Half Year 2025 Terna SpA Earnings Call

Speaker #1: Good afternoon, ladies and gentlemen, and welcome to Terna's consolidated results for the first half of 2025 conference call. At this time, all participants are in the listen-only mode.

Operator: Good afternoon, ladies and gentlemen, and welcome to TERNA's consolidated results first half 2025 conference call. Please be advised that today's conference is being recorded.

Speaker #1: Please be advised that today’s conference is being recorded. I would like to hand the conference over to our host speakers today, Mr. Stefano Gamberini and Mr. Relations, to begin.

Stefano Gamberini: I'd like to hand the conference over to your host speaker today, Mr. Stefano Gamberini, heading this relations to begin. Please go ahead. Thanks a lot.

Speaker #1: Please go ahead, sir.

Speaker #2: Thanks a lot. Good afternoon, everyone, and welcome to TERNA's first-half results presentation. The call will be hosted by our CEO and General Manager, Giuseppina Di Foggia, and our CFO, Francesco Beccali.

Giuseppina Di Foggia: Good afternoon, everyone, and welcome to Terna's first class results presentation.

Giuseppina Di Foggia: The call will be hosted by our CEO and General Manager Giuseppina Di Foggia and our CFO Francesco Beccali. Following the presentation, we will have the Q&A session. So we kindly ask you to send any question you might have to our email investor.relations at terna.it. Please do it.

Speaker #2: Following the presentation, we will have the Q&A session. So we kindly ask you to send any questions you might have to our email investor.relations@terna.it.

Speaker #2: Please do so.

Speaker #3: Thank you, Stefano. Good afternoon, everyone. Before looking at the figures, I'd like to take a moment to highlight some of our most recent achievements.

Giuseppina Di Foggia: Thank you, Stefano. And good afternoon, everyone.

Giuseppina Di Foggia: Before looking at the figures, I'd like to take a moment to highlight some of our most recent achievements. In March, we presented the new 10-year national development plan. This plan outlines the main grid development projects requiring investments of over 23 billion euros by 2034. Shortly after, we published the updated 2024-2028 Industrial Plan, which sets out investments totaling €17.7 billion. These investments are aimed at improving the efficiency, resilience, sustainability and security of our grid, while also supporting the integration of renewable energy sources. In doing so, TERNA continues to reinforce its role as a key enabler of the energy transition, helping the system move towards decarbonization and reducing reliance on foreign energy.

Speaker #3: In March, we presented the new 10-year national development plan. This plan outlines the main grid development projects requiring investments of over $23 billion by 2034.

Speaker #3: Shortly afterward, we published the updated 2024-2028 industrial plan, which sets out investments totaling €17.7 billion. These investments are aimed at improving the efficiency, resilience, sustainability, and security of our grid, while also supporting the integration of renewable energy sources.

Speaker #3: In doing so, TERNA continues to reinforce its role as a key enabler of the energy transition, helping the system move towards decarbonization and reducing reliance on foreign energy.

Giuseppina Di Foggia: The 7% increase in capex compared to the previous plan is mainly driven by the security plan, which focuses on enhancing grid resilience and renewing access. It also includes new projects that promote digitalization, the use of advanced technologies, and the adoption of artificial intelligence.

Speaker #3: The 7% increase in CAPEX compared to the previous plan is mainly driven by the security plan, which focuses on enhancing grid resilience and renewing assets.

Speaker #3: It also includes new projects that promote digitalization, the use of advanced technologies, and the adoption of artificial intelligence. Turning to grid development, in May, TERNA induced the Greek TSO to sign a memorandum of understanding as part of the Italy-Greece intergovernmental summit.

Giuseppina Di Foggia: Turning to grid development, in May, Terna Indipto, the Greek TSO, signed a memorandum of understanding as part of the Italy-Greece Intergovernmental Summit This MOU lays the foundation for a new HBDC interconnection between the two countries. The new link will represent a strategic infrastructure for both Italy and Greece, supporting their decarbonization goals and strengthening their position as energy hubs in the Mediterranean.

Speaker #3: This MOU lays the foundation for a new HBDC interconnection between the two countries. The new link will represent a strategic infrastructure for both Italy and Greece, supporting their decarbonization goals and strengthening their position as energy hubs in the Mediterranean.

Speaker #3: On project execution, let me remind you that on May 8, we completed the laying of the first submarine cable over the terrestrial links eastern section, one of Italy's most important power infrastructure projects, which will connect Campania and Sicily.

Giuseppina Di Foggia: on project execution, let me remind you that on May 8th we completed the laying of the first submarine cable over the Tirrenian links eastern section, one of the Italy's most important power infrastructure projects which will connect Campania and Sicily.

Speaker #3: From a regulatory perspective, in May, Avera published consultation papers to understand 2025. The paper proposes adjustments to how certain aspects of the ROS base regulation are implemented.

Giuseppina Di Foggia: From a regulatory perspective, in May, ARERA published a consultation paper 210-2025. The paper proposes adjustments to how certain aspects of the ROS base regulation are implemented, particularly regarding tariff recognition of CAPEX and DOPE.

Speaker #3: Particularly regarding tariff recognition of CAPEX and DOPEX, it also introduces the first guidelines of the ROS integral mechanism. This includes requirements for companies to present business plans and outlines three new incentive schemes that are expected to apply from 2026, while the third will be introduced at a later stage.

Giuseppina Di Foggia: It also introduces the first guidelines of the Ross Integrale Mechanism, including the requirements for companies to present business plans and outlining three new incentive schemes, two of which are expected to apply from 2026, while the third will be introduced at a later stage.

Speaker #3: Now, let me briefly touch on innovation and digitalization, where we launched several team initiatives in June. On June 19, TERNA signed a memorandum of understanding with Microsoft to develop strategic projects supporting our digital transformation.

Giuseppina Di Foggia: Now, let me briefly touch on innovation and digitalization, where we launched several initiatives in June.

