Societatea Energetica Electrica S.A. ($EL)

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

Hello. I'm Mara Raluca, Head of Investor Relations and together with the entire Electrica management team, I'd like to thank you for joining us today for the conference call and live webcast to present and discuss the Q1 financial results. Those of you who are connected only by phone, please download the presentation in PDF format. It's available through the conference or directly on our website on the Results and Presentation section. The participants connected online can address written questions on the live webcast or can intervene live on the Q&A session. You can also send question through mail. Kindly note that the entire conference is being recorded. [Operator Instructions] The recorded presentation will be available on our website probably tonight, but latest tomorrow, and the transcript as well as soon as possible. We kindly ask you to see the disclaimer on Page 3 of the presentation as well. We'll begin the presentation of the financial results and of our strategy. And then we -- it will be followed by a question-and-answer session. At this time, I'll turn the conference over to our CEO, Mr. Alexandru Chirita. Thank you.

Thank you, Raluca. And hello, everybody. Dear ladies and gentlemen, we'd like to thank you for joining us. We will present the first results of this year. And we would like to have your insights and perspectives as we highly value them. At the end of the presentation, we will be taking questions, audio or written. As always, we are at your disposal and after the conference at any time through our department. Essentially, in the first quarter of the year, financial and operational performance supports the direction we set for the companies within the Electrica Group. We have solid financially and disciplined and ready to continue our investment. In line with our internal expectations and our ongoing efficiency-driven efforts, I am pleased to report that we are meeting our operational key performance indicators. The achievement of a net profit of over RON 310 million, approximately RON 57 million increased year-on-year. And the EBITDA exceeding RON 578 million, a 25% increase, validate the efficacity of our strategic decision towards an integrated business model. This performance is a direct result of our efficiency measures, rigorous processes and consistent execution across all business lines. Now, on the Supply segment, which had the largest weight in the variation of EBITDA and where I'm directly involved as the Chairman of Board temporarily, I can confirm that we remain the market leader ranking second in terms of supply volumes and first in the total number of users. However, I must express some concern regarding the current state of the electricity supply market in Romania. We are still going through a transition phase. We are carefully going with this. We still have to recover more than RON 2.5 billion to Electrica Group from the supply screen -- supply sector. But we are sure that even though it's not a real competitive market at the time, in due time, we will be recovering this amount from the state, and we will get back to a fair environment. Our goal is to operate in a truly competitive market, and we want to offer a competitive energy price to the consumer where the added value is the most important thing, both for them and our investors. But this has to be fully met with the cooperation of all parties involved. Nevertheless, I have full confidence that these things will find themselves with a solution in the next few months. On the Distribution segment, as always, we continue to provide a steady flow of value. We distributed to more than 4 million users in this quarter and the first quarter of last year with an increase of 1.5%, if I'm not mistaken. I would like to clarify the point while some data might suggest slight delays in network investment execution, I want to assure you that we are fully in line with our planned work approved by Anre. The commissioning is done through the entire year, and we are actually making consistent efforts to identify solutions to scale up our investment levels in distribution, ensuring the resilience of the infrastructure across the countries we serve. So we have no worries that we are in line with the plan. We are going above the targets of investments, and we are currently planning, and on -- we are in an ongoing negotiation with the regulator in order to increase even more the level of investments that distribution is making. On the Production segment, we have accelerated the development of our renewable and the storage portfolio. As you know, with the overall objective of supporting the energy sector and Romania's economic development, strengthening long-term energy security and adding the energy transition. Renewable energy projects are a central focus for our team, while we are experiencing a slight delay in the production calendar due to factors that are beyond our control. We will do everything in our power to catch up and be in line with what we promised. We maintain our target of reaching 1 gigawatt of production capacity by 2030. Currently, we have approximately 300 megawatts in various stages of development. We also have an MoU with RON gas for 400 megawatts, and also, in this context, we are in the process of securing the first 100 hectares of land for the construction and starting of it over the joint greenfield project. At the same time, we are observing the proceedings for the objective of strategic interest for Liberty gala. We are waiting on a decision on what will happen there. Regardless of the financial -- of the final decision concerning the objective, I think it is with legal feasibility and it is economically viable that we will proceed with this investment of 500 megawatts in any case. We believe the location is highly suitable for such an enterprise. The decision is backed up by a strong economic foundation, and it is ensuring the long-term stability and profitability of the group. You know that Walt and Sator photovoltaic parks have been operational since the beginning of July last year and in July and October. And at this time, we have in operation almost 50 megawatts peak installed capacity. For the 2 other photovoltaic parks, we are closing the EPC contractor. We're going to start the works on them. So we are in line with what we planned. On the battery storage systems, we have approximately 19 projects, 4 of them have been presented before, roughly 169 megawatts-hours. They were linked to the parks that we have. And we have the additional 15 storage projects all over the country, totaling 1 gigawatt hour. They are in different phases. We will add them to our map for the next presentation, as we think we will have all the paper work in place by then, and we can actually announce the next phase. We're doing everything that is within our power to finish as fast as possible, maybe Q1 next year. Lastly, our regional expansion, and we should add this to the map also. Our regional expansion strategy remains a key short-term objective. We're currently evaluating opportunities. We are set to start in the Republic of Moldova, and we believe that with sufficient investment in time, the 2 markets can actually achieve a significant synergy and work closely together. Looking ahead, we hold a positive outlook for 2026. We have our concerns that are already priced in the budget for 2026 regarding the economic overall stage. But we continued the investments in the network infrastructure, the digitalization, the renewables production, storage and improvement of our internal processes will remain our highest priorities. Our general targets, as you can see from 2024, have evolved significantly, even from our targets in June 2025. Following our successful green bond issuance, we are now discussing within the group for an update for the 2030 strategy as the targets per se set then in 2024 are lower, and now, we are speaking about more ambitions are. We are looking at soon convening the General Meeting of Shareholders to approve major new investments in the months to come. We are pending on the auction from Craiova. We will announce the market as soon as we have a response. We are pending on gas power plant at Centinela. And once we have all the paperwork in order, we will also go to the shareholders for approval. We have the approval for financing. The financing of RON 1 billion should be enough at the moment. So we're pushing really hard in doing this investment as fast as we can and as feasible as possible. At the same time, we evaluate, of course, the opportunities that can come up within the energy market that are mainly in line with our core businesses and the ones that go in the same upward direction as we do. We firmly believe that our strategy, our operational discipline, our long-term vision, and most importantly, the professionalism of my colleagues in the whole group, and I would like to thank everybody, it means more than 8,000 employees will enable us to deliver sustainable value to our stakeholders and contribute to building a secure energy future for Romania. We like to mention, of course, the fact that we've reached a new peak of share price yesterday at RON 35.15. I am sure that this will continue. And I would like to thank our shareholders and investors for the confidence that is put in us. And I'm sure that we will not disappoint at any time. I will now pass the presentation to my colleague, Costin Iordache, the CFO, who will provide detailed insights into our financial performance. And then, we'll try to be as efficient as possible and cut to the questions and see exactly what we can help with. Costin, please.

