Societatea Energetica Electrica S.A. (EL) Q3 FY2025 Earnings Call Transcript & Summary

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

Hi, everyone. I'm Raluca, Head of Investor Relations. I'm here with the entire Electrica management team. Thank you for joining us. It's a conference call and the live webcast. We are going to present and discuss the 9 months 2025 financial results. Those of you who are connected only by phone, kindly download the presentation in PDF format available on our website under Investors Results and Presentations section. [Operator Instructions] Kindly note the entire conference is being recorded. [Operator Instructions] We'll make the recorded -- the recording of the presentation available latest tomorrow and the transcript as soon as possible. Now we'll begin the presentation of the financial results, followed by a question-and-answer session. I'd like to turn over the conference to Mr. Alexandru Chirita, Electrica's CEO. Thank you.

Thank you, Raluca. Dear ladies and gentlemen, thank you for joining us at this teleconference in 2025. In a nutshell, the financial and operational performance recorded in the first 9 months of the year supports the direction we set for the companies within the Electrica Group: solid, financially disciplined and ready for major investments. The achievement of a net profit of almost RON 840 million and the EBITDA exceeding RON 1.7 billion validate the efficiency of our strategic decision towards an integrated business model. This robust performance is a direct result of our efficiency measures, rigorous processes and, of course, consistent execution across all business lines. The Supply segment has returned to a stable position and contributed significantly to the strengthening of our financial results. As the market liberalized since the 1st of July, both the EBITDA and the net result of the segment had a positive evolution and impacted significantly the financial results. While the distribution segment continues to provide a steady flow of value through investments carried out at a sustained pace. In this quarter, we recorded a threshold of 4 million customers connected to our network. The investments are commissioned according to plan with the aim to enhance the quality and resilience of the infrastructure across the counties we serve. In the face of an increasingly competitive and dynamic energy market, our strategy centers on maximizing core business growth while maintaining a superior level of performance throughout the group's operations. Therefore, I want to take this opportunity to thank our shareholders who approved last week to initiate the necessary procedures to obtaining financing intent for the acquisition of 4 business lines within an aggregate limit of up to EUR 1 billion for the period 2025-2027. Thanks to our robust financial position, we constantly evaluate the opportunities that come up within the energy market, the ones in line with our core business. And as we always do, we'll promptly and transparently update investors as this initiative takes shape. Renewable energy projects are a central focus for our team. We have accelerated the development of our renewable and storage portfolio with the objective of supporting Romania's economic development, strengthening long-term energy security and aiding energy transition. As a summary of Electrica renewables production, you know that Vulturu and Satu Mare 2 PV parks have been operational since the beginning of July 2025, respectively, October. Therefore, at this time, we have approximately 4 megawatt peak installed capacity operational. For other 2 photovoltaic parts, Satu Mare 3 and Bihor 1 with a total capacity of 140 megawatts, the estimated completion date is second semester of next year. On the battery energy storage system, we are currently working on 4 projects presented before, totaling 169 megawatt hours as well as on the additional 15 storage projects we announced last month, totaling 1 gigawatt hour capacity. This perfectly aligns with our strategy that is approved, aligned and looking forward to 2030 to get it done. 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, 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 pass the presentation to our CFO, Stefan, who will provide detailed insights into our financial performance. And as custom at the end of the presentation, we invite you to actively participate and address any questions that you may have. We would like to have your insights and perspective as we highly value them. Thank you.

