Half Year 2026 Terna Rete Elettrica Nazionale SpA Earnings Call

July 29, 2026

Speaker #1: Good afternoon, ladies and gentlemen, and welcome to TERNA's first half 2026 consolidated results. At this time, all participants are in listen-only mode. Please, be advised that today's conference is being recorded.

Speaker #1: I'd like to hand the conference over to our host speaker today, Fabrizio Ragnazzi. Head of Investor Relations. Please, go ahead, sir.

Speaker #2: Thank you. Good afternoon, ladies and gentlemen, and welcome to TERNA's first half 2026 results presentation. The call will be hosted by our CEO and general manager, Pasqualino Monti, and our CFO, Francesco Beccali.

Speaker #2: 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.

Speaker #2: I kindly ask you to send any question to our email address, investor@relations@terna.it. Thank you, and now let me hand over to our CEO, Mr. Monti.

Speaker #3: Thank you, Fabrizio, and good afternoon. I will start with some opening remarks on the first half of 2026. Solid execution in the development of our grid infrastructure is the main priority.

Speaker #3: We have achieved a relevant progress on the perennial link, with the completion of some marine cable installations on the eastern section and we are on track on all the major development milestones of our investment plan.

Speaker #3: TERNA continues to play its key role in the Italian electricity system, enabling renewables integration and ensuring grid security. Over the first 6 months of the year, we have integrated will update the current regulatory framework, which expires at the end of next year.

Over the 36 months of the year, we have integrated around 3.4 gigawatts of renewable capacity and more than 1 gigawatt-hour of storage.

As the energy transition continues to gain momentum, trillions are guaranteed to connect social and visible growth, up by 1.2 times for renewables and by 1.4 times for storage year to date.

sustainability is at the core of our strategy and our Global Leadership continues to be regulated.

By leading international institutions.

Looking ahead, we are starting to work on the update of the industrial plan.

As you know, by 2027 AERA will update the character of the framework.

Speaker #3: 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.

Speaker #3: And now let me hand over to our CFO, Francesco Beccali.

Speaker #4: Thank you, Pasqualino. And good afternoon, everybody. The group delivered another solid set of results in the first half of the year. Performance improved across all our key financial indicators, showing once again the solidity of our business model.

Speaker #4: I will deep dive later in the presentation on domain drive. We continue to accelerate investment to support development of the electricity system, while maintaining a discipline and sustainable financial profile.

To the same period of last year.

Out of this amount, around €1.5 billion was invested in regulated activities, with 60% devoted.

To development.

Almost 30% for us is renewal and efficiency and the rest for different countries.

Among the main problems of the periods. Our investment May focus on the Iranian League.

The interconnection, Italy and Tunisia, the German lines and this soal Adriatic League.

On this investment, a total of around €172 million is in line with our different plan. The aim of ensuring greater resilience and security through the installation of synchronous components, shell reactor, and damping radial systems.

As of today, about 92% of the projects included in our business plan are covered by contracts awarded, and 93% have completed the authorization process.

Let us now move to the main figures of the pns turning to the line. Number 7,

Let's start with our various platforms.

In the first half of 2026, group revenue increased by around 12%, reaching €2.1 billion, and there was an improvement of approximately 219,000 users compared to the same period last year.

Regulatory EBITDA reached €1.66 billion, an increase of 4%, with a strong reputation.

The group was mainly driven by higher output, very healthy, but have increased, and the recognized depreciation from new assets entered on stream. But also, all of this is partially offset by a lower platform component following the update of the usual capitalization rate of the 2026/277, and lower revenues recognized during the period, compared with the first half of 2025.

Included of the mechanism.

Let me remind that in the first part of 2025, we booked 17 million.

One-off related to previous regulatory recognition following the shift to HICP for the revaluation. Net of this effect, revenue in the first part of 2026 would have increased by 13%.

No Revenue reached for 151 million euro up, 50% year in year.

The improvement reflects higher contribution from the Energy Services segment. Also, there is the concentration of SE Energi in the second part of 2025.

And also the contribution from the equivalent segment, supported by a strong market environment and higher order intake, with both Group Cables and Group As Chickens.

Now, let's go through operating cost analysis.

Google operating cost came in 647 million, viewers up 21% year on year marking, an increase of around 1,000 and 12 million euros compared to the first half of 2025.

In the regulated segment, the cost base increased by 3%, May reflect the iio Accounts cost and increase external services and other operating expenses.

This increase was a large upset by on capitalization.

As for now, regarding regulated activities, the evolution of operating costs was mainly driven by the increase in perimeter in the Energy Services business and higher volumes on the equipment side.

Let me know more to follow reply.

Group, reach around 1.5 billion euros, in the first half of 2026 up 8% year on year. But as, for me to increase of approximately 107 million euro

The increase was mainly driven by regulated activities regarding Aida of 1.4 billion units up by 60 million users per year.

Normally related activities recorded a strong performance in EPA, increasing by around 81% to 106 million units.

This translated into an EBIT margin of 24% compared with 20% in the first half of 2025, highlighting the improved profitability of the business.

Performance recorded in the period. I like the solidity of the business model, which represents the foundation for the achievement of our full-year guidance, which means it is well within reach.

Let's now take a closer look at the rest of the P&L next time.

Here, it amounted to €56 million, the increase versus last year mainly due to the impact of new assets coming on stream during the period.