Thank you, Alexandru. As my colleague already announced, the good results of Q1 continued to show for the group. As a summary, the Q1 revenues increased with more than 20% Q-over-Q. At EBITDA growth, we continue to register an increase. At the same time, the net results margin continue to be improved. We are going increase from last -- from the Q1 2025 to Q1 2026, 1.8% to 7.10%. We have a decrease in net debt due mainly to do a better collection and closing some overdrafts. The EBITDA margin -- the EBITDA increase is plus 26%, was consolidated variation, is a positive RON 118 million, driven the positive variation from the energy margin. We have a positive energy margin in the distribution segment of plus 95%, and we have a positive margin in the Supply segment. There is a pressure on the OpEx side, coming mainly from the increased cost in the third-party expenses, but has a negative impact of our EBITDA of minus RON 20 million. In the distribution segment, as the colleague already mentioned, we have a continued increase of EBITDA. The energy revenues goes up. We distributed more than 4.68 terawatts. And in the same time, we have a positive evolution of the value and in the price. That remains the largest distribution operator in Romania and with more than 4 million users that we decreased the evolution. The network losses cost decreased, and this is on a good positive at the same time also in absolute value, the network loss decreased. The performance of our colleagues in that distribution operator continue to show the efficiency of our investments. And these elements will be -- it's putting us on the good premises for the development of the financial results of the next quarter. The evolution of the energy distribution volume, the amount of electric distributed was 4.68 terawatts increased with 1.5% compared to Q1 2025 with positive development recorded mainly on the high voltage level. This is a good -- this is also showing the trends for the future. Supply segment, EBITDA improved with RON [ 276 ] million, increasing energy margin by RON 37 million, mainly from the Supply segment increase generated by the market because going out from the scheme, it's allow us to better an efficient way of selling our products. The better collection is also reflected in the net debt evolution of the Supply segment, where we see a decrease of the net debt from RON 1.9 million in 2024 to RON 1.7 million in Q1 2026. During January, February, EFSA has been second largest supplier in the overall market, which is 1 in terms of supplied volumes. This is a good result in the after ranking second of the overall market in the first relevant months of 2025. EFSA has been in the third place in December 2025. The comeback of EFSA's Electrica Furnizare it's going as assurance, but even the supply segment is going in the good direction. Overall, the market remains under pressure, and we see it on the Slide 23. The number of consumption places from the household -- it continue to be under pressure, and we try to identify additional measures that help us to improve -- to keep the number of the consumption places or to reduce the number of churn. The pressure from the competitive market is there, but the good results, we see that the pressure is not so big on the Business segment. Production segment, we can go to the production segment, but it's -- we can state in the Slide #28, where the general overview is saying that our production elements continue to grow. EBITDA is increasing, showing that we are investing in the right direction. As Q1 '26 is double the results compared with Q1 2025, and after we call the new investments, but we are having 100% in the shareholding that continue to showing good results. The group liquidity is going to be at a comfort level. You see it in the Slide 29. We have RON 3,000 million, but it's a total EBITDA group level. It's higher than what we have in -- at the end of 2025. And this will give us comfort we are in the comfort zone, and we don't see any pressure from us in 2026. I want to thank you from our financial results and waiting for the questions.