Giuseppina Di Foggia: On June 19th, TERNA signed a Memorandum of Understanding with Microsoft to develop strategic projects supporting our digital transformation. This partnership will allow us to leverage artificial intelligence, next-generation data platforms, and hybrid digital infrastructures to advance our mission.

Speaker #3: This partnership will allow us to leverage artificial intelligence, next-generation data platforms, and hybrid digital infrastructure to advance our mission. Then, on June 23, we launched the TERNA Adriatic Innovation Zone in the Marche region, our new innovation hub created to help transform the Adriatic area into a center of technological excellence and to promote innovation in support of both the energy transition and local business development.

Giuseppina Di Foggia: Then, on June 23rd, we launched the Terna Adriatic Innovation Zone in the Market Region. Our new innovation hub created to help transform the Adriatic area into a center of technological excellence and to promote innovation in support of both the energy transition and local business development.

Speaker #3: In addition, TERNA is partnered with the Polytechnic Universities of Bari, Milan, and Turin to launch a Level II master's degree in Innovation in Electricity Systems for Energy.

Giuseppina Di Foggia: In addition, TERNA has partnered with the Polytechnic Universities of Paris, Milan and Turin to launch a Level 2 Master's degree in Innovation in Electricity Systems for Energy. This program is part of the Polytech Lab, the new high-skilled polytechnic network. launched in April. The collaboration is designed to promote research, innovation and advanced training, generating a positive social impact for the electricity sector and for the country as a whole.

Speaker #3: This program is part of the Polytech Lab, the new high-skilled polytechnic network. Launched in April, the collaboration is designed to promote research, innovation, and advanced training, generating a positive social impact for the electricity sector and for the country as a whole.

Speaker #3: Finally, on the sustainability front, I would like to mention that during the period we published our first-ever consolidated sustainability report, fully aligned with the new Corporate Sustainability Reporting Directive framework.

Giuseppina Di Foggia: Finally, on the sustainability front, I would like to mention that during the period we published our first ever consolidated sustainability report fully aligned with the new corporate sustainability reporting directive framework.

Speaker #3: From a financial standpoint, let me remind you that SMC upgraded the long-term rating of TERNA to A- in April, following the upgrade of the Italian Republic from BBB to BBB+. In June, Moody's affirmed TERNA's long-term rating at BAA2, a notch above the rating of the Italian Republic.

Giuseppina Di Foggia: From a financial standpoint, let me remind you that S&P upgraded the long-term rating of Terna to A- in April, following the upgrade of the Italian Republic from BBB to BBB+. In June, Moody's affirmed Terna's long-term rating at BAA2, a notch above the rating of the Italian Republic. Furthermore, Moody's upgraded Terna's outlook from stable to positive, reflecting the company's solid financial profile despite the increased capex plan.

Speaker #3: Furthermore, Modi's upgraded TERNA's outlook from stable to positive reflecting the company's solid financial profile despite the increased CAPEX plan. On the 10th of July, the European Investment Bank, in case of San Paolo, such internal signed agreements totaling $1.5 billion euros to finance the construction of the Adriatic link, the submarine power line that will connect the Marche and Abruzzo regions.

Giuseppina Di Foggia: On the 10th of July, the European Investment Bank, in the case of Sao Paolo, Sace and Terna, signed an agreement totaling 1.5 billion euros to finance the construction of the Adriatic Link, the submarine power line that will connect the Marseille and Abruzzo regions. The project is strategically important for Italy's power grid, promoting the integration of renewable energy sources and increasing Italy's energy autonomy and security.

Speaker #3: The project is strategically important for Italy's power grid, promoting the integration of renewable energy sources and increasing Italy's energy autonomy and security. On the 15th of July, TERNA successfully launched its first European green bond under the new €4 billion EMPN program, listed on both the Italian Electronic Bond Market and approved by CONSOB.

Giuseppina Di Foggia: On the 15th of July, TERNA successfully launched its first European Green Bond under the new €4 billion EMTN program listed on Bolsa Italiana's electronic bond market and approved by CONSOC. The issuance has a nominal amount of €750 million and received a very favourable market response with demand outstripping supply by almost five times.

Speaker #3: The issuance is a nominal amount of €750 million and received a very favorable market response, with demand outflipping supply by almost five times.

Speaker #3: Finally, as far as the remuneration of our shareholders is concerned, on June 23, we paid the 2024 final dividend of €0.277 per share, bringing the total dividend for the year to €0.3962 per share, including the interim dividend paid last November.

Giuseppina Di Foggia: Finally, as far as the remuneration of our shareholders is concerned, on June 23rd we paid the 2024 final dividend of 27.70 Euros per share, bringing the total dividend for the year to 39.62 Euros per share, including the interim dividend paid last November.

Speaker #3: After this brief introduction, let me give you an overview of the Italian electricity market. Turning to the next slide. As you can see from this chart, in the first six months of 2025, national demand was about 153 terawatt-hours, essentially in line with the level recorded in the same period of last year when national demand was about 152 terawatt-hours.

Giuseppina Di Foggia: After this brief introduction, let me give you an overview of the Italian electricity market. Turning to the next slide. As you can see from this chart, in the first six months of 2025, national demand was about 153 TWh, essentially in line with the level recorded in the same period of last year when national demand was about 152 TWh. Over the period, renewable sources covered about 42% of national demand, slightly lower than last year, mainly due to a drop in hydroelectric production following an exceptionally strong performance in the previous year. It is worth highlighting that in May, renewable sources covered 56% of the electricity demand, the highest ever value on a monthly basis.

Speaker #3: Over the period, renewable sources covered about 42% of national demand, slightly lower than last year, mainly due to a drop in hydroelectric production following an exceptionally strong performance in the previous year.

Speaker #3: It is worth highlighting that in May, renewable sources covered 56% of the electricity demand, the highest ever value on a monthly basis. Moving to national net total production, this stood at 131 terawatt-hours, up by 4% compared to the same period of 2024.

