Societatea Energetica Electrica S.A. ($EL)

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

Hello, everyone. I'm Raluca, I'm the Head of Investor Relations. And together with the entire Electrica management team, I'd like to thank you for joining the Electrica conference call and live webcast to present and discuss the full year 2025 financial results. Those of you who are connected only by phone, please download the presentation in PDF format available on our website on the Results and Presentations section. [Operator Instructions] I remind you that the recorded presentation will be available on our website starting latest tomorrow and the transcript as well as soon as possible, of course. We kindly ask you to see the disclaimer on Slide 3 of the presentation. We'll begin the presentation of the financial results, as I said, followed by a question-and-answer session at the end. Should you -- you can also e-mail us questions should you wish so. At this time, I'd like to turn the conference over to Mr. Alexandru Chirita, Electrica's CEO. Thank you.

Thank you, Raluca. It's a pleasure to welcome you all today. 2025 was the year in which we consolidated what we have built and took meaningful steps towards what lies ahead. The report you are about to review with us carries particular significance in this regard. It is one of the clearest expression of how we approach the company's development, not only through financial results but also through the impact we generate in the economy and in the society. The integration of these dimensions reflect a business model that is becoming increasingly mature and connected to the reality in which we operate. The financial performance of 2025 confirms this trajectory. Electrica Group recorded preliminary net profit of RON 1.2 billion, exceeding the prior year by almost 160%. And in operating revenues, we surpassed RON 12 billion. These results demonstrate the company's capacity to grow in a complex environment and to capitalize on market opportunities. Investments remain essential to this evolution. In 2025, we invested more than RON 878 million above the planned level. We continue to modernize networks and prepare the system for the integration of a larger share of renewable energy. One project I'd like to highlight is the finishing of Satu Mare 2 Photovoltaic Park. And at the same time, we made relevant progress in all our green park development. We will go through them in more details later. We initiated procedures for the development of 15 battery parks with a total estimate capacity of approximately 1 gigawatt hour. Storage is becoming a critical element for the balance of the energy system, and these projects position us in a strategic area for the years ahead. To support this stage of development, as you all know, last year, we had our inaugural green bond issuance of EUR 500 million. Interest was strong with 150 institutional investors from 31 countries and the level of over-subscription was exceptional. Demand at the final price exceeded the offer by more than 11.5x, a record for Romanian corporate issuance. We also did syndicated credit facility worth RON 3.1 billion, supporting both the refinancing of existing facilities and the continuation of our investment program. Our results were also reflected in the share price. In 2025, we reached a record level of RON 26. And then this year, we actually reached RON 34 at maximum. It's currently running at RON 30, a signal of confidence from the capital markets and a validation to our strategic direction. Other relevant milestones that we have in 2025 is the memorandum that we signed with Romgaz to build 400 megawatts of green projects in the next years to come. Of course, 2025 was also full of challenges from energy market dynamics to broader economic pressures. And today, we are in a similar situation. The market is moving, but I see Electrica teams that have demonstrated that they can navigate these contexts and transform difficulties into steps forward. I want to thank all our colleagues for their commitment and for the results achieved. Looking ahead, our priorities are investments in infrastructure, the development of renewable energy projects and the integration of storage solutions. We want every project to contribute to a secure and efficient energy system as well as to the development of the communities that we operate and beyond. Electrica Group will continue in the same direction, building, investing and delivering results. I'll move over now to the presentation to Slide 5. Okay. We see that the group structure is similar today. What we added on was the pipeline of projects. We can have an overall look on what happened on the electricity distribution, we have 4 million users. We distributed roughly 18 terawatts. And on the supply, we are roughly the same, 3.3 million. Our market share slightly decreased but with a similar electricity supplied on the retail market. What is relevant here is that all projects are in line with their estimations. We can actually skip to Slide 8, where we can have a better view of the green growth pipeline. And I think we can explain better here. I'm sure some of you have questions regarding to this. I wanted to read. So we have the estimation completion dates where we should be. The wind project is going. We also have the CfD scheme we mentioned in previous conferences. And now we are adding this battery energy storage system project. So we added 1,000 megawatt hour of battery on multisite projects. We have 2 important memorandums. One is with Romgaz, where we estimate 100 megawatts in Q2 next year. And one is with Liberty, where we estimate another 50 megawatts next year. By 2030, in our projections, this will be finished. I want to underline that for the Liberty project, we have taken in consideration the fact that the projects can have 2 directions. One of it is to serve the actual Liberty complex. The other is to trade the energy on the market. So it will be a project that won't have any issues in operating like all the other projects that we have. Going forward, I think we can go to -- let's look on the supply. It's a bit difficult. Okay. So we have some summary consolidated financials. 