Please send us your questions either through the tool or e-mails or audio questions as well. We'll wait for 2 minutes for the questions and then kick right in.

Okay. I'll start until we have all the questions uploaded. I will start with 1 of the questions regarding the Craiova project. On the Craiova project, we are asked about some economics because it's still pending we will defer the answer to the quickest moment when we have an answer. So once we have a final answer because there are still, let's say, technical clarification, economic clarifications, we will come back to you with the clear plan on how things will be done. At this moment, we're not at liberty to do so. Another question is that it's regarding the network losses, and it's a comparison between 2025 Q1 and 2026 Q1. Comparing these 2 time frames, we have a drop of 7%. So we have a slight improvement. Now, going with the next question. On renewables and storage project execution time line. In Q1 2026, the reported status for all major development projects are materially identical to the reported in the 2025 annual report. No EPC contract has been awarded. Commercial licenses have been obtained, and confirmative testing for energy delivered to the [indiscernible] in October 2021 has not concluded. Meanwhile, the 2026 CapEx budget allocations, RON 800 million, 41% to renewable generation. Can you provide corporate milestones with target dates for the next 12 months for each project, specifically, when do you expect EPC awards for Bona and Anre commercial licensing for Sato Mardi and tender completion for Cuca? Are there specific bottleneck supply chain red connections contractor market, explain the lack of visibility Q1 progress? So for Sato Mara 2, there are no changes in Q1 '26 compared to 2025 because the final trial period ended in April 2026. In this moment, the project is fully operational. On new trend, the project is currently in the competitive selection procedure phase, but we have an estimate on completion, which is Q1 2027. And I estimate that the EPC contractor will be done in the next month. The Photon Born, the EPC contract was awarded this week. We are currently closing in the paper work. So we are in line. For Crusa Power Park, we have initiated a competitive selection procedure of the provider of wind turbine supply, installation and long-term service. The estimated completion is staggered. The first phase 78 megawatts has a current target of Q4 2027. And the second phase of 43 megawatts has Q2 2029, but here, there is a discussion because the supply chain is much difficult, and it depends on how we're in the end realized the negotiation for it. I'm sure we'll find solutions in order to maintain our targets. There are no actual supply chain connection or contract or bottlenecks affecting these projects. And our Q1 activities have been entirely focused on thorough vendor selection, strategic evaluation phases. These are standard plan milestones that ensure our projects remain on track and cost-effective, as we move forward. We could give more, let's say, detailed estimation on EPC signing or phases. But from my perspective, it's actually create a bit of confusion because they're quite flexible, we might get ahead or be a bit delayed. The main target is the one that actually matters is the actual finishing of the project. Another question in Q1 2026, network losses, costs decreased 2.7% year-to-year despite the conflict outbreak on 28th of February, supported by lower next day market prices and 3.5% volume reduction. However, natural gas prices rose 34% month-on-month, and Q4 typically combines higher demand with lower solar production. What is our network loses cost outlook for Q2 and the remaining of 2026 if the Middle East situation persists or escalate? Beyond the RON 148 million need over already budgeted in 2026 RAB, what actually regulatory mechanism or hedging strategies are in place? Can you quantify the Q1 cost impact of prosumer imbalances on FSA? And how is this being mitigated? I will let Janine answer the distribution, so we will be perfectly aligned.

