity of 140 megawatts, we are in the process of selecting necessary suppliers and contractors. The investments value approved by the EGMS for the 2 projects is around EUR 87.5 million. In February this year, our shareholders approved an investment of up to EUR 253 million for Crucea Est wind park of 121 megawatts capacity, and we are working on the suppliers and contractors as well. 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 parks of 27 megawatts is close to entering the testing phase and the EVC tender for our storage project in Fantanele is underway. Looking ahead, we hold a positive outlook for 2025, and we are committed to exceeding expectations with regards to our results and investment objectives. Investment in network infrastructure, digitalization, renewables production and improvement of our internal processes remain our highest priorities. We firmly believe our strategy, our operational discipline, our long-term vision and most importantly, the professionalism of my colleagues in the whole group will enable us to deliver sustainable value to all stakeholders and contribute to building a secure and green energy future for Romania. 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 might have. Your insights and perspectives are highly valued. Stefan, please, can you take over?

Yes. Thank you, Alexandru. Good afternoon also from my side to all the investors present in the -- and connected on the occasion of our teleconference for the quarter 2 results of 2025. And I will just for the benefit of time invite you to go directly to the section regarding -- the second section regarding Group's Financial Results to the Slide 13. And in the Slide 13, I will comment a little bit about the main key metrics, financial key metrics that we are following and we are presenting here. So for second half -- first half 2025 quarter to second half 2025 results in terms of revenues showed an increase compared with the first half of 2021, which was contributed in similar proportions by the distribution in the supply business, roughly RON 300 million each. On the distribution, we had the impact, which was generated by the increase with 12.5% of the distribution tariffs, but also an increase of approximately -- the effect of an increase of approximately 3% from the distributed energy evolution, the growth of distributed energy. And then on the supply, we had also an increase in revenues, which was mainly related to three contributions. One was the increase -- slight increase of the volumes delivered on the retail market. The second was related to the fact that the price of the -- the acquisition price of the energy had increased in fact with first half 2024. Remember that first half 2024, we had still MACEE in place. And this impacted also the revenues because, as you know, under the support scheme, which -- for energy ending 30 June 2025, we had this mechanism of recognition at cost plus. It was cost plus, the contribution -- the supply margin, which was recognized. So basically increased prices of acquisition of energy resulted in increased revenues as well. And also, we benefited in the -- in 2025 by the fact that the support scheme was amended in order to accept recognition of the balancing market costs up to 10% of the value of the energy acquisition costs compared with previous times, this percentage was changed from 5% to 10%. And this generated some RON 20 million additional revenues. If you look at the EBITDA margin and value, we should mention that we are quite proud of this result of RON 1 billion in EBITDA. It's the first to have in 6 months to reach this level of EBITDA, which sometimes in the past, it was reached in a year time performance and we are quite pleased about the fact that this is not only resulting from the strong and sustained performance of our distribution subsidiary, which was also constant in the past but also by improvement of the evolution in the supply subsidiary, which is the third quarter with positive EBITDA, which is a good signal from our point of view. Now we have accessed the syndicated facility in July 2025, and this will improve further the results in terms of financial costs with a potential effect on the net profit. But again, we had a contribution of EBITDA from both main lines of activity, and this will be detailed in the following elements or slides. The net result, as mentioned by -- also by Alexandru is 4x more than first half 2021 as a result of these consequences. Basically, as you will see, we improved on the energy margin in both business lines, and we were able to cost control to make a situation in which the growth of the expenses was less than the one of the revenues. In terms of net debt, as you see compared with the situation at the end of 2024, there is a slight increase which is in line with the forecast that we have and with the plans about centralizing the debt -- in the debt on a longer 10 or longer maturity and centralizing the debt through the syndicated facility, which was -- again, it's not reflected here, but it will be shown at quarter 3. Turning to the next slide, consolidated EBITDA and Net Result Evolution, Slide 14. I will go into more deep analysis of the EBITDA and I would say that the EBITDA of RON 1 billion in 2025, so roughly RON 400 million more than in first half of 2024 is a result of the following: First of all, RON 380 million positive variation of the energy margin, which is, I believe, a very important signal. And this was with positive effect, both in the supply segment and in the distribution segment. Both had impacts, positive impact in an energy margin, which is quite important, especially for the supply business where we are looking at this upper P&L regarding the energy margin, we buy and then we sell to our