2025 was the best year for Electrica. We had the best results. You can see it here in revenues. You can see it in EBITDA growth and margin performance and also in net result and net result margin and the net debt to net cash. On the net debt and net cash, we would like to underline the fact that we are still waiting to clear the subsidies. We're still roughly at EUR 500 million. And although we actually got paid from time to time, we still are waiting for a confirmation on this manner. Let's go to the next slide. Let's see the distribution at 15 Okay. So the distribution segment went very well last year. We see an increase in EBITDA, roughly RON 300 million. We are above expectations on the -- we made all the investments necessary. We don't have an issue in operating. Now on this segment, and this is a debate that we are always having, we are surpassing the 100% investment necessary, but the actual need of the market is above that. So we are currently discussing with the regulator the possibility of doing more investments that the one of that is planned. Roughly, it's EUR 150 million per year. we can go above. The actual need should be 2 or 3x bigger. We can go to -- Raluca, you can go to the Supply segment 21. Now we see a good result on the supply business, a recovery from 2024. Now we are on our liberalized market. And with this, we see a small decrease in total market share, but the overall supply market is still stabilizing. We see various alternations of pricing due to external factors. So we don't have an issue in internal factors, but we are heavily influenced on external factors. We see the energy pricing -- energy prices increasing again. That will affect the overall consumer, but the business is stable. And we don't see an impact for 2026 in a negative way. We see it as stable, is actually fluctuating from non-household to households and the overall market supply is becoming tougher. But overall, I think things are going as planned. We can go at 2022 to see the market shares. This is from December. Okay. We can go to -- let's see on the good news. We can actually go to the production segment. Okay, 28. The production segment. You can see here all the energy parks that are being currently developed. Things are going also very well here. We're doubling in size. We're expecting this year to have the best result yet as we will be finishing the 2 other parks, hopefully. And we will also see progress in the Crucea park. The Crucea Park will take some time. There is, let's say, a longer delivery time on the turbines, but it's still under our estimated time line. So we will see an increase in the production segment if everything goes well, and we don't expect any issues by the end of the year, we'll have more progress here. On the group liquidity, also, although we have, let's say, the obstacle with the subsidies, we're stable. We don't have an issue per se. We also have -- we had a confirmation from Fitch for our rating still to stable. We're planning this year to issue at least a bond. We are going to the EGMS for EUR 1 billion in order to expand and support all the projects that we have planned. This is a very important aspect as by the time the subsidies will be, let's say, paid, we will have a more stable debt-to-net ratio, and we can take the bond without a problem. We will come back to the market either with a green bond or conventional bond depending on the projects that we will decide to invest along with our shareholders. On the distribution of dividends, 31. Our proposal here is to pay dividends of roughly RON 100 million. It's the same situation that we were in the last few years. We're increasing the dividends. We're trying to get back to what it was before, but we need to do this with pace because we don't want to borrow money to pay dividends as it would make not -- it wouldn't make sense to do this. The overall dividends, as you can see, the overall dividends are increasing. And I think by next year or 2 years ahead, we can go to a more normal politic dividend policy. As main events, if we need to cover per se, the group is stable. You saw that we have a new CFO, he is invited and present with us today, Mr. Costin Lordache. We welcome him to the team and we'll follow up on this on a later presentation. On climate risk assessment, we introduced some slides explaining exactly where we are with the green projects, the green bond issuance, the green bonds are listed on Luxembourg and Bucharest Stock Exchange. We have a sustainability strategy by 2030. We have a green finance framework. So we're in line with all the compliance measures necessary. Volumes are good in respect of the Electrica shares. We remained in the FTSE Russell indices. The liquidity is good. But overall, we could expect in the near future if the overall Bucharest stock market won't be more liquid to interfere the problem of loss of liquidity. Today, we are fine. We don't have a problem. I don't think we'll have a problem for 2026 either. I think we were in second place on the stock market after Transgaz, and it was almost double from the [indiscernible]. We expect that this year, the overall course will be stable, and we're doing everything possible to maintain the share price in an upward trend, respecting on our promises. I think that's kind of it. If we have questions, of course, we can take them either in writing or on a call. Let's wait for a minute.

[Operator Instructions].