Thank you, Alexandru. Now moving on to the numbers. I suggest we go to the first slide Slide #13, which is a snapshot of our summary consolidated financials. Here, you can see the increase of the revenues 9 months 2025 compared with the similar period of 2024, which is due to also an increase in price of the energy, but also due to some increase in quantities of energy supplied by our distribution -- distributed by our distribution. In terms of EBITDA, as Alexandru was also mentioning, we reached a significant milestone of RON 1.7 billion as EBITDA for 9 months 2025. You can see here as a comparison that this is basically what we are getting for a full year in 2023, and we are quite pleased and proud of this result, which, as you will see, is the contribution of both our DSO subsidiary, but also large supply subsidiary, which after the exit of the support scheme came back to levels of EBITDA, which are positive and are contributing significantly to the result of the group. In terms of net result, you can see the jump, which is, let's say, in line with the jump in the EBITDA, considering also the evolution of the deferred tax items. And we are reaching, again, a level of profitability, which is exceeding 10% as a net result margin. As net debt, you can see the decrease of the position of net debt compared with the end of last year, which is related to the fact that we are -- we exited from the support scheme. We are collecting from the support scheme. We have collected some RON 944 million this year from the support scheme and the amounts are not increasing anymore after end of June because the support scheme for power has come to an end. And you'll see this evolution of the net debt position also for our main subsidiaries in the Supply and distribution. Moving to the next slide to Slide 14. You can see here the waterfall, which is showing the evolution and explaining the difference of EBITDA compared with the similar period of last year. And we have here a positive variation of the energy margin of RON 750 million, which is comprised of positive results, both in the distribution segment and the Supply segment, yes. In the distribution segment, we have roughly RON 300 million as a positive contribution, which is coming from increase in the tariffs of distribution with approximately 2.5% and then a decrease in the distributed energy of approximately 2.1%. And this is getting a significant positive impact of RON 430 million, which is more than compensating the effect of the increase of the expenses to energy for network losses that were there on technological consumption. This is an increase because as you might remember, last year, for part of last year, we were also having a much MACEE mechanism, which was providing by a centralized way energy at RON 460 for the distribution companies. Then we have also a significant plus in the energy market in the supply segment of RON 442 million, which is comprised of several effects. There is an effect of increase in the sale price of the energy. Then there is the effect that we don't have the cap anymore on the recognition of the cost with the imbalances starting 1st of July. Then also for the quarter 2 from April -- 1st of April, we had under the support scheme, the increase in the percentage of recognition of imbalances from 5% to 10%. And then the fact that since we are not in the support scheme anymore, we don't have any more the method cost plus. So we don't have the cap anymore on the price of the energy in comparison with the acquisition cost of the energy. All these components are generating positive impact for the variation of revenues and variation of subsidies, which are more than compensating the increase in the cost of electricity. So this results in a roughly RON 500 million positive energy margin contribution for the supply. We have also RON 22 million from other revenues, which is an increase of RON 12 million from the headquarter due to the positive resolution of some litigations and then also increase on some other revenues in the distribution of RON 16 million. On the OpEx part, we have a negative variation of RON 100 million, which is a net impact generated mostly by the expenses with salaries and other employee benefits from the distribution segment, which is continuing the process of aligning the benefits with our regions and our regions in the distribution area. Then we have a negative impact from repairs and maintenance of RON 21 million, mainly for the distribution segment and also a negative impact of RON 28 million from the meter readers and increase of taxes related to special construction tax. Nevertheless, as you'll see later on, the distribution is performing very strongly and provides a significant contribution to our results. In terms of net result variation, 9 months 2025 versus 9 months 2024, RON 537 million positive contribution, which is coming mainly for the EBITDA. And as I was mentioning, this is affected by the deferral elements in of the income tax expense by RON 90 million. And then there is an impact on the financial result, which is mainly coming from the currency differences for the debt, which is in foreign currency and for which we will be considering to implement hedging solutions for the future. In the distribution segment, you see here the highlights. I think one of the most important elements that I'm proud of and I would like to mention is that we have the fact that we exceeded 4 million users in our distribution area. So by the fact that the networks are growing, people are connecting to the network, where we have exceeded this milestone. In terms of results, you see here the explanation about the energy margin. I covered them in the slides before. And then I would also mention that in terms of net results, we have here also a significant impact in net result increased by roughly RON 200 million, mainly from the contribution of EBITDA with an impact from the income tax expense and financial results. Net debt decreased also with RON 81 million compared with the year-end 2024 with an increase in -- with the decrease -- increase of bank borrowings, offset by increase of cash and cash equivalents and the decrease in overdraft showing also our preparation and our concern to move the debt for a longer tenure from shorter tenure from overdraft to long-term notes. You have here also the waterfall related to the EBITDA evolution compared with the previous months. And you can see here the significant contribution of the energy revenues, energy margin. Here are the details about the distribution segment. And revenues, EBITDA and net result, net debt, you see the evolution also of net debt. And then next slide is the usual slide, Slide 17, the analysis on the budget, how this is composed, starting from the RRAB applied on the regulated asset base. And then in the next slide, you have the composition of the 9-month results based on the same elements so that you better understand the economics and the methodology of the distribution tariffs and distribution methodology. Slide 19, you have the results of DEER in terms of operational results, also in terms of results of evolution of net losses and distributed volumes, also the achievement of the CapEx plan as compared with planned ANRE CapEx plan. I will go then to the Slide 21 with a summary of the Electrica Furnizare. Here, you have also the details about the energy margin. I would stay a little bit on the fact that we have also here the reduction of the net debt, which is shown due to the fact that we start to reduce the loans which were taken for the support scheme once the support scheme is ended and we are starting to collect the amount. Also another element to be mentioned is that we are already the fourth quarter in a row for EBITDA -- positive EBITDA for the supply business and the fact that the growth of the supply business of the EBITDA of the supply business compared with the similar period for last year is in majority provided by the growth of EBITDA in the supply. Then you have the data about ranking in the market of Electrica Furnizare, volumes of revenues -- volumes of energy supplied on the various categories of markets. I will stay a little bit on the Slide 25, where you see the evolution of the -- price evolution on the head market and balancing market. And you can see that after the beginning of the year, right now, we are in the situation in which both markets are showing prices which are more [indiscernible] lesser level than the ones in the previous year. Slide 26 is showing the situation of the receivables, basically adjusting the receivables with the turnover. We are in a similar situation like in the past. We have increased revenues due to the increase of the energy prices, and this is proportionately reflected also in the receivables. Otherwise, there is not an issue about collecting of receivables. We are also having initiatives related to automating the initiation of legal recovery procedures and also outsourcing out of court amicable collections process for receivables over 90 days for the past due. We don't have a problem related to collection in terms of IFRS 9, the bad debt allowances are mostly related to some historical cases, some older than 5 years. So as previously mentioned, during the entire period and with the support came thereafter, there is not an issue about collecting from the customers. Electrica Serv as on Slide 27, it's going a process of optimization and the transformation in the fact -- in the front of the competition and with competition in the market for green energy solutions. We would like to position it as better as possible to act in this market and to be able to compete in this market with the measures that we are considering, we are looking for a result improving towards the end of the year. In terms of Production Segment, and we had a question on the production segment. This starts to contribute stronger and stronger to the results. This is posted also here in the slide and also as a separate segment in the note about segment in the financials. We have Vulturu, which is producing since the first part of the year. And then we have in Satu Mare, which got into the trial period recently. So this shows the revenue starting to increase. And basically, we have roughly 50 megawatts of production at the end of the year. Even if it's not necessarily a very big number, but it shows that in terms of the projects that we are doing, we are working the stock, we are putting them into production, and we are consistent with executing our strategy. In terms of Group Liquidity, we have the best position so far after the beginning of the monitoring of the situation and after the support scheme came, it's also related to the fact that we improved our efforts in collecting. We have also the liquidity from the bond issued in the summer that are placed in [indiscernible] and deposits along the way until this is to be spent in the projects of generation. Then we have also a very good position of liquidity also in our supply subsidiary, which collected the amount of tariffs from the other supply companies. In terms of debt profile, Slide 30, you can see the improvement of the debt profile in which the percentage of bank borrowings is increasing compared -- bank borrowings long term compared with the short term. And also in terms of maturities, we are having more than half of the debt, which is with maturities more than 5 years. This is the slide related to the distribution of dividends that we have also presented in the past. It's a matter about after passing this period with the support scheme when we needed to get a lot of loans to finance the network losses and the financial support scheme amounts to be recuperated from the state. As we are starting to develop also the production, we will consider getting back to levels of yield of dividend similar with what it was in the past. We did give you the summary. We welcome now your questions. And together with my colleagues and our team here, we will focus to answer to you as good as possible.

