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, everyone. This is Raluca Kasap, Head of Investor Relations. Electrica's management team would like to thank you for joining us for the conference call and live webcast to present and discuss the first semester of 2026 financial results. Those of you who are connected only by phone, we kindly ask you to download the presentation in PDF format from our website under the Investors section Results and Presentation. Besides the H1 results in the presentation, you'll find about the latest event, strategy, sustainability aspects, share evolution as well as a brief summary of the regulatory framework governing our business line. [Operator Instructions] You can, of course, ask questions as well through our regular IR e-mail. Please kindly note that this entire conference is being recorded. [Operator Instructions] The recorded presentation will be available later tonight, latest tomorrow and the transcript as well as soon as possible. Also, we kindly ask you to see the disclaimer on Slide 3 of the presentation. We'll begin the presentation, which will be followed by a question-and-answer session at the end. I'll invite now our CEO, Mr. Alexandru Chirita, to begin.

Thank you, Raluca. Dear ladies and gentlemen, thank you for being with us today. As always, we value the opportunity to share our journey with you and gain your insights and perspectives. We are available at the end of the presentation to answer any questions that might arise. So please stay tuned until we finish. When we spoke 3 months ago about the first quarter, I shared with you our view on the structural transformation taking place in the Romanian energy market, a shift marked by the return to a stable market competition after a prolonged period of volatility and regulatory intervention. Today, looking at our full results for the first 6 months, I am happy to report that our performance fully validate our strategic choices. In a market where environment dynamics have changed fundamentally, competitive advantage is built on operational discipline, continuous efficiency and of course, proper capital allocation. The figures of this first half demonstrate that the direction we set for Electrica is solid, financially resilient and fully aligned with our integrated business model. For H1 2026, we generated an EBITDA of nearly RON 1.1 billion with a growth of roughly 7.7%. Our net profit reached at this point RON 457 million, up by 8.6% and the consolidated revenues over past RON 6 billion, a 24% increase compared to the first half of last year. Now let's go through the core business lines. In short, the Distribution segment, as always, represents the steady anchor of value of the -- for the group, and it's contributing over [ 80%, 85% ] of our consolidated EBITDA. Over these 6 months, they distributed almost 9 terawatt hours of electricity to over 4 million grid users across our 18 counties. Revenues rose nearly 5% to RON 2.84 billion. And we focus on infrastructure resilience, and our network investment program remains unwavering. In the first half of the year, we put in operation investments worth RON 233 million. We are fully in line with our operational targets and commissioning is carrying on continuously across the entire year to ensure and enhance the quality, safety and reliability of the grid we operate. By end of June, our regulated asset base reached an approximate RON 8.71 billion in nominal terms. Now we are going to a full -- I hope, a full year of normalization after all these periods, and I think we will be in line with our CapEx program by the end of the year. The supply segment we navigated differently. It's one of the most demanding and transformative periods in recent years. The end of the price capping mechanism last year allowed us to rebuild our pricing strategy around true market fundamentals, risk management and profitability. Managing this transition in a controlled and balanced way enable our supply to generate an EBITDA of RON 181 million, a good recovery, I would say, from the RON 58.5 million recorded in the same period of last year. Even though retail volumes dropped by 9% as the market calibrated and of course, with the actual problems on the market, the lack of energy and the overall reduce of consumption in report to the economic, let's say, technicians. Our revenues decreased year-on-year only by 2% and it reached RON 4.3 billion. We maintain our position in the supply market, ranking third in terms of overall supplied volumes in the first 5 months and being a leader in the total customer base over 3.2 million consumption points. However, I must emphasize that our commitment to an open, fair and truly competitive market remains firm. We are still working continuously with the authorities to recover the outstanding subsidies owed to the group, which stood at RON 2.54 billion at the end of June. A good news is that the law has made some changes on Friday, and we are looking forward in recovering some of the amounts in the immediate future for roughly RON 500 million. On the strategy of production and renewables, where our vision for the future is becoming a daily reality. In the first half, we produced almost to 21 gigawatt-hour of green electricity. It tripled the volume produced in first half of 2025. And this milestone is the direct outcome of bringing into commercial operation of our Vulturu and Satu Mare 2 photovoltaic parks. Now we are roughly at 50 megawatts operational. Our long-term target remains the same regarding the renewable production capacity. And we have currently 300 megawatts of solar and wind in various stages. We started the Bihor park and Satu Mare 3. We're beginning construction. I think we're going to be in line. Also, we are currently closing in on the start of the constructions for the wind projects. On the battery side, we still have a lot of pipeline, and we have the target there. I think we will overpass at -- in the near future of more than 1.2 gigawatt-hour of battery storage. You have on the screen, the exact time frames for that. We are doing our absolute best to reduce the time that is spent building these capacities as they are crucial in the environment we are set to work now. 10 days ago, of course, our shareholders approved our ambitious projects in Craiova, and last week, we signed a contract to build a high-efficiency cogeneration plant based on natural gas internal combustion engines, which will supply thermal energy to the city's centralized district heating system and electricity to the national grid. It's a very important investment for us. It makes perfect sense in the synergy of the group. We, of course, identified this high opportunity for the group in order to make this investment, and we are very pleased that our shareholders supported the decision and our request to fund it. At the same time, we're not lagging behind with our commitment. We are going forward with the memo with Romgaz. We are going forward with the memo with Liberty. It takes a bit of time to start to finish up the paperwork and to have some clear projects on the actual pipeline, but we'll keep the market updated on developments regarding any of them as usual. At the same time, we continue to evaluate regional growth opportunities. We are happy to announce that the opening -- the actual opening of the -- actually the takeover and now it's going to be the name change for Electrica Moldova. We are looking there on opportunities. We should add Moldova to the map in the future.