Giuseppina Di Foggia: Moving to national net total production, this stood at 131 TWh, up by 4% compared to the same period of 2024. in these first half renewable sources accounted for about 49% of the national net total production, down from 53% of last year. However, let me highlight the considerable increase in solar production, which grew to around 22.1 terawatt hours, up 23% versus the first half of last year.

Speaker #3: In the first half, renewable sources accounted for about 49% of the national net total production, down from 53% last year. However, let me highlight the considerable increase in solar production, which grew to around 22.1 terawatt-hours, up 23% versus the first half of last year.

Speaker #3: Now let's move to the main figures of the period. In the first half of 2025, despite the complex and challenging macroeconomic environment, we delivered positive results across all key lines of the P&L and a solid CAPEX growth.

Giuseppina Di Foggia: Now let's move to the main figures of the period. In the first half of 2025, Despite the complex and challenging macroeconomic environment, we delivered positive results across all key lines of the P&L and a solid capital growth. Indeed, group revenues and EBITDA both grew by 8%, increasing by approximately €140 million and €103 million compared to the first half of 2024. We also reported a group net income of €588 million, with an increase of 8% versus the same period of last year.

Speaker #3: Indeed, group revenues and EBITDA both grew by 8%, increasing by approximately €114 million and €103 million compared to the first half of 2024.

Speaker #3: We also reported a group net income of €588 million, with an increase of 8% versus the same period of last year. Group CAPEX reached €1.319 billion, marking an increase of 27% versus the first half of last year, expecting a new record in Terna's history.

Giuseppina Di Foggia: Group Capex reached €1,390 million, marking an increase of 27% versus the first half of last year, accepting a new record in Terna's history. This confirms once again our solid TAPEX acceleration to serve the system needs. To support this capex acceleration at the end of June 2025, net debt stood at 12 billion euros, slightly higher compared to the value recorded at 2024 year-end of about 11.2 billion euros.

Speaker #3: This confirms once again our solid CAPEX acceleration to serve the system needs. To support this CAPEX acceleration, at the end of June 2025, net debt stood at €12 billion, slightly higher compared to the value recorded at 2024 year-end of about €11.2 billion.

Speaker #3: Now, let me leave the floor to our CFO to have a closer look at the results. Please, Francesco.

Francesco Beccali: Now, let me leave the floor to our CFO to have a closer look at the results.

Francesco Beccali: Please, Francesco. Thank you, Giuseppe.

Speaker #4: Thank you, Giusi. The next start, as usual, will be with the revenue analysis. In the first six months of 2025, total revenues increased by 8%, reaching €1.894 billion, up by €140 million compared to last year.

Francesco Beccali: Let's start, as usual, with the revenues analysis. In the first six months of 2025, the total revenues increased by 8%, reaching 1.894 billion euros, up by 140 million euros versus last year. The growth was mainly attributable to regulated activities, which contributed for €122 million, while non-regulated activities increased by €18 million.

Speaker #4: The growth was mainly attributable to regulated activities, which contributed €122 million, while non-regulated activities increased by €18 million. I will take a closer look at the evolution of revenues as we move to the next slide.

Francesco Beccali: I will take a closer look at the evolution of redness, moving to the next slide. Regulated revenues reached €1,594 million, with an increase of more than 8% versus previous year. The growth was mainly driven by the RAP growth deriving from the recognition in tariff of 2024 capital expenditure and the assessment of the tariff decoupling related to the update and revaluation of capital cost parameters. The early recognition in tariffs of depreciation related to 2024 capital expenditures one year in advance compared to the previous regulatory framework, as well as the recognition of depreciation related to 2023 capital expenditures in line with the two-year standard delay.

Speaker #4: Regulated revenues reached €1,594 million, with an increase of more than 8% compared to the previous year. The growth was mainly driven by the rapid expansion derived from the recognition in tariffs of 2024 capital expenditure and the assessment of the tariff decoupling related to the update and revaluation of the capital cost parameter.

Speaker #4: The early recognition in tariffs of depreciation related to 2024 capital expenditure, one year in advance compared to the previous regulatory framework, as well as the recognition of depreciation related to 2023 capital expenditures, in line with the second two-year standard delay.

Speaker #4: And in the end, the first monthly component set on the conventional capitalization rate defined under the ROS application. These factors more than offset the work reduction from 5.8% to 5.5% in 2025, and the longer output-based incentives contribution versus last year.

Francesco Beccali: And, in the end, the fat money component, set on the conventional capitalization rate, defined under the Rothschild. These factors more than offset the WACC reduction from 5.8% to 5.5% in 2025 and the lower out-of-base incentives contribution versus Fastion. Non-regulated revenues reached 300 million euros, 6.5 percent higher than last year.

Speaker #4: Non-regulated revenues reached €300 million, 6.5% higher than last year. The improvement mainly reflects the higher contribution from the equipment segment, which includes Stamina and Brook cables, partially offset by the decrease in revenues from the energy services segment.

Francesco Beccali: The improvement mainly reflects the higher contribution from the equipment segment, which includes TAMINI and BRUK cables, partially offset by the decrease in revenues from the energy services sector.

Speaker #4: The results are attributable to the South American subsidiaries having been classified as assets for sale in the first half of 2024. Now, let's go through the operating cost analysis.

Francesco Beccali: The results attributable to the South American subsidiaries have been classified among assets for sale as in first half of 2024.

Francesco Beccali: Now let's go through operating costs analysis.

Speaker #4: As you can see in the chart, total operating costs stood at €534 million, 7.5% higher than last year. The increase in costs related to regulated activities is mainly attributable to the rise in headcount and the higher average cost of labor, partially offset by increased capitalizations.

Francesco Beccali: As you can see in the chart, total operating costs stood at 534 million euros, 7.5% higher than last year. The regulated activities cost increase is mainly attributable to the rise in the headcounts and the higher average cost of labour, partially offset by higher capitalization. The non-regulated activities were primarily impacted by higher service costs related to activities mainly in the equipment segment.