I'll read the questions. So the first question coming from Banco Finantia. Given heightened geopolitical risk from the Iran-related conflict and the associated power and gas price volatility, how are you stress testing the resilience of supply margins and receivables, distribution network loss costs and group liquidity under new price shocks? In a scenario where volatility drives political pressure to reintroduce price caps or subsidies, what is your best case view on Romania likely policy response and its implication for profitability and cash flow visibility? It's quite a broad question. From the -- let's say, from the energy markets perspective, Romania is not in a bad place. It's quite stable. Of course, the prices of the energy are affected as they are everywhere else. But we don't foresee a different problem that we already have in general from an operational point of view. So it shouldn't affect the energy market in relationship with Electrica. We will see probably high volatility. We might see other impacts in the economics like high inflation. We can see subsidies or price caps depending on the social measures that can be taken. But from a liquidity point of view, we are stable. So we already did this in the last 4 years. It's not a surprise -- it won't be a surprise for the company. We already have all the reflexes necessary in order to overcome this kind of difficulties. We are very confident in our trajectory. And that's why we wanted to go to the market, although we have this conflict, I think we can go to the market to raise the bonds and continue the investment because overall, it shouldn't affect the normal course of the company. Okay. I see the second question. Supply EBITDA improved materially and net results swung positively. Now the electricity price caps ended 1st July 2025, what is the sustainable gross margin in a fully liberalized environment? And what hedging procurement policy will you use given the described low forward liquidity and high volatility? Okay. So what we can actually answer after we -- after the market was liberalized, the gross margin is roughly RON 800 million. We have a positive -- an EBITDA that is positive and stable at RON 400 million in a more careful scenario. Next question, could you please elaborate on the key drivers behind RON 310 million increase in distribution, other operating costs embedded in your 2026 budget. The magnitude appear usually high. So any breakdown or phasing would be helpful. I will ask [ Janina ] to give a clear answer.

As for estimated for 2025, the level of regulated revenue correction that we expect to be recovered in 2027 is around RON 400 million is a negative correction due to the distributed volumes that increased with around RON 240 million. And the network losses that we achieve lower quantity and lower price. So we will have negative correction of around RON 100 million. And also some correction of around RON 60 million due to the other revenues that is higher that we're already receiving the tariff. So the main reason for this increase of revenues is due to the distribution tariff that will decrease -- will increase with 20% and the distributed volume.

Thank you, [ Janina ]. Okay. We can go to the next question. You didn't answer on the supply side, right? Okay. On the supply side, could you elaborate on your strategy to mitigate margin pressure and indicate where your current supply margins stand relative to previous regulated levels in both electricity and gas. And an EBITDA margin guidance for both electricity and gas would be very helpful as well. My answer here is more difficult as it contains some commercial information. I'll put it in a more -- in a general manner. So on the supply side, because there is a lot of pressure, we see it in 2 different components. One component is pressure from the market and other players in the market, which have a lower pricing, but this doesn't affect us so much as our majority-based household has a low consumption and the impact in the price is quite low. We won't see, let's say, a drop in the market share. We will probably see a decrease depending on what's happening on the market. But overall, we don't see any issues on this. Of course, again, we can go back to the subsidies and the fact that as long as the subsidies are not paid, there is a financial pressure on the company, on the margins. But my overall -- our overall expectation is to have this fixed by midyear, at least in half. So if we can recover half of the amounts by, let's say, July, things will go on a better side.

For the revenue correction that I have received here question for 2027, I told already that is around RON 400 million and RON 60 million is due to the other revenues. So RON 400 million without taking into consideration the network losses capitalized. This network losses capitalized will be a higher -- positive correction.