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

Congratulations for the results. I will start with my first question regarding the supply performance. After the end of the capping scheme, we've seen a very unusual high EBITDA margin in the third quarter. Could you please detail what drove the margin so high? And maybe you can give us a guidance, where do you see margins consolidating in the near term. Second, if you could comment also on the supply volumes. The volumes decreased 2 consecutive quarters. Do you see some changes in demand? Or this is just because of competition? Please give us your view on the supply volumes. And my last question is regarding the media rumors that you are interested in the acquisition of Distributie Oltenia? Have you submitted a nonbinding offer for the acquisition of Oltenia? If you could please give us something here? And if you do plan to pursue this acquisition, what financing sources do you consider? That's all from my side.

So in terms of the revenues on the volumes for the supply, strong discussion here. And even we have decrease of 3% of the volumes on the supply, as you can see in the slide. We don't necessarily consider this as a warning signal for us. From our point of view, in this market, our focus is to optimize our activities and to be as profitable and as efficient as possible. It will not necessarily be a battle of fighting for the market quota. I think that the focus for the supply is the one which is to optimize your activity to have a relationship with customers, which to be stable. We are not that much affected about the customers which are migrating to other players. There is, for sure, a migration. But in the end, I think that the fact that the market got liberalized shows that this is in the benefit of everyone. And it's a way of [Technical Difficulty] function which we are prepared and we are resilient and we will be continuing there. There also -- there is also the benefit that, as I previously mentioned in our areas where we have mostly our customers in our supply area. People are not so keen to just chase very little any little difference in price and change the supplier, but they are more focused on having a steady relationship with a reliable supplier. Now in terms of the other questions, I think Alexandru will help you with that.