Speaker #4: The non-regulated activities were primarily impacted by higher service costs related to the development of activities, mainly in the equipment segment. Regarding EBITDA, we move to the next slide.

Francesco Beccali: Regarding EBDA, we move to the next slide. Thanks to the acceleration in revenues, First Start 2025 Group EBITDA reached 1.36 billion euros, 8.2% higher than the same period of last year.

Speaker #4: Thanks to the acceleration in revenues, the first half of 2025, group EBITDA reached €1.36 billion, 8.2% higher than the same period of last year.

Speaker #4: The improvement was mainly attributable to regulated activities, which contributed approximately €89 million more compared to the first six months of last year, resulting in an EBITDA of €1,320 million in the first half of 2025.

Francesco Beccali: The improvement was mainly attributable to regulated activities, which contributed for about €89 million more versus the first six months of last year, showing an EBITDA of €1302 million in the first half of 2025. EBITDA from non-regulated activities increased by 29% to €58 million, mainly thanks to the higher contribution from the equipment segment, with improving results from both the Tammini and Brückebosch groups.

Speaker #4: EBITDA from non-regulated activities increased by 29% to €58 million, mainly thanks to the higher contribution from the equipment segment, with improving results from both the Stamina and Brook Cables groups.

Speaker #4: Let's, however, look to the lower part of the P&L, turning to the next slide. DNA has amounted to €447 million; the increase versus last year was mainly related to the entry into service of new infrastructure.

Francesco Beccali: Let's now have a look to the lower part of the PNL, turning to the next slide. DNA amounted to 447 million euros. The increase versus last year was mainly related to the entry into service of new infrastructure. As a consequence, EBIT reached 913 million euros, 9.2% higher versus the first half of 2024. The net financial expenses amounted to 76 million euros. The slight year-on-year increase of 13 million euros is mainly due to the signing of new financings only partially offset by higher capitalized financial charges. Taxes stood at 249 million euros, 22 million higher versus last year, essentially due to improved results.

Speaker #4: As a consequence, EBIT reached €913 million, 9.2% higher compared to the first half of 2024. The net financial expenses amounted to €676 million. The slight year-on-year increase of €13 million is mainly due to the signing of new financing, which was only partially offset by higher capitalized financial charges.

Speaker #4: Taxes stood at €249 million, €22 million higher versus last year, essentially due to the improved results. Our tax rate was 29.8% compared to 29.4% in the first half of 2024.

Francesco Beccali: Our tax rate was 29.8% compared to 29.4% in the first half of 2020. As a result, group net income reached €588 million, 8% higher versus the same period of last year.

Speaker #4: As a result, group net income reached €588 million, 8% higher compared to the same period last year. Moving to CAPEX analysis, in the first six months of 2025, total CAPEX reached €1.399 billion, up by 27% year-on-year.

Francesco Beccali: Moving to CAPEX analysis, in the first six months of 2025, Total capex reached 1,319 million euros, up by 27% year-on-year.

Speaker #4: This marks a new all-time high for the first half of the year, exceeding €1.3 billion and confirming the strong acceleration in investment. We invested about €1,243 million in regulated activities.

Francesco Beccali: This marks a new all-time high for the first half of the year, exceeding 1.3 billion euros and confirming the strong acceleration in investment. We invested about €1,243 million in regulated activities. Among the main projects of the period, it is worth mentioning the Terrenial Links, the Sakoi 3, the modernization of the high-voltage grid in the locations due to host the Winter Olympics in 2026, the Colunga-Calenzano connections, and the Adriatic Link. Last but not least, the investments of the defence plan, which aims to enhance our voltage control capacity and support grid stability, including synchronous compensators, shunt reactors, and damping resistors.

Speaker #4: Among the main projects of the period, it is worth mentioning the terrestrial links, the cyclic tree, the modernization of the high-voltage grid in the locations due to the Winter Olympics in 2026, the Colunga-Calenzano connection, and the Adriatic link.

Speaker #4: Last but not least, the investments of the defense plan, which aims to enhance our voltage control capacity and support grid stability, including synchronous compensators, shunt reactors, and damping resistor systems.

Speaker #4: Among CAPEX categories, development CAPEX represented 54% of total regulated CAPEX. Defense CAPEX stood at 15%, while asset renewal and efficiency accounted for 31%. Non-regulated and other CAPEX totaled €76 million; these include capitalized financial charges and other investments.

Francesco Beccali: Among CAPEX categories, Development CAPEX represented 54% of total regulated CAPEX. Defense CAPEX stood at 15%, while Asset Renewal and Efficiency was 31%. non-regulated and other CAPEX stood at 76 million euros. This includes capitalized financial charge and other investments.

Speaker #4: Turning now to the next slide. Cash flow generation for the period amounted to around €1.1 billion and was the result of around €1 billion of operating cash flow and €100 million of working capital and other items.

Francesco Beccali: Tune in now to Netflix.

Francesco Beccali: Cash flow generation throughout the period amounted to around 1.1 billion euros and was the result of around 1 billion euros of operating cash flow and 100 million euros of working capital and other items. Net debt at the end of June 2025 was about 12 billion euros, around 800 million euros higher than 2024 year-end level, primarily due to the capital acceleration and the dividend payment.

Speaker #4: Net debt at the end of June 2025 was about €12 billion, around €800 million higher than the 2024 year-end level, primarily due to the CAPEX acceleration and the dividend payment.

Francesco Beccali: Let's now make a deeper analysis of our debt profile, moving to page 16. Our cautious and proactive debt management approach is focused on maximizing efficiency and maintaining a solid financial structure. As of the end of this first six months of 2025, we registered a fixed floating ratio of gross debt of around 88%, with an average duration of approximately six years.

Speaker #4: Let's now make a deeper analysis of our debt profile, moving to page 16. Our cautious and proactive debt management approach is focused on maximizing efficiency and maintaining a solid financial structure.

