Terna S.p.A. (TRN) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to Terna's First half 2026 consolidated results. [Operator Instructions] Please be advised that today's conference is being recorded. I'd like to hand the conference over to our host speaker today, Fabrizio Renacci, Head of Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen, and welcome to Terna's First half 2026 Results Presentation. The call will be offset by our CEO and General Manager, Pasqualino Monti; and our CFO, Francesco Beccalli. In the presentation, we will provide some highlights of the period, and then we will walk you through the operational and financial performance. Following the presentation, we will have the Q&A session. I kindly ask you to send any questions through our email address investorrelations@terna.it Thank you. And now let me hand over to our CEO, Mr. Monti.

Thank you, Fabrice, and good afternoon. I will start with some opening remarks on the first half of 2026. Solid execution in the development of our good infrastructure is the main priority. We have achieved the relevant progress on the -- with the completion of submarine cable installation on the intersection, and we are on track on the major development milestones of our investment plan. Terna continues to play its key roles in the talent system, enabling renewables and ensuring grid security. Over the first 6 months of the year, we have integrated around 3.4 gigawatts of the renewable capacity and more than 1 gigawatt hour of storage. As the energy transition continues to gain momentum, guaranteed to connection to show visible growth up by 1.2x of renewables and by 1.4x for storage year-to-date. Sustainability is at the core of our strategy and our global leadership continues to be recognized by leading international institutions. Looking ahead, we are starting to work on the update of the industrial plan. As you know, by 2027, Arera will update the current regulated framework, which expires at the end of next year. Our internal work on the strategic plan must be aligned with the timing of the regulation. With the regulation visible and defined, we will be in a position to share with the market the new industrial plan. in due course in 2027. And now let me hand over to our CFO, Francesco Beccali.

Thank you, Pasqualino, and good afternoon, everyone. -- the group delivered another strong set of results in the first half of the year. Terna improved across all our key financial indicators, showing once again the solid of our business model. I will give a later presentation on the main drag. We continue to accelerate investments to support the development of the city system while maintaining visiting and sustainable financial profile. Let's start with CapEx, turning relate to next slide. In the period, CapEx amounted to EUR 1.6 billion, marking a 20% increase compared to the same period of last year. Out of this amount, around EUR 1.5 billion was invested in regulated activities with 60% devoted, almost 30% for asset renewal and efficiency and rest for different CapEx. Among the main projects of the period, our investment efforts mainly focused on the security, the interconnection Italy and Tunisia our lives and the opco aggregately. On decent, investments totaled around EUR 172 million, in line with our business plan with the aim of ensuring great resilience and security. The installation of synchro competitors, suncreactors and dumping register system. Nonregulated and other CapEx reached around EUR 160 million of which about EUR 41 million of nonrelated investments and EUR 76 million of capitalized financial charges. As of today, about 92% of the projects included in our business plan are covered by contract awarded and 93% completed the authorization. Let us now move to the main figures of the P&L, turning to Slide #7. Let's start with our revenue performance. In the first half of 2026, group revenues increased by around 12% reaching EUR 2.1 million, an improvement of approximately EUR 219 million compared to the same period of last year and regulated revenues reached EUR 1.66 billion with an increase of 4% vis-a-vis previously. The growth was mainly driven by higher output terabit and recognized depreciation from new assets and let onstream and but also all miss partially offset by a lower component forming the update of the notional catalyzation rate of 2026, '27 of the year and lower revenues recognized during the period compared to the first half of 2025, which included the estimated sector of the tariff decoupling mechanism. Let me remind that in the first half of 2025, we booked EUR 17 million one-off related to previous years special recognition following the shift to SICP for the revaluation. Net of this effect, revenue in the first half of '26 would have increased by 13%. Nonregulated revenues reached EUR 451 million, up 50% year-on-year. This improvement reflects the higher contribution from the Energy Services segment, following also the consolidation of SDA Avenue in the second part in 2025 and also the contribution on the Equipment segment, supported by a strong market environment and higher order intake with both Blue Cable and cities. Now let's go through operating cost final. Total operating costs came in EUR 647 million, up 21% year-on-year, markets, an increase of around EUR 112 million compared to the first half of 2025. In the regulated segment, the cost base increased by 3% mainly reflecting stock and increased external services and other operating expenses. This increase was largely offset by higher capitalization. As for more regulated activity, the evolution of operating cost was mainly driven by the increase of perimeter in the energy services business and higher volumes on the Equipment segment. Let me now move to EBITDA as the following slide. Group EBITDA reached around EUR 1.5 billion in the first half up 2026, up 8% year-on-year, corresponding to an increase of approximately EUR 107 million. The increase was mainly driven by regulated activities, recording an EBITDA of EUR 1.4 billion, up by EUR 60 million versus previous year. Nonregulated activities recorded a strong performance with EBITDA increasing by around 81% to 106 million units. This related into an EBITDA margin of 24% compared to 20% in the first half of 2025 highlighting the improved profitability of the business. The strong EBITDA performance recorded in the period highlights the solidity of the business model and represent the foundation for the achievement of our full year guide, which we see where reach. Let's now take a closer look at the rest of the period. Turning to the next slide. D&A amounted to EUR 506 million. The increase versus last year was mainly due to the impact of new assets from a stream during the period. As a result, EBIT reached EUR 161 million, up 5% year-on-year. Net financial expenses were EUR 94 million, up by around EUR 17 million versus last year, mainly reflecting the higher average cost of debt compared with the first half of 2025. Taxes street at EUR 274 million, EUR 25 million higher versus last year, attributable to the higher profit before tax and a temporary 2% touch point increase in the year tax rate for 2026 and 2027. Our tax rate was 31.6%, with a 29.1% in the first half of 2025. As a result, group net income reached EUR 591 million, 1% higher versus last year. Adjusting first half 2025 figures for higher era tax introduced by the first half of 2026 would have been up sort highlighting the underlying strength of the group's perform. Moving now to cash flow and net debt evolution. At the end of June 2026, net debt stood at EUR 12.6 million, around EUR 0.5 billion below the 2025 year-end level. Reflecting our financial age. This figure also continued to benefit from the EUR 850 million European green issued in January which is accounted for... Cash flow generation was around EUR 1.7 million, enabling us to fully part our investment program while maintaining a sound financial position. Looking at our debt profile, around 72% of gross debt was at rate at the end of June, while the average debt maturity set at approximately confirming the resilience of our liability structure. As previously mentioned, during the first half of the year, we further strengthened our sustainable finance profile. In January, we successfully placed a EUR 850 million European green, which received orders of more than EUR 7 million, almost 9x the amount of. This transaction represented the first Winbond standard iron issuance in the Italian market and achieved room subordination premium ever reported for euro-denominated below 60 basis points, confirming the strong comfort investors place in dermatan profile. In addition, we continue to stand our sustainability-linked funding framework tightening of new EUR 100 million ESG credit facility with financial conditions. Finally, in June, we increased the size of our rent program from EUR 4 billion to EUR 6 billion further our financial facility and strengthening our access international capital market. Overall, our timing structure remains well diversified and fully aligned to the group's strategy, providing the financial switch VP needed to support our investment ambition. And now come to. In the first half of the year, we have continued to make solid progress across all our key areas of activity. On infrastructure, we are advancing the development of the grid is important milestone achieved on our main projects, confirming our strong focus on execution. On the financial side, we delivered once again a strong performance with double-digit revenue growth, solid EBITDA expansion and continued cash generation while maintaining a disciplined approach to capital allocation and financial level. These all with a strong set of results, and thanks to the high level of visibility we have for the rest of the year, we can fully our 2026. Thank you for your attention. We are now ready for the Q&A session.