So regarding the question about the acquisition, you saw that we are -- at this time, we are at the beginning on securing the financing. We got the principal approval from the shareholders. And now we're working on the fact that we have to secure the financing. We will have you informed as soon as possible on what we have there as an offer and what we can achieve. Regarding acquisitions of other alternative groups, again, we are pursuing interests that are convergent with the business lines of Electrica. And as soon as we have something to announce, we will do so through the proper channels through the stock market, and we will let the investors know exactly what we are planning.

Yes. As previously also mentioned, that is in the note for the GMS, which was approved. You have all the details there. We have this stance of growing the business. At a certain point, you are looking at growing the business organically, which is what we are doing, for example, with the production and so on. But at a certain point, you might take a look also at inorganic options to grow the business because we have economies of scale and synergies. And from this point of view, we are looking at opportunities which are related with our main object of activity as stipulated in the note for the GMS for which we got approval last week.

Is there a follow-up question or we proceed?

If I may -- yes, I have one more question, if I may. Regarding the net debt position at the end of September. In your presentation, you have a RON 4.2 billion net debt position lower versus 2024. While from my computation, including bonds should be higher. Is anything there included?

We should maybe take a look at the computation, and we can take a look separately with you. The idea is that from the bond, we have placed some, [Technical Difficulty] But we have also reduced the exposure on some credit lines. So let's take a look at the numbers separately, and we can help with clarifying this.

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

Okay. Let's take it one by one.

We have some questions.

Let's take the first. When we will give up numbers regarding revenues and results -- net results for the production of energy from Renewables? I think they are on Slide 28, and you also have them separately in the financials. If Stefan, you can go to 28.

Yes, let's go to 28, and we have here the evolution of the -- so we are monitoring the production segment since 5 years already. And we have here all the details related to the production and the fact that it starts to contribute significantly to the EBITDA at the net result. And we have also the details in the note for the financial situation. We have specific note related to the [Technical Difficulty] -- it's note 5 in the financials, which are detailing the segment. Also, there is a question about if 70.6% of the revenues are from the supply and 38.6% are from the distribution, where it comes the rest? So I will also refer to this note 5, and I will mention that 0.1% is coming from the segment of production it is this RON 8 million that is here. And then there is some 0.7%, which is coming from the segment of Energy Services, roughly RON 50 million. So this would explain for the difference.

Going forward, regarding the memorandum with Romgaz for the 400-megawatt target, we are working on a strategy with Romgaz, and we will come back shortly with the outline. We're looking on the best way we can have a synergy between us and develop the renewables as fast as possible. The question regarding the dividend that will be paid from the net profit of last year. Now the discussion with the dividend is strictly related to the net debt cash position that we have. We still have a lot of receivables to receive from the state. So until we stabilize this situation, it is hard to make a decision on dividend as we need to borrow money in order to pay the dividend. And it seems unreasonable. We're trying to maintain a higher and higher value for the dividend. We're working with the Board for a dividend policy that is much clearer. And as stated before, it is in our intent to get back to dividend yield stock, but we need to do this from a secure position that does not put in jeopardy any investments that we are currently doing.

We are not looking at the percentage of the net profit. We are just looking at the situation with the plans with the businesses that we want to develop the investment plans, the liquidity that we have. And from this point of view, this is how we are considering for the dividend. In terms of the question related to the network of distribution, we can say that roughly 35% of the overall network is already modernized. I think this was another question that we got.

Roughly, we have around 35% of the installation that -- sorry, we didn't quite figure out the question. So the question is regarding the distribution network. What percentage is modernized and has a low loss and number, I guess, is the actual question? We are roughly at 35%, and we're working tirelessly to improve all these segments. The main goal is to have better quality, better service and again, lower losses. But it will take time. There is an approved ANRE plan. It is for the next decade. We are in line. We always say that we are already doing the best we can, and we can do more, but it's part of a negotiation because it's related with the tariffs, and we need to see that through. There is another question regarding a possible error on the revenues consolidated at 70.6% with a difference of 20.6%, then there is a difference of 0.8%.