I'll take a question. Could you please elaborate on the rationale behind the partnership with Liberty Galati for the development of a 500-megawatt project, particularly in the context of the company's ongoing insolvency proceedings? How should we think about the associated operational and counterparty risks? And what are key strategic benefits underpinning this decision? Okay. So first of all, it's not a social -- let's say, it's not a social we carefully analyzed. There is an opportunity there, and that's why we went in and made the memo. Remember, this is a memorandum of understanding. It's not, let's say, binding commercially in any way at this point. Today, we are making an analysis on the actual strategic rationale. So Liberty can be the largest -- one of the largest industrial consumers. And they have planned assets. They are within our [indiscernible] area, and they can also benefit from this type of investment along with us. The fact that they're in insolvency creates indeed an issue, and it will be more difficult to manage in -- actually, they're not in [indiscernible]. It can create an issue in managing the legal situation. But this doesn't mean we can't take full measures of protection for the group. So we don't have an exposure. We have operational independence. So the renewable assets will be stand-alone, they will be grid connected, and they will not be dependent on the steel plant. It's just an extra benefit to put this kind of investment in the courtyard of this kind of industrial consumer. There is no capital deployed. There is a due diligence in process. And when we have enough data, we will share them with you. So everything should be clear. I don't know if we answered this, but I'll read it again. Thank you. Okay. Two questions. How do you see the dynamics of the business in view of the impact of the events tied to the war in Gulf in regards to distribution and supply business? So as I mentioned, it shouldn't affect directly the group. It can, of course, affect the price. This is already happening, but the overall impact would be with the consumer and not the company. The second question, could you give us more info on the business drivers of the cogeneration project in the Southeast of Romania? I think this is a reference to the Craiova bid. There, we put a bid for the project. We are still waiting on an answer on the result of the bid. What I can say here, as it's currently under bid, we have some restraints. But what I can say is that the project is fully aligned with Romania's national energy strategy and EU directives on high-efficiency cogeneration and energy transition. With the use of natural gas as a transition fuel in hydrogen-ready equipment, the project can and will ensure long-term regulatory compliance and positions Craiova at the forefront of Romania's clean energy transformation. With this, Electrica will be -- could be one of the companies that will be continuing this energy transformation with clean energy. All installation will comply with, of course, with all the orders, regulations, and it will be seamlessly integrated in the national electricity system. It's a very complex project, but it shouldn't be a problem for us. It makes sense if you look on the overall history of Electrica in the last 4 years. We are always saying that we're going through a transformation. This is part of that transformation. Electrica is no longer just a distribution company. It's no longer just a utility. It's becoming a platform and it's expanding its entire ecosystem to other areas that, of course, we're not accommodated with. It seems that your metrics are well placed versus Fitch rating update triggers. Will Fitch allow your rating to exceed the one of Romania? Are you actively seeking a credit rating upgrade? Or do you prioritize growth? We already have a higher rating than the sovereign. So the sovereign is BB- negative. Ours is BB- stable. We are looking on pushing this to the next level. I think in the near future, we can see it to a positive if some criteria are met. Looking back on a different question, why the budget -- could you detail why the budget proposal for supply is so low. Could you clarify CPT price assumptions included in your budget and how this compares with other parameters? How do you currently see electricity prices evolving through 2026, Romania regional on internal assumptions? I'll start with 3. So one month ago, prices were stable, and we saw them on a decreasing level. We -- our estimates were that by the end of the year, price will actually reach somewhere around EUR 100, but this changed significantly with the conflict. Now we see an upward trend, a down trend, it's volatile. We're back, let's say, where we were in the last few years. So it's not something that we're not accustomed to again. Where the price goes, we can't say because I don't think anyone knows. If the conflict escalates, the price will go up. If it stops, the prices will go down. If you analyze the pricing independently, you would see more production capacities entering into function. You will see more energy on the market. You will see an increase on the economy and most likely the prices would go down. But we're not in that scenario anymore. And until we get back to, let's say, a normal geopolitical system, we can't make an estimate. I will ask [ Janina ] to help with question number two.

For the network losses, the price recognized in the tariff 2026 is around RON 700 per megawatt hour. It's exactly RON 695. And in the budget, we put with 10% more due to the -- probably some crisis of the prices, but the methodology provides that in case of crisis, the regulator will recognize the achieved price.

And why the budget is so low. We went in with conservative budget. You saw this also in the last 3 years. We like to be very careful as the market is unstable. And it's better to have a more prudent approach based on negative scenarios than to go above and beyond making promises that we are not sure we're going to keep. The results that you see in the last 3 years, I think, can confirm that we actually do our best in going over all results promised at any time. Now could you please provide more details of the drivers behind the lower 2026 outlook for both distribution and supply. The decline appears significant, particularly in light of the relatively strong visibility on regulated revenues in distribution and only a moderate increase in energy procurement costs. So the answer is similar. We like to make a very prudent approach in this respect. We like to take in all negative scenarios and go with them forward, tackling one by one, fixing it and then have a better result. On the supply side, while we note a 15% contraction in gross margin, the overall profitability appears to decline more sharply. It's additional cost pressure. Could you elaborate on what other cost components you expect increase across both segments and how these are reflected in our 2026 assumptions? So the biggest pressure is from financial costs. Yes. And of course, on the balancing market, we still have a lot of volatility there. It's not a stable market. Things can, let's say, go south at any moment. We saw this in 2024. We hope not to see it again in this year. But again, we're running negative scenarios in which the market is unstable. Okay. So there are 2 questions that we can't -- we are not -- we -- let's say, we're not at liberty to give the answer. It's in relationship with EBITDA margin and revenues guidance for the storage projects and the res projects. What we can say is that they are fully aligned with financial projections, due diligence and development. So they are profitable and won't be any problem for the group. Let's see if we missed any questions. We'll wait another 2 minutes. We can take also calls.

[Operator Instructions].

Seems we took all the questions there are no other remarks, we can check. Anyways, we're always here to answer any questions that you have. You can contact Raluca. You can contact the management. We are always fully transparent and available to discuss as long as we have new information on the projects themselves, on the vision that we have for Electrica to 2030, we'll communicate to the market. Hopefully, this trend that you're seeing now will keep up pace, and we'll see Electrica going forward, expanding and doing better every year. I'll pass on to Raluca back. Thank you.

Thank you, everyone, for joining us. You'll find the presentation, the recording latest tomorrow morning, the transcript as well. Please feel free to contact us at [email protected]. You can find all the documents that we posted for the Annual General Meeting of Shareholders and that were posted on Friday afternoon, the budget, the financial statement, all the reasonings behind the subjects submitted for the approval of the shareholders on our website in the General Meeting section of the Investors section. Thank you very much for joining us, and see you next time.

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