Okay. The prices achieved in Q1 2026 are lower than those estimated in the budget and the contract coverage in the first 2 quarters is around 60%. Even though the coverage level is currently lower in the second half of 2026, we are committed to maintaining the same coverage level as in the first half. We did not estimated any additional risk to the budget overrun. And for the supply, to manage the -- yes, to manage the imbalances generated by consumers, we conducted 10-month pilot project with companies specializing in production forecasting services. Following these trials, we identified and signed a contract with the best-performing partner involved in the pilots. The installed capacity and the number of consumers are updated daily and transmitted to the services provider, ensuring production forecasts are continuously refined. Thank you.

Okay. We'll go forward, could you walk us through the main drivers behind the sharp decline in the supply segment margin in Q1 2026 versus Q4 2025? Was this primarily pricing procurement cost mix or any 1 effect? Now, the -- one-off effect -- now, the result improvement for the supply sector in Q1 2026 versus Q1 2025, I think it should have been -- but nevertheless, with the principal driver was -- it's actually the end of the price cap support scheme in first of July 2025, and the subsequent transition to a fully liberalized market. . We -- under the prior subsidy-based regime FSA operated with collection delays and tightly regulated margins. But from second half of 2025, the business reprices dynamically based on wholesale curves and customer mix economics. Now, the application of GEO6 2025 further allowed recovery of up to 10% of imbalance cost, protecting the operating margin during the transition window. Now, this means all these factors transform the segment into a meaningful EBITDA contributor. We are still waiting on some things to catch up, mainly the recovery of the supply scheme money that was paid within, roughly RON 2.5 billion. Now, this has an effect, a direct effect on the business and on its competitiveness. But we are being assured at any time that it will get fixed this year. On another question, on the 500-megawatt Liberty project, should we think of Liberty as the main after -- or do you tend to optimize output between Liberty, the wholesale market and your supply portfolio? This is an excellent question. It gives us the opportunity to clarify. Now, we took into consideration when we went in not only the fact that Liberty can be and hopefully will be 1 of the largest consumers of energy in the country, but also its placement and the actual integration of those lands within the grid. Nevertheless, with or without Liberty operating, we will make the investment to operate as a stand-alone. If it's with Liberty up and running, then it's a more cleaner version of it, and it's a more stable, let's say, output of the business. As we have the production, we have the consumer, we should optimize between them and that's it. If not, it will be part of our general portfolio. It will be managed like everything else. So it will be in the market. Going forward on Distributie Energie Electrica Romania S.A., could you clarify whether Electrica participated in the process and whether Premier will effectively the competing bidder? We had understood this was an asset that you were evaluating. We are evaluating at all time all kinds of assets on the market. Now, as a procedure, let's say, Distributie Energie Electrica Romania S.A. was and is under the property of Macquarie Investment Fund who has not declared, let's say, at any time, the intention to sell or buy, they are an investment fund, and they are evaluating at all times this kind of endeavors. Now, we weren't competing -- let's say, there was no bidding once get another, I guess, there are more than 1 entity that have made these evaluations. We will remain to see what happened in the end. What I can assure everybody is that a decision from Electrica to buy strategic assets or assets in general will only be made if it's within the strategy of Electrica Group, its economics overall and in the best interest of its shareholders. On the next question, Q1 results look strong, congratulations on the performance, but the budget points to declining figures for 2026. When do you expect this discrepancy to reverse and performance to recover? Now, there are 2 things. As we, let's say, did in the previous years before, the budget has in consideration the lowest level of execution that is possible, taking in consideration some extraordinary events that might happen. And we saw that in this case, it was again a point well being made by Electrica to not overdo it. We have a budget that is in place with some economic and strategic decisions that might not go so well. We have the war in Iran. We have the war in Ukraine. We have various conflicts. We have various decisions being made. So our main target is to reach the budget level and then outperform every event that is happening on the market. I think we did this already. Now, economically, we see indeed slowing down of the overall consumption in the country. We have higher imbalances in the energy sector. These are things to overcome. And we will do our best to overcome it and surpass the expectations that we already set. I'm not, let's say, pessimistic in general. I'm more of an optimist. And I think 2026 will be a good year for Electrica. Electrica will continue its course. And we will find solutions to counteract any, let's say, problems that might occur. Now, going forward, the supply budget energy margin is lower in 2026 compared to 2025, even though you will benefit from the liberalized quarters in electricity versus only in 2025, what is driving this decline lower or gas? Is competitive pressure factor here? I'll leave Costin to answer the question.