There's a very small note below.

We should add it to the map there.

We will.

And let's see what the future holds because we're looking forward and to more than that. On strategy and finance outlook. Looking ahead at the remainder of 2026, we hold a very confident and positive outlook. Electrica is transforming. And I think it's visible for everybody that things are changing at a much rapid pace. It's becoming a platform. It becomes something else. It's more than a utility. It will be an integrated platform for energy distribution, supply generation, storage services and advanced digital processes. It sounds long, but I think the actual happening -- the actual transformation is happening. And for this, we are putting in place a strong financial structure. We already have the approval from our shareholders who I thank for the bond program up to EUR 1 billion. It will be complemented with a dedicated bridge to bond credit facility and we -- 2 weeks ago, we also obtained the approval from our shareholders to centralize the existing credit facilities at the level of the mother company on an amount of RON 8.7 billion. This is a very good step forward in having a more strong financial structure. It will be at group level. Hopefully, it will decrease the overall cost and the financial pressure, we are on a stable liquidity position. And I think in the end, we are working on securing the best possible terms for the group. Financial flexibility will allow us to act much faster, we'll capture market opportunities. And we can back all the projects in the pipeline we where it is today. So the CapEx is real. It's there. We're pushing to build faster. And we'll keep the market transparently up-to-date as this all -- as all these endeavors mature. In closing, not to prolong it, I want to emphasize that our operational discipline, our financial flexibility and the most important, the dedication and professionalism of our colleagues across the entire Electrica Group is what enabled us to deliver sustainable value to our stakeholders and build a secure modern energy future for Romania. I thank you for your attention and continued support. I will be here to answer any of your questions. I will now pass the floor to our Chief Financial Officer, Mr. Costin Iordache, who will detail the financial results of H1 2026 and then I'll be delighted to take your questions. Costin, please?

Thank you very much. Good evening. My name is Costin Iordache and I'll pass you through our financials. The group results in H1 2026, delivered increase on the line of revenues, 23%. We have an increase in EBITDA that support our cash development, supported also in the net results margin where we go to RON 458 million in the results. The consolidated EBITDA net results evolution, the positive variation was driven by the energy margin, mainly, affected by a negative influence from the OpEx, RON 74 million. The negative variation of the OpEx was mainly incurred in the cost of the -- at a group level, driven by the increase of the cost in the distribution segment, where we have impact related to the evolution of the prices in the repairs and maintenance. And we have, at the same time, expenses increased in the third-party expenses driven by the market price evolution. Distribution segment is the financial results. EBITDA decrease is RON 42 million, mainly, like I said, due to the unfavorable OpEx offset by some positive evolution in the energy electricity revenues generated by the reactive energy or by the other segments where we are producing margins. Overall, DE remains the largest distributor operator in Romania with 4.1 million users. We have a positive evolution in terms of the distributed volumes who have remained stable compared with last year. And in the same time, we optimized our network losses. The supply segment Electrica Furnizare, EBITDA improved by RON 22 million compared with H1 2025, mainly following by the evolution of the factors below. The increase in the energy margin was RON 76 million from the Supply segment increased mostly by the variation of the revenues related to the supply segment is determined by the establishment of selling prices in the electricity competitive mechanism adapted to the company strategy. This positive effect was partially diminished by the 9% decrease of the energy supplied in the retail market. Electrica Furnizare, as I mentioned, ranked as the third among suppliers in the January to May 2026. And we are struggling to try to up to go further to the second place that I think is belonging to us. The volume in electricity market supplied decreased with minus 8.9% from 3.71 terawatts to 3.38 terawatts. The same is also affecting the number of the consumption, but unfortunately decreased also from 3.42 to 3.23. We have a positive evolution in the receivables. The total receivables decreased from RON 48 million, was minus 6% in the first 6 months, significant operating -- offering us a positive impact in our working capital evolution. This is also reflecting in our slide. And the total outstanding receivables adjusted with the exclusion turnover goes to RON 806 million in 2026. The production segment, that is our new star and its developing shows that the strategy is in the right approach. We have a very positive increase. We see a double-digit increase in the revenues. The EBITDA is more than double. It's going from 2 to 7, and the net result is confirming this result. Production segment, it's, at this moment, driven by the Electrica, [indiscernible] and Vulturu, Satu Mare through Sunwind Energy, that is our vehicle, that is also operational. At the same time, the other two are under constructive or in different stages. But when they will be also ready, the production segment will become a more contributor in our results. Electrica Serv, in H1, the evolution of the net result is positive of RON 70 million mainly from the evolution of EBITDA of RON 22 million in which we decided the decrease of the amortization and depreciation. As positive things, the group having a positive evolution in the EBITDA during the entire group, the group liquidity and debt maturity profile at a group level, liquidity available in cash and overdraft limits as of 30 June 2026 was RON 2,813 million. This is lower, but the driver behind it is the fact that the group was able to place more money in the long-term investments meaning we place more money after 3 months. So this offers us a more cash disposal. In order to sustain our investments, as you see, the debt -- most of the debt, our debt is concentrating in the bank borrowings over 2 -- 4 to 5 years, and we have a significant amount also more than 5 years. We have less than 1 year. It's mainly due to the fact that we sustain our working capital and the short-term facilities with RON 2.5 billion available for the short-term improvement. In [indiscernible], these are the main numbers, and we are able here to answer to any of your questions available for the next time. Thank you.