customers. We will detail this in the slides related to each of the business lines. Also, we had some other revenues impact, which is mainly related from an amount of RON 12 million from headquarter due a resolution of fiscal litigation. And then in the variation of OPEX, we have a variation of OPEX, which is mainly due to a negative impact of increase in expenses with salary mostly related to the distribution subsidiary, but also to the other business segments. However, if you compare this impact in the total cost of -- with the personnel of our Group, this amount is not -- is not material and it's also related to negotiation and granting some clauses in benefits to the employees in accordance with the collective labor agreement and in the context of the requirements related to inflation and so on. And we had also a negative impact from repairs and maintenance of RON 9 million, but this is recognized under the regulated asset base and again, it's not material in total cost. And then positive impact of RON 32 million from the change in provisions in both business lines to supply and distribution. In terms of net results, the variation 6 months 2025 versus 6 months 2024 is RON 319 million. So compared with the growth in EBITDA, we are affected mostly by the financial results, which is of RON 26 million but this financial result, I should make the comments about it. First of all, as I mentioned, in July, we drew this indication, which will show into decreased financing costs for both business lines -- for all business lines, in fact. And then the second is that a part of this financial result is also related to the differences of FX exchange rates since we have these steps, which are in euro, these are creating an impact when they are evaluated at the date of the financial situation. Of course, there is also the good part that it has specifically very good interest rates, much lower interest rates, especially the facilities which are from IFI's and we are contemplating here the solutions to maybe hedge this risk with some rolling forward FX rates to make this more leveled, more predictable. Going then to the distribution segment, Slide #15. I would mention also something on the key figures operationalized is that we are steady by steady growing towards the 4 million level of users. Yes, we are now at 3.995 million. This is steadily increasing. Network is developing. Cities are developing. New homes, new factories are developed in the area of distribution. We are connecting them into the network and gradually, this is increasing in terms of number of users. So looking at the numbers, I would mention that the EBITDA, which increased by RON 123 million compared with 6 months last year, is mainly due to this increase in energy margin by RON 171 million. Then affected by the negative impact in the employee benefiting expenses of around RON 40 million that we mentioned. And then there is a favorable impact from other OPEX by RON 41 million, which is mostly from tax expenses with special constructions. Tax [indiscernible] RON 15 million. We are following the discussions whether this will be discontinued from next year. If you look at the energy margin, do have a comment on that, there is RON 325 million increase in revenues, which, as I mentioned, this is coming from the tariffs increase with 12.5% by the ANRE order 97/2024 compared with the tariffs in last year. And then also increase of the volumes of energy distributed by 3%. And then in terms of network losses, technological consumption, we have a minus RON 154 million generated by the increase of the electricity price compared with 6 months of 2024, mostly related to the fact that the prices in the energy markets have increased in 2024. We still had MACEE purchase mechanism in the place, so despite the fact that in terms -- that we had a 6% decrease in the volumes of electricity needed to cover network losses with an increase of energy distributed. There was this impact mostly also coming from price in the energy. But still, even like that, the energy margin was having a positive contribution of RON 325 million. And then we had the network losses cost, RON 154 million. So this results in a net result as energy margin of RON 171 million. We have also the graph, which is showing the other elements related to the employee benefits and then to the OPEX, which includes a big part of the special construction tax. Going to the next slide, you have the details about the distributed energy margin and the other elements. It's an important mention to be done is that in terms of regulated results that you'll see in the next slide, you will see that this does not include the effect of the capitalization or negative deviation of the cost of network losses. I will explain also later on. This results are the results under IFRS-EU, where we are not showing the capitalization of network losses. We are not showing the amortization for the network losses capitalized from the past and for the current year, we are not constituting new amortization. We are not capitalizing them. It's the difference between the 2 sets 2844 per 2014 and IFRS-EU. Then we have the usual analysis of the one which is on a regulated basis coming from regulated result asset base to net results under the statutory, which is the one agreed with ANRE and which is giving us a flavor for the full year. And then you have the analysis of these regulated net results going through OMFP and then to IFRS-EU. But it's not in the same category as the one put before because this is for half year, and we are not -- the amounts which are agreed with ANRE in the previous slide, they are not splitted on quarters, so we cannot -- we need to make an assumption and which will not be so objective. In terms of details about that, you