We went in this conservative budget. And as you see in the last 3 years, we try to be very careful in the market is unstable. This is the reason why we budget a conservative margin, and this prudent approach based on the negative scenario that we see in front of us. We are sure that we are going to try to keep the existing performance as we already show in the Q1. And we think that we can confirm the period right, but it's a budget we go in a conservative way. We don't think the pressure is coming from the gas. Related, I'll go to the other question. In the management strategy for the EUR 1 billion financing approved in April 2029 by the Board -- by the shareholders. Yes, to go forward with the bonds. And we are looking -- we are in the preparation to collect all the necessary data that we need. And our expected schedule depending on the market conditions is to happen after the end of -- after the half of the year to go to the market. We are in the preparation that we are waiting to see the best momentum.

On the next one, why did the Electrica budgets much a small net profit for 2026. Since in Q1 2026, you already exceeded the budgeted profit for the entire year, could you give us more insights regarding this? Now as we always mentioned, we are very -- we have a very prudent approach regarding the budget. It's the bottom of the expectation that we can make. We had previous year, where we, I think, budgeted RON 70 million or RON 100 million for the supply business, and we closed it off at minus RON 300 million because there are some possible extraordinary events that can happen. Now, overall, even in that year, we made the budget, we set the target, so we took in consideration such an event. We're not seeing any this -- we're not seeing any type of this event this year, but still, there are things that are happening, and they are completely out of our control, like is the conflict in Iran. If that goes even worse, then we expect that the overall economy will be affected, and then, it will have an impact in our business. It's not the case at this time. We're already at the end of May. So it's not the case for the half of 2026. Hopefully, it will not be the case by the end of the year. We are optimistic further on. What impact do you expect Liberty to have on the company's free cash flow? Do you believe it could increase the nonpayment risk for Electrica?

I will answer on this. Libertatis project, we are doing an investment there. We don't see any impact on the current free cash flow of 2026 or 2027 because it's an investment. The nonpayment risk is not there.

We'll have a minute to have more questions. There is 1 more. What is your outlook regarding the impact of consumers on the distribution segment? Do you believe that there will be a higher growth rate in tariffs for lower and medium the transmission going forward? Now, we can take it at that time. It's not made for this. We need more investments in the grid in order to adapt to the new type of energy sector that is coming. Now, in order to make the investments, these investments are collected through tariffs. If we do more investments, means higher tariffs. We are in discussions and negotiations with Anre, so we can find the best way. So these tariffs are included in the price of energy without expecting the consumers. These negotiations will go on for the next, let's say, 2 or 3 months. It's an ongoing operations, but we're trying to find some specific solutions to this. I'm more optimistic on this also. I think there will be a solution. The main point is not to raise the tariff as it is. The main point is to increase the energy consumption in the economics of Romania. So the industry can grow, entrepreneurs can have their business. We have higher consumption. It means a better outlook for the company also. We need these investments also to be made, but I'm sure that we have solutions, and we can do it with no risk for everybody. When we will publish an update -- when will you publish an update for the budget, if this is the case? I don't think this is the case. I will also Costin to complete.

As a tradition, Electrica will not give any update on the budget. So our budget is remaining the same value. At the end of the half year probably will come with -- in the next investor will give some revised estimation.

We have to take consideration that is still a volatile market. So it can have its ups and downs. It will be very premature to ask for updated budget. We'll wait another minute. Maybe we have more questions.

[Operator Instructions]

Okay. So it seems like there are no more questions. I would like to thank everybody for connecting. Remember, you can always, always send us an e-mail, have a call, we will set a meeting. It can be separate. We're fully transparent where we want you to know exactly what's happening. We are very enthusiastic for this year. I think Electrica Group is going very well, and we are actually very excited to expanding the overall projections of the group. We are changing. The company is changing, and we will see Electrica as we like to state now as a light factory, it will be an energy platform, not just an utility. Thank you so much. Thank you to my colleagues, and we'll 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.