I think we can start with the questions, Raluca? I can take the first one.

if we have anyone online.

I have one from Caius. If he's online, I can take the question. I can't see the screen very well, but I have it on my phone. So timing of subsidy recovery. Now that the law is in place, it will take -- I don't think it will take more than a month to see the increase from 40% to 60%, which roughly translates to RON 500 million. It will help decrease the overall cost burden on the group, especially on the supply side. So we're seeing something that it's quite -- it's optimistic. We had -- and there is the openness from the States to actually increase again by the end of the year, maybe we can get to a different percentage maybe 70%, which will again lower the pressure on the company. It's not that we're not stable, we're very stable, but there is a financial cost that will be settled in the future that neither of the parties would like it to exist. Now on declining volumes in supply, you can see it differently. We can see it more -- let's say more emphasized on the supply business, not so keen on the distribution, but it is there. It's not that we don't do something in practicality, it's that the economy is actually slowing down. We can see it overall. We don't have the same level of consumption at the national level as it is. But I'm sure that by the year -- by the year past, we will get back to what we will be a new normal. I don't know if we can call normal something at this point. But our target is still there. We're still doing our best to manage everything. So for today, the declining volumes in supply, even though they have an effect on the overall results of the group. Keep in mind, it's one of the scenarios that we had in the beginning when we made the budget. We're still -- I think we're still 70%, 80% over the budget. So we're still delivering our expectation of, let's say, bad events. In CapEx completion in -- till year-end, I think it is, on the network, I guess. So on the production, there is no problem, maybe slight delays. But on the distribution, again, you can see that it's still where it was last year, we're going to a phase of, let's say, normal course of business where we don't recover in the next year, at least this is our intent. The actual CapEx intended. We have more than EUR 150 million per year. We have the European funding on various matters. We should be without deviation. If there is something that we don't reach by end of the year, which I don't think should be the case, we can still recover the next year. As you could see in the last 4 years, we actually went over the plan that we agreed with ANRE and it is our intention to accelerate this investment because what -- the most important thing for this sector today is the grid. We need to understand that we need more investments in the grid. We need to put more money there and we need to deliver faster. So we're doing our part. We are speaking with the regulator about increasing the level of investment. I'm sure that at some point, we will find some solutions, and we can actually -- we can actually do this thing. On the economics of Craiova businesses, now everything is in line and you have access to all the data. I don't know the specific of the question, but I think you can contact Raluca, she can give you access with more details. for, let's say, at a high level, Electrica needs this kind of energy capacity anyway in the group. If you remember, there is a permanent talk about the Fantanele plant, which should balance our overall portfolio now that we had this opportunity where we keep we make this investment with lower risk, we should be more than -- at least I am more than comfortable this is a good investment. And it will be done as fast as possible. We made -- we also made the promise to the people of Craiova that they will have the heating. I think this winter will be the last one that will be without Electrica actually intervening. And after that, we will take over and secure. Okay. We go to next question. I think this is for Costin regarding some corrections.