Thank you, Francisco. We can open the Q&A session. As always, we have received questions from the analysts. So I want to start by thanking all of the analysts for sending before and their questions. We have obviously grouped them by subject, by topic, trying to be as effective as possible. We actually start with a couple of questions on the OBI. The first one, the analyst is asking if we can provide some details on the output-based incentives that we have accounted for in the first half of 2026.

Sure, Felito. In the first half of the year, we recognized approximately EUR 76 million of automation centers consisting of $43 million of interzonal incentives accrued following the mitigation of the usual clawback condition and EUR 33 million related to the MSB incentive studies for the 2025 performance. The last number reflects the final up from areas inventory system. which concerns a higher incentive amount than the prudential estimates recognized at the end of 2025 validating the assumptions and calculations previously submitted by the natural.

Excellent. Then the second one, the second part of the question is on the BI is the CFO, we could remind what was the guidance for ODIs for full year 2026.

What I can tell you is that out of these incentives in '26 will mainly linked to the mechanism for reducing dispatch service market cost considering both patching and interzonal and including all the potential guarantee centers. We expect to book more or less EUR 200 million of incentives overall.

Then we switch a bit to -- more to the regulatory side of things. The question is, when do you expect Arera to make substantial progress with the consultation and publications on the ROS system for electricity transmission.

Well, we see mainly 2 big regulatory livestocming up. The first one concerns eventual steps regarding rotavation, to further align objective with the systems interest. As of today, a consultation paper on these incentive schemes have not been planned Augie. And the second one with regard to next at the start, as you know, in 2028. And therefore, the relative consultation process will likely be end during 2027.

Okay. The next one is still on regulation more on a technical aspect. What is the mark-to-market for 2027, what do you expect the regulator to change the basket of peers or the taxation parameter?

Well, from a mark-to-market perspective for 2027, I'm looking silane, which is the most sensible to potential like current states under the district thermal would point to lower work level. However, the geopolitical situation and the result as well as macroconomic conditions suggest cash caution. As part of the consultation process of an -- could provide the current market of comparables in case recent trends in interest rate spread and credits. However, let me point out the regulator as of today, has not provided any indication today at such change changes are being considered. In our , excluding France, in case from the basket of comparables current mark-to-market buyers remained around the threshold and core market. We are still on the edge. However, we could be more precise on the file of potential outcome or only closer to the end of the vessel period the volatility that we were before. when value will be almost crystallized, and we will have more visibility on the conical elements for the calculation of some parameters, such as the basket of comparables for the country.

Thank you, now we changed a bit the subject, and we move to the financial structure. Question is, if the company sees room to improve the current financial structure and if asset transition or other solution to the great leverage could be considered by the company.

As to the first question, let me put it in the right perspective. And let me start by highlighting that our financial position is extremely song and our CapEx plan to 2028 is fully sell under the financial report. As was concerned by the rating upgrade we received in 2025 from both and Moody's consequently to a senior rating action in the garment on the solar. Having said that, we remain firmly committed to preserving a strong risk point and we are ready to take any measures that may be needed to accord but committed. Looking at when we will update our industrial plan to reflect revised capture, we will then reassess the financial instruments required to confirm the financial summer for the company.