It's not an error. I have explained before. This is 0.1% coming from the production and another 0.7% coming from the supply segment. Then there is a question about the year-end level. The question about the impairment of receivables. It's not necessarily increasing sharply in the third quarter 2025. There is a methodology that we are looking to revise according to IFRS 9 about how these are calculated and which should be adjusted to reflect the market situation. It's not like there is a cash collection issue. There are no cash collection issue. The amount comprises both statutory amounts, but also the ones according to IFRS 9, which are linked with the receivables balances. So receivables balances are increasing, there is also increase in that. But the level for the end of the year will be similar with quarter 3 2025. There will not be another jump.

Going forward, if the revenues obtained from the energy producer from renewables, from green certificates dropped or increases depending on the energy input output? Now the green certificates were part of a scheme that only applied to a certain point. For new capacities, we don't have the situation. So they are fairly stable on what we have with a possible very low decrease on, let's say, the usage of the parts per se. Now we have -- the CapEx guidance from...

I'll be taking that. We are just -- the point is this, you should...

We should ask the question. So what is the CapEx for this year and next year? On the remaining RON 2 billion subsidies receivable, how much do we expect to collect this year and how much next year? What is the driver for increase in EBITDA in Distribution segment as I was assuming it was to remain stable given the WACC has not changed?

Yes. Basically, as a guidance, we can give you CapEx guidance for distribution until end of this regulatory period. Basically, you should expect roughly at least EUR 150 million in equivalent as a distribution CapEx by the end of this regulatory period. This is starting from the idea that we need according to the regulation to invest at minimum the regulated depreciation, and then we can add maybe some 5%, 10%. So this will be the minimum. We could have probably an effort to put more and go up to EUR 200 million in the next year, 2026 and 2027. For the -- so altogether, it's okay, minimum EUR 750 million cumulated for 5 years. And the same thing is for the generation, yes. For the generation, we are looking roughly at EUR 350 million by 2027. So it is a 2-step approach, commissioning and starting to have generation EBITDA and energy produced from these projects and then have a second step. So this will be -- should be in terms of CapEx. In terms of the remaining EUR 2 billion receivables that we have in the financial statements at midyear. As I mentioned, we collected some RON 944 million up to this year so far. We expect to receive another amount, which should post the collections above RON 1 billion for this year and then the rest of the amount, roughly another RON 1 billion for next year. We are in communication with the authorities on this topic. They know about the topic and about the fact that we need to get this amount recuperated and we don't necessarily see an issue about that. I mean if you look historically out of RON 7 billion that we have filed in for recuperation, we got rebates like RON 6 billion so far. So there is a delay, but there is the willingness to find solutions and to have this repaid. And then what is the driver for increase of EBITDA in the distribution segment? As I was assuming it was to remain stable, given the WACC has not changed. So from this point of view, there is also a matter about improving our efficiency, first of all, you can see this also in this year and in the -- compared to the previous years, we are posting [Technical Difficulty] improvement of EBITDA in the distribution, paying more attention to how we unfold our activities and focusing on reducing network losses and optimizing on everything that is in our activities. So there is also this profile in which in the course of regulatory period when you agree with the regulator for a 5-year period, generally, what happens is that there is this profile in which you have less profitability at the beginning of the year and then you are having increased profitability towards the end of the year -- years of the period.

Just to complete what you were saying. So for the distribution segment, we have roughly EUR 150 million per year minimum. That adds up with the EUR 100 million -- I think EUR 400 million from new funding, which is actually increasing. And as more calls open, we apply to more. So that's roughly for the distribution segment for the Renewables segment. Keep in mind that we have 2030 targets. 2030 target is 1 gigawatt of renewables, which is roughly EUR 700 million by 2030. And the 1 gigawatt of batteries should be roughly around EUR 350 million. So it's like EUR 1 billion investment by 2030 on the Energy Production segment. I don't know if we have another question.

[Operator Instructions]

There is a question about the increase of recognition of imbalances from 5% to 10%, is it permanent or temporary? It was done during the support scheme. It was improving our results, our recognition from 1st of April until end of the support scheme for the energy 30th of June. After 1st of July, we don't have the support scheme anymore. So we don't have any cap in terms of recognizing the imbalances cost in terms of having them recuperated from the customers. This was a matter which was related to the support scheme, and we benefited for the last quarter of the support scheme of this increase.

Ladies and gentlemen, there are no further questions at this time. I will now turn the floor to management for any closing comments. Thank you.

Let's have another time, maybe someone wants to ask a question, written. Otherwise, we are available for any related questions that you may have. You can contact Raluca or the executive team at any point. We will happily answer. We will keep you updated on any news as fast as possible. And we're optimistic on how things are going. So we're keeping the work going as hard as we can. Let's wait one more minute.

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