have the slides following, Slides 19, Slide 20. It's important to mention that we are -- in terms of commissioning for the investments, as Alexandru was also mentioning, we are focusing high on the investments both in distribution but also for developing the business line related to energy generation. So compared to the values approved with ANRE, we have 109% of the 6 months planned value achieved. In terms of budgeted figures, which is the second column, it should be mentioned that this budgeted figure is higher. We always budget for higher than what we approve as regular CAPEX because we include a buffer to cover for the requests -- unforeseen requests that we receive of access to the network from our users, from our customers. In the supply segment going to the Slide 21, we have also the explanation of improvement of EBITDA and here, you see EBITDA improved by RON 267 million compared with first half 2024. And we have RON 189 million contribution from the supply segment resulting from the following: First of all, RON 365 million variation in revenues related to the supply segment, related to the increase of quantity of energy supplied in the retail market, but also the impact of the recognition of costs of -- the energy market costs up to 10% instead of 5% from acquisition cost of energy. Then we had RON 616 million increase of income, other operating income related to the higher subsidies revenues. And then we have RON 767 million increase in the cost of energy purchase. But if you combine this RON 365, plus RON 616 million, minus RON 767 million, you see quite significant RON 214 positive net energy margin in the supply business and this is something that we will like to stress and it's a result of a combined element related to both the fact that we are allowed to recognize more of the Balancing Market costs, the market -- the Balancing Market, as you'll see later on in a graph of price evolution was not showing those balances that were shown in the past. And then also, of course, our effort in terms of capping, keeping the costs in control and also focused on selling, increasing the quantity of energy sold in the market and being very focused in optimizing the results also at the level of the supply subsidiary. The net result has an improvement of RON 231 million, mainly for the positive evolution of EBITDA but also the other elements which are contributing, which are related to the financial result with negative impact of RON 9 million. And then amortization expenses of RON 1 million but -- and also positive impact of income tax expenses of RON 26 million. Net debt decreased by RON 38 million compared to the year 2024, mainly a result of decrease of also overdraft utilized, cash equivalents and -- but a slight increase in the bank borrowings. Basically, it's a part of the fact that got amounts paid from the subsidiaries from the state, some RON 430 million this year -- around this year. And then we also focused on optimizing our internal lines and our financing structures in respect of this. Going to Slide 22, we are ranking second in terms of supplier in 5 months 2025, in terms of total market share. On the competitive market, market share ranking us third, as there are a number of consumption places we are ranking first. We are very -- we consider that we are very stable on the number of customers that you will see later on in our presentation. I think from our point of view, the focus will not be necessary to be #1, but to be one of the top suppliers always and to be as profitable as possible. So as you see here in terms of key aspects of the supply, you can see that there are not significant drops of numbers in the number of consumption places or volumes. Then we have the slides related to supply perspective of the impact on the energy -- electricity market. You have here the details about regulation, but I will stick on Slide 25 and point out the graphs related to the evolution of the electricity weighted average price and on Day-Ahead Market and on Balancing Market, 2025 compared with previous years. So you can see in terms of balancing market on the right that we didn't have this period with a negative average prices, which, of course, were the one which were impacting us in last year when we had to unload energy on balancing market at negative prices, sometimes energy that we're just purchasing from the consumers in summer days. On the left, you have the evolution of the electricity weighted average price on Day-Ahead Market, which you see even if the prices are higher than last year after, let's say, a smallish peak in February, it came down after that and its level is pretty much similar with the ones in last year. Slide 26 in terms of receivables analysis, what would like to mention is that the amount of outstanding receivables at half 1 2025, is in terms of -- adjusting it in terms of comparable turnover, it's slightly increasing with some RON 100 million, but measures are taken and efforts are done in order to increase the invoicing and collection rate on these receivables. Under IFRS 9, the comment would be that basically the bad allowances are mostly related to debts, which are older than 4, 5 years insolvency, litigation, bankruptcy procedures and this is like related to some RON 200 million. So it's not -- which are provisioned for. So it's not an issue in any case about collection from the customers. In terms of Electrica Serv on Slide 27, we do have a result which is not a favorable one. We are having plans put in place for having this un-winded reversed by the end of the year. The point is that there is quite a competition in this market of installing panels and working for these new projects of energy, and we are still optimizing and focusing on getting [indiscernible].