Speaker #4: As of the end of the first six months of 2025, we registered a fixed-to-floating ratio of gross debt of around 88%, with an average duration of approximately six years.

Speaker #4: In alignment with TERNA's strategy, we chose to combine investment and sustainability to drive growth and value creation. On July 15th, TERNA successfully launched its first fixed-rate single tranche European green bond issue with a total nominal amount of €750 million.

Francesco Beccali: In alignment with TERNA's strategy, which aims to combine investment and sustainability to drive growth and value creation, on July 15, TERNA successfully launched its first fixed-rate, single-tranch, European Green Bond issue with a total nominal amount of €750 million. The European Green Bond, which received a very favourable market response with demand of stripping supply by almost five times the offered amount, has a duration of six years and will pay an annual coupon of 3%. This issue was launched as part of TERNA's new €4 billion Euro-Medium Turnout Programme, listed on Borsi Italiana's electronic bond market.

Speaker #4: The European green bond, which received a very favorable market response with demand outstripping supply by almost five times the offered amount, has a duration of six years and will pay an annual coupon of 3%.

Speaker #4: This issue was launched as part of TERNA's new $4 billion euro medium-term note program, listed on both the Italian Electronic Bond Market. As said, at the beginning of the presentation, in July, the European Investment Bank, TERNA, and Teza San Paolo and such have signed agreements and agreements totaling $1.5 billion euros to support the development and construction of the so-called Adriatic links.

Francesco Beccali: As said at the beginning of the presentation, in July, the European Investment Bank, Terna, Intesa San Paolo and Sanchez have signed an agreement totaling 1.5 billion euros to support the development and construction of the so-called Adriatic Link, the submarine power cable linking the Italian regions of Marche and Amalfi. The operation is financially structured into three tranches, all of which are covered by such as Archimedes' guarantee, for an amount exceeding 1 billion euros. In detail, we have a €750 million loan granted by EIB to Terna with a duration of 22 years, another €500 million credit line provided by Intesa San Paolo Terna with a duration of 7 years, and an additional €250 million loan from Intesa San Paolo with funding made available by the EIB and a duration of 7 years.

Speaker #4: The submarine power cable linking the Italian regions of Marche and Abruzzo. The operation is financially structured into three tranches, all of which are covered by guarantees such as the Archimede guarantee.

Speaker #4: For an amount exceeding 1 billion euros. In detail, we have a 750 million euros loan granted by EIB to TERNA with a duration of 22 years, another 500 million euros credit line provided by Teza San Paolo to TERNA with a duration of seven years, and an additional 250 million euros loan from Teza San Paolo with funding made available by the EIB and the duration of seven years.

Speaker #4: Finally, with regards to credit ratings, let me remind you that in April, Standard & Poor's upgraded TERNA's long-term rating from triple B plus to A minus, following the upgrade of the sovereign rating to triple B plus.

Francesco Beccali: Finally, with regards to credit ratings, let me remind you that in April, Standard & Poor's upgraded Terna's long-term ratings from BBB Plus to IMANUS, following the upgrade of the Sovereign Ratings to BBB Plus. Moreover, in June, Moody's improved the outlook to positive from stable after the review of the assessment of the Italian Republic. The decision of the two agencies reflects Terna's solid financial structure, despite the acceleration in investments provided by the industrial plan.

Speaker #4: Moreover, in June, Modi improved the outlook to positive from stable after the review of the assessment of the Italian Republic. The decision of the two agencies reflects TERNA's solid financial structure despite the acceleration in investments provided by the industrial plan.

Speaker #4: Thank you for your attention. I will now give the floor to Giusi for the closing remarks.

Francesco Beccali: Thank you for your attention.

Giuseppina Di Foggia: I leave now the floor to Giuse for the closing remarks. Thank you, Francesco.

Speaker #3: Thank you, Francesco. Let me conclude this presentation with some closing remarks. First, I would like to highlight that we have delivered a solid set of results despite the increasingly complex and challenging macroeconomic and geopolitical environment.

Giuseppina Di Foggia: Let me conclude this presentation with some closing remarks. First, I'd like to highlight that we have delivered a solid set of results despite the increasingly complex and challenging macroeconomic and geopolitical environment. This reflects the robustness of our business model, our ability to adapt and the continued commitment of our people that allow us to keep our promises and even to exceed them.

Speaker #3: This reflects the robustness of our business model, our ability to adapt, and the continued commitment of our people that allows us to keep our promises and even to exceed them.

Speaker #3: In this regard, Terna is committed to the execution of its planned targets. This will allow the integration of renewable sources, the development of the network, and the strengthening of interconnections with foreign countries.

Giuseppina Di Foggia: In this regard, TERNA is committed to the execution of its plan target. This will allow the integration of renewable sources, the development of the network and the strengthening of interconnections with foreign countries. These efforts will announce the security and resilience of the electricity system, enabling the achievement of national and European targets and ensuring system stability.

Speaker #3: These efforts will enhance the security and resilience of the electricity system, enabling the achievement of national and European targets and ensuring system stability. Before moving to the Q&A session, let me underline that with the strong set of results just presented for the first half, we can fully confirm our 2025 full-year guidance.

Giuseppina Di Foggia: Before moving to the Q&A session, let me underline that with the strong set of results just presented for the first half, we can fully confirm our 2025 full year guidance.

Giuseppina Di Foggia: Thank you for your attention so far, and we are now ready for the Q&A session. Very well.

Speaker #3: Thank you for your attention so far, and we are now ready for the Q&A session.

Speaker #1: Very well. We can now begin the Q&A session. Let's start with the first question for you, Giusi. About the ROS integral framework, could you give more details about the consultation document published at the end of May, and what are your expectations for the potential new incentive scheme proposed?

Operator: We can now begin the Q&A section.

Operator: Let's start with the first questions for you, Giuseppe.

Operator: about Earth Integral FM.