I think we lost Stefan there.

Yes. Ladies and gentlemen, please hold. We will resume the conference shortly. Thank you.

We can take questions. It was only the production side, we can answer questions.

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

I will start with my first question. And it's regarding the subsidies receivables from the state and the cash collection, if you could please give us a guidance what we expect by the end of the year, considering the increase in subsidies this quarter. My second question is regarding the evolution of the distribution segment in the second quarter. If you could please share the average price for network losses during the second quarter? And what expenses increased in order to get the bottom line close to the previous year? And third, for 2026, could you please share with us what correction should we expect for the regulated revenue for the distribution side. That's all for my side.

Yes, I think for the last question, we'll ask my colleagues from the regulation to intervene. For the other 2 in terms of cost of -- acquisition costs, I would say that, roughly, I cannot give you an average for the second quarter, but roughly, for the first half of the year it reaches approximately roughly RON 600 per megawatt. And then in terms of expenses, the question was what expenses have increased in the distribution in order to get to the profit basically eating from the EBITDA margin to the profit. It's mainly related to the financial expenses, which are affected also by this FX rate difference. But it's also the part related to the personnel that I mentioned, the RON 40 million there, but which is aligned with the industry, and it's a part related to our also collective work agreements. And for the third, for the corrections that we expect, I would ask my colleagues from distribution or from regulatory to help.

Only the volumes of distributed energy for the total 2025 will exceed the volume approved by ANRE ex-ante, only then will be negative correction in the revenue for 2027. Otherwise, we will not have a correction. So for now, we cannot appreciate if you will have correction for 2027.

And for the 2026?

For 2026, we already estimate report of administrator, the value of correction of around RON 340 million in 2026 due to the correction for 2024.

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

I will ask Raluca to read the question, and then we will give the answer.

Okay. We have a question about the -- if Electrica's activity is cyclical during the year?

Now this question might be about 2 things. One, the activity of the distribution is annual. So from this perspective, yes, or if the question was relating actually to the fact that we can repeat the success story of first semester, we are reserved on how the market is going right now. We are pushing for greater results. At this point, we're just getting out of the subsidy scheme. We'll see how it goes until the end of the year. Mainly, we should be stable and let's not forget that we have a targeted budget. Our main goal is to overcome that, and we will see in the next quarter how things went.

Yes, in addition to what Alexandru mentioned, of course, there is a cyclicity in the consumption of energy of our customers, which is reflected also in the quantity of energy distributed by our distribution subsidiary and also by the quantity of energy, which is supplied by our -- yes, people are using more electricity in the summer because it's hot and they're using the air conditioning. Also, in the winter, we see some increase of consumption of energy, which is related to the fact that a lot of people are starting to get heated by electricity. For example, then there is also this cyclicity. There is also a cyclicity in the distribution segment in [Audio Gap].

Is the Treasury of Electrica Group robust enough to allow contracting new loans in the future without having difficulties in the future?

The simple answer is yes. We overcome the most difficult part of the energy transition from our perspective. We already proved through the syndicalization through the green bonds and ongoing partnerships with banks, with investors, that we can take up the amount of money necessary in order to keep the company steady and predictable.

What synergies will you have when you put into function the 300 megawatts of renewable energy for the entire group?

Okay. So our main idea for expanding to the production side is that Electrica is a one-of-a-kind company, which already has supply distribution. It has services. Now we wanted to have production inside the group, so it's on ecosystem. For the destination -- for this production, there are 2 possibilities, one is to keep the production a standalone operation or we can integrate it, depending on market demand with our supply business. So the synergy is perfect at this point to have it inside the group.

Can you use the money from the green bond loan to acquire another power company from Romania?

The objective of the green loan is to help with the energy transition, so their proceedings will go strictly to building PV or wind parks or batteries.

Your photovoltaic power plants are built by Electrica itself or you used another EPC company?

Up to this moment -- sorry, I'll pass over to Andreea.

We are selecting EPC partners through open tenders where Electrica Serv and other specialized companies can compete. And the winning offer is always the one that guarantee the best value and long-term performance of the project.