Giuseppina Di Foggia: Could you give more color about the consultation document published at the end of May and which are your expectations for potential new incentive schemes proposed? Well, about the Rossi Integrale framework, let me say that the document makes it clear that ARERA is really focused on making sure we deliver strategic, high-value energy infrastructure. It's not just about having a forward-looking business plan that outlines spending and targets. It's also about giving operators the chance to earn additional reward if they can meet key system needs and cost saving efficiently.

Speaker #3: Well, about the ROS integral framework, let me say that the document makes it clear that Avera is really focused on making sure we deliver strategic high-value energy infrastructure.

Speaker #3: It's not just about having a forward-looking business plan that outlines spending and targets. This is also about giving operators the chance to earn additional rewards if they commit to key system needs and cost-saving efficiencies.

Speaker #3: And now, while this consultation document does give us an early look at the incentive schemes under the ROS integral framework, I want to be clear.

Giuseppina Di Foggia: And now, while this consultation document does give us an early look at the incentive schemes under the Roth Integrale framework, I want to be clear, the detailed design of those reward mechanisms probably won't be decided as part of this round. That will likely come later, once RERA has reviewed the specific proposals submitted by companies.

Speaker #3: The detailed design of those reward mechanisms probably won't be decided as part of this round. That will likely come later once Avera has reviewed the specific proposals submitted by companies.

Speaker #1: Okay. Thank you. What are your latest expectations with respect to the updating work for 2026?

Giuseppina Di Foggia: What are your latest expectations with respect to the update in WAC for 2026?

Giuseppina Di Foggia: Well, let me be straight. As of today, it is too early to assess if the threshold for the potential walk-up date at the end of this year will be met. Since the observation period will finish at the end of September 2025. And according to the latest market-to-market calculations, the change in work value is still below the threshold of 30 basis points. However, since the values remain close to the threshold, we should closely monitor the parameters over the final two months, as they could trigger a work update.

Speaker #3: Well, let me be straight. As of today, it is too early to assess if the threshold for the potential work update at the end of this year will be met.

Speaker #3: Since the observation period will finish at the end of September 2025, and according to the latest mark-to-market calculation, the changing work value is still below the threshold of 30 basis points.

Speaker #3: However, since the values remain close to the threshold, we should closely monitor the parameters of the final two months, as they could trigger a work update.

Speaker #1: Okay. Now, can you give us an update on the installation of renewables as of June 30 this year? Do you expect this trend to continue over the coming years?

Giuseppina Di Foggia: Now, can you give us an update on the installation of renewables as of June 30th this year? Do you expect this trend to continue over the coming years?

Speaker #3: Well, we have really seen the pace of renewable installations pick up in recent years. Just to give you some context, until 2021, the average was about 1 gigawatt a year.

Giuseppina Di Foggia: Well, we have really seen the pace of renewable installations pick up in recent years. Just to give you some context, until 2021, the average was about one gigawatt a year. Then in 2022 that rose to around 3 gigawatts and the front continued in 2023 with the 6 gigawatts and 2024 so another record with the 7.5 gigawatts installed. And 2025 is off to a solid start as well.

Speaker #3: Then in 2022, that rose to around 3 gigawatts. The trend continued in 2023 with 6 gigawatts, and 2024 saw another record with 7.5 gigawatts installed.

Speaker #3: And 2025 is off to a solid start as well. There has been a slight slowdown compared to the first half of last year, but we have still seen about 3.1 gigawatts added so far, not far off from the 3.7 gigawatts installed in the same period of 2024.

Giuseppina Di Foggia: There has been a slight slowdown compared to the first half of last year, but we have still seen about 3.1 gigawatts added so far, not far off from the 3.7 gigawatts installed in the same period of 2024. And this steady growth in installations is an encouraging sign for meeting the targets set out in the updated National Climate and Energy Plan, the one that Italy submitted to the European Commission in June 2024.

Speaker #3: And this steady growth in installations is an encouraging sign for meeting the targets set out in the updated national climate and energy plan—the one that Italy submitted to the European Commission in June 2024.

Speaker #3: And let me conclude with the first RICS auction scheduled for 2025. Further momentum is expected from the upcoming incentive scheme.

Giuseppina Di Foggia: And let me conclude, with the first PERIX auction scheduled for 2025, further momentum is expected from the upcoming incentive scheme.

Operator: Great, let's move to another topic.

Speaker #1: Great. Let's move to another topic. Due to the penetration of renewables, do you think that the Spanish blackout might be an event that will occur more frequently in the future?

Giuseppina Di Foggia: Due to the penetration of renewables, do you think that the Spanish blackout might be an event that will occur more frequently in the future? Well, let me start by saying that the European electricity system is complex. It's complex and Italy is a key part of it. So while we can't eliminate the race. We can see that the Italian grid is now much more resilient thanks to the investments Terna has made in recent years to improve grid security.

Speaker #3: Well, let me start by saying that the European electricity system is complex. It's complex, and Italy is a key part of it. So while we can't eliminate risk, we can say that the Italian grid is now much more resilient, thanks to the investments TERNA has made in recent years to improve grid security.

Giuseppina Di Foggia: Now, let's have a look at our investments on this. It's important to say that our 2024 security plan already included over 1.3 billion euros in investments for 2024-2027. And this was increased to 2 billion euros for 2025-2028 in our industrial plan updates last March. And it was confirmed again in the 2025 security plan update that we sent to the Ministry of the Environment and Energy Security in May. These investments focus on both the energy transition and digitalization, for example, but it's just an example through the use of synchronous compensators connected to the grid.

Speaker #3: Now, let's have a look at our investments on this. It's important to say that our 2024 security plan already included over €1.3 billion in investments for 2024, 2027, and this was increased to €2 billion.

Speaker #3: For 2025-2028, in our industrial plan updates last March, and it was confirmed again in the 2025 security plan update we sent to the Ministry of the Environment and Energy Security in May.

Speaker #3: These investments focus on both the energy transition and digitalization. For example, that is just an example, through the use of synchronous compensators connected to the grid.

Speaker #3: And beyond the numbers, we have also deployed a full range of technologies to strengthen the national grid's safety. As renewables grow and traditional thermal capacity declines, system stability can be affected, and that's why we are planning even more investments in grid security.

Giuseppina Di Foggia: and beyond the numbers. We have also deployed a full range of technologies to strengthen the national grid safety. And as renewables grow and traditional thermal capacity declines, system stability can be affected and that's why we are planning even more investments in grid security. This is our twin transition. This is what I mean as a twin transition.

Speaker #3: This is our twin transition. This is what I mean by a twin transition. And now let me conclude with the good news, Stefano. Italy already has a strong dispatching framework with a clear route for how renewables must support system stability and balancing.

Giuseppina Di Foggia: And now let me conclude with the good news, Stefano. Italy already has a strong dispatching framework with the clear rules on how renewables must support system stability and balance.

Operator: Thank you, Giuse.

Speaker #1: Thank you, Giusi. Now, another question. How is your investment plan progressing? Are there any slippages in the execution of major projects?

Giuseppina Di Foggia: Now another question. How's your investment plan progressing? Are there any slippages in the execution of major projects? Yes, a key part of our plan, the execution, as I said many times, and the execution of our investment plan is going forward as planned. So let me reiterate that we are on the right path and the CAPEX plan is solid and safe. All our main HBDC projects have received the necessary authorization and over 90% of the projects in the plan have completed the approval process. On the procurement side, we are fully aware of the potential supply chain shortages and bottlenecks affecting the industry, and to manage these risks, we have taken several steps to ensure continuity.

Speaker #3: Yes, a key part of our plan—the execution, as I said many times. The execution of our investment plan is going forward as planned.

Speaker #3: So, let me reiterate that we are on the right path and the CAPEX plan is solid and safe. All our main HBDC projects have received the necessary authorization, and over 90% of the projects in the plan have completed the approval process.

Speaker #3: On the procurement side, we are fully aware of the potential supply chain shortages and bottlenecks affecting the industry. To manage these risks, we have taken several steps to ensure continuity.

Speaker #3: Thanks in part to the support of Brook Cables and Terminator Farmers, we have already secured nearly all procurement needs to the end of 2025.

Giuseppina Di Foggia: Thanks, in part, to the support of Brugge Cables and Termini Transformers, we have already secured nearly all procurement needs to the end of 2025. And to conclude, looking at the full business plan period, about 85% of the 2024-2028 topics is already covered by existing procurement contracts. up from 80% in March.

Speaker #3: And to conclude, looking at the full business plan period, about 85% of the 2024-2028 CAPEX is already covered by existing procurement contracts, up from 80% in March.

Speaker #1: Very well. The following question is for you, Francesco. Could you quantify the one-off revenues related to inflation upside?

Francesco Beccali: The following question is for you, Francesco. Could you quantify the one-off revenues related to inflation upside? Sure, for each variation of plus or minus 1% on the expected inflation. The impact on regulated revenues is about 20 million euros.

Speaker #4: Sure. For each variation of plus or minus 1% and respective inflation, using the RAB valuation, the impact on related revenues is about €20 million.

Speaker #4: Considering the updated value of 2023 and the 2024 inflation approval by Avera in its last resolution, there is a total increase of about 2%. This leads to an increase in regulated revenues of about $40 million on tariff 2025 and a further adjustment of around $16 million on 2024.

Francesco Beccali: Considering the updated value of 2023 and 2024 inflation, approved by ARERA in its last resolution, there is a total increase of about 2%, which leads to an increase in regulated revenues of about 40 million on tariff 2025 and a further adjustment of around 16 million Thank you.

Speaker #1: Thank you. We received many questions about OBIs. What are the output-based incentives accounted in the first half? Is your expectation for the full year confirmed, also related to the evolution of dispatching costs?

Francesco Beccali: We received many questions about OBIs. What are the outward-based incentives accounted in the first half? Is your expectation for the full year confirmed?

Francesco Beccali: Also related to the evolution of dispatching costs, and what are your expectations about further OBIs that could be introduced through Roth's Integrale scheme? Well, in the first half of 2025... There is no contribution coming from the out-of-base incentives related to... It will be recognized in the second half of the year, when there will be a higher degree of certainty about the possibility of reaching the target, in line with the accounting principles. In the first half of 2025, we have instead registered 16 million euros related to interzonal and efficiency incentives. With reference to the full year 2025, our expectations reflect the update in the performance estimates for 2025 which will allow us to reach and possibly exceed the guidance already provided after the first quarter of 2025 of more than €50 million of OBIs.

Speaker #1: And what are your expectations about further OBIs that could be introduced through the ROS integral scheme?

Speaker #4: Well, in the first half of 2025, there is no contribution coming from the output-based incentives related to dispatching market efficiency incentives. It will be recognized in the second half of the year when there will be a higher degree of certainty about the possibility of reaching the targets.

Speaker #4: In line with the accounting principles, in the first half of 2025, we registered €16 million related to interzonal and efficiency incentives.

Speaker #4: With reference to the full year 2025, our expectations reflect the update in the performance estimates for 2025, which will allow us to reach and possibly exceed the guidance already provided after Q1 2025 of more than €50 million of OBIs.

Francesco Beccali: Finally, let me also remind that our updated industrial plan assumes that OBIs' contribution of about €900 million, considering also €361 million accounted in 2024, mostly referring to existing output-based incentives frameworks and for a residual part related to the new Rossi Integrale.

Speaker #4: Finally, let me also remind you that our updated industrial plan assumes that OBI's contribution will be about €900 million, considering also €361 million accounted for in 2024.

Speaker #4: Mostly referring to existing output-based incentive frameworks and for a residual part related to the new ROS integral schemes.

Speaker #1: Thank you. Now, moving on to the financings. What will be your cost of debt at the end of 2025, please?

Francesco Beccali: Now moving on the financing, what will be your cost of debt at the end of 2025, please? Cost of debt will be around, for the first half of the year, is at around $2.6 billion. The cost of debt for 2025 will be slightly below 3% since in the second half of the year we expect the net financial charges to increase compared to the first half, primarily due to the issuance of new debt at a higher cost vis-à-vis the average cost of the existing debt.

Speaker #4: The cost of debt for the first half of the year is around 2.6%. The cost of debt for 2025 will be slightly below 3%.

Speaker #4: Since in the second half of the year, we expect net financial charges to increase compared to the first half, primarily due to the issuance of new debt at a higher cost vis-à-vis the average cost of the existing debt.

Speaker #1: Thank you. Regarding the acquisition of high-voltage assets, do you expect further deals?

Francesco Beccali: Regarding the acquisition of high-voltage assets, do you expect further deals? Well, we are aware of the public interest in the consolidation of high-voltage assets to achieve synergies and have a more efficient system overall, for which ARERA, as you know, has set an incentive scheme for deals closed in 2025 and 2026. For this reason, we cannot exclude undertaking other small potential transactions linked to market opportunity that should be fully aligned with our strategic target.

Speaker #4: Well, we are aware of the public interest in the consolidation of high-voltage assets to achieve synergies and have a more efficient system overall for which Avera, as you know, has set an incentive scheme for deals closed in 2025 and 2026.

Speaker #4: For this reason, we cannot exclude undertaking other small potential transactions linked to market opportunity that should be fully aligned with our strategic targets.

Speaker #1: Thank you. Could you remind us of the remaining financial flexibility in terms of additionally higher instruments, and would you still prefer hybrid to capital increases?

Francesco Beccali: Could you remind us the remaining financial flexibility in terms of additionally hybrid instruments and would you still prefer hybrid to capital increases? As you know, our ambitious CapEx plan could lead to a deterioration of the financial ratios in the future. As we already communicated to the market during the presentation of the update of the strategic plan last March, despite this acceleration in capital, we aim to preserve a solid and sustainable capital structure, also through the issue of further library instruments, if needed, up to the full capacity that we estimate to be at around 4 billion euros towards the end of the year.

Speaker #4: As you know, our ambitious CAPEX plan could lead to a deterioration of the financial ratios in the future. As we already communicated to the market during the presentation of the update of the strategic plan last March, despite this acceleration in CAPEX, we aim to preserve a solid and sustainable capital structure, also through the issue of further revenue instruments if needed, up to the full capacity that we estimate to be around €4 billion towards the end of the plan.

Francesco Beccali: Let's consider that we already have at the moment 1.8 billion euros of hybrid already issued. Furthermore, in order to protect our rating, we can rely on a wide range of further tools, such as, for example, public grants, that, if necessary, Terna could seek in an additional amount to reduce the company's debt and strengthen the financial structure. Please consider that in the current plan we already assume slightly above 1 billion euros of grants. We can also rely on CAPEX prioritisation. Terna indeed may prioritise expenses related to investment costs, seeking to defer some of them to later years.

Speaker #4: Let's let's consider then that we already have in the at moment 1.8 billion euros of hybrid already issued. Furthermore, in order to protect our rating, we can rely on a wide range of further tools, such as, for example, public grants, that if necessary, TERNA could seek could in an additional amount to reduce the company's debt and strengthen the financial structure.

Speaker #4: Please consider that in the current plan, we have already assumed slightly above €1 billion in grants. We can also rely on CAPEX prioritization. TERNA, indeed, may prioritize expenses related to investment costs, seeking to defer some of them to later years.

Speaker #4: And finally, we can also consider the potential valorization of our non-core assets and the non-regulated activities. All the previous options are considered more efficient than a capital increase.

Francesco Beccali: And finally, we can also consider the potential valorisation of our non-core assets and the non-regulated activities. All the previous options are considered more efficient than a capital increase.

Speaker #4: Therefore, as already stated in the strategic plan presentation, as of today, we do not see any strong rationale for a capital increase of the COP.

Francesco Beccali: Therefore, as already stated in the strategic plan presentation, as of today, we do not see any strong rationale for a capital increase of the government.

Speaker #1: Many thanks, Francesco. Finally, we have received the last question for you, Giusi. Could you comment on the evolution of electricity demand in 2025 and the impact from data centers?

Operator: Many thanks. Have a good day.

Giuseppina Di Foggia: Finally, we have received a last question for you, Giuse. Could you comment about the evolution of electricity demand in 2025 and the impact from data centers? Well, you may recall, I already commented on the evolution of demand so far this year during the presentation. In recent years, we have seen a gradual change in consumer behavior related to the high temperature. Now, regarding data centers, As of 30 June 2025, the total high voltage connection request reached approximately 50 GW, marking a further acceleration compared to 42 GW at the end of March 2025. For this reason, data centers represent one of the drivers together with the electrification of domestic consumption, electric mobility, underlying the increase we expect to see in power demand in future years.

Speaker #3: Well, you will recall, I have already commented on the evolution of demand so far this year during the presentation. In recent years, we have seen a gradual change in consumer behavior related to the high temperatures.

Speaker #3: Now, regarding data centers, as of June 30, 2025, the total high voltage connection requests reached approximately 50 gigawatts, marking a further acceleration compared to 42 gigawatts at the end of March 2025.

Speaker #3: And for this reason, data centers will represent one of the drivers, together with the electrification of domestic consumption and electric mobility, underlying the increase we expect to see in power demand in future years.

Speaker #1: Thank you very much, and thanks to all the participants on our call. Our Q&A session is now over. The Investor Relations team remains available for any follow-up questions you might have.

Operator: Very well. Many thanks for all the participants to our call.

Operator: Our Q&A session is now over.

Operator: The Investor Relations team remains available for any follow-up questions you might have.

Speaker #1: Thank you for your participation, and enjoy your summer break.

Operator: Thank you for participation and enjoy your summer break. Thank you, Stefano.

Operator: Hello, everybody.

Operator: Goodbye. Thank you, bye.