Speaker #4: year-on-year. Net financial expenses were 94 million euros, up by around 17 million euros versus last year. Mainly reflecting the higher average cost of debt compared with the first half of 2025.

As a result, EBITDA reached €1,151 million, up 5% year on year.

Speaker #4: Taxes, stood at 274 million euros, 25 million euros higher versus last year, attributable to the higher profit before tax and to the temporary 2% touchpoint increase in the ERAP tax rate for 2026 and 2027, our tax rate was 31.6%, vis-à-vis 29.8% in the first half of 2025.

Speaker #4: As a result, group net income reached 591 million euros, 1% higher versus last year. Adjusting first half 2025 figures for higher ERAP tax, introduced by the so-called energy decrease, net income in the first half of 2026 would have been up 4%, highlighting the underlying strength of the group's performance.

Speaker #4: Moving now to cash flow and net debt evolution. At the end of June 2026, net debt stood at 12.6 billion euros, around 0.5 billion euros below the 2025 year-end level.

Speaker #4: Reflecting our disciplined financial management. These figures also continue to benefit from the 850 million euro European Green Ivory Bond issued in January which is accounted for as equity.

Speaker #4: Cash flow generation was around 1.7 billion euros, enabling us to fully fund our investment program while maintaining a sound financial position. Looking at our debt profile, around 72% of gross debt was at fixed rate at the end of June, while the average debt maturity stood at approximately 60, confirming the resilience of our liability structure.

Speaker #4: As previously mentioned, during the first half of the year, we further strengthened our sustainable finance profile, in January we successfully placed an 850 million euros European Green Ivory Bond, which received orders of more than 7 million euros, almost nine times the amount offered.

Speaker #4: The transaction represented the first Green Bond Standard Ivory issuance in the Italian market and achieved the lowest subordination premium ever recorded for a euro denominated corporate Ivory Bond EU.

Speaker #4: Below 60 basis points, confirming the strong confidence investors placed in TERNA's credit profile. In addition, we continued to expand our sustainability-linked funding framework through the signing in March of a new 100 million euros ESG-linked credit facility with financing conditions linked to specific ESG targets.

Speaker #4: Finally, in June we increased the size of our EMTM program for from 4 billion to 6 billion euros, further enhancing our financial flexibility and strengthening our access to international capital markets.

Speaker #4: Overall, our funding structure remains well diversified and fully aligned with the group strategy, providing the financial flexibility needed to support our investment ambitions. And now some closing remarks.

Speaker #4: 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 with important milestones achieved on our main projects, confirming our strong focus on execution.

Speaker #4: 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 management.

Speaker #4: Building on this strong set of results and thanks to the high level of visibility we have for the rest of the year, we can fully confirm our 2026 guide.

Speaker #4: Thank you for your attention. We are now ready for the Q&A session.

Speaker #1: Thank you. Thank you, Francesco. We can open the Q&A session as always. We have received questions from the analysts, so we I want to start by thanking all of the analysts for sending beforeend their questions.

Speaker #1: 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 OBIs.

Speaker #1: The first one is 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.

Speaker #2: Sure, Fabrizio. In the first half of the year, we recognized approximately 76 million euros of output-based incentives, consisting of 43 million of interzonal incentives, accrued in previous years, following the verification of the usual callback condition, and 33 million euros related to the MSD incentive schemes for the 2025 performance.

Speaker #2: The last pair number figure reflects the final outcome of Carrera's obligatory assessment, which confirmed an higher incentive amount than the prudential estimates recognized at the year-end of 2025, broadly validating the assumptions and calculations previously submitted by TERNA to the authority.

Speaker #1: Excellent. Then the second one, the second part of the questions on the OBIs is if the CFO could remind what was the guidance for OBIs for full year 2026.

Speaker #2: What I can tell you is that output-based incentives in '26 will remain mainly linked to the mechanism for reducing dispatching service market cost. For the 2026, considering both dispatching and interzonal, and including all the potential grants incentives, we expect to book more or less 200 million euros of incentives overall.

Speaker #1: Thanks. Then we switch a bit to more to the regulatory side of things. The question is, when do you expect Carrera to make substantial progress with this consultation and publications on the ROS system for electricity transmission?

Speaker #2: Well, we see mainly two big regulatory milestones coming up. The first one concerns eventual steps ahead regarding ROS regulation to further align the TSO's objectives with the system's interests.

Speaker #2: As of today, a consultation paper on these incentive schemes has not been published yet. And the second one will regard the next regulatory figure, which will start, as you know, in 2028.

Speaker #2: Therefore, the relative consultation process will likely be held during 2027.

Speaker #1: Okay. The next one is still on regulation more on a technical aspect. What is the mark-to-market for 2027 WACC? Do you expect the regulator to change the basket of peers or the taxation parameter?

Speaker #2: Well, from a mark-to-market perspective, for 2027, looking into the regulation service, which is the most sensible to potential trigger, current estimates under the existing formula would point to lower WACC levels.

Speaker #2: However, the geopolitical situation and the resulting volatility as well as macroeconomic conditions suggest caution. As part of the consultation process, on the other end, Carrera could revise the current basket of comparables in case these and trends in interest rates spread and credit ratings proceed.

Speaker #2: However, let me point out that the regulator, as of today, has not provided any indication to date that such changes are being considered. In our estimates, excluding France in any case from the basket of comparables, current mark-to-market values remain around to the threshold and could trigger a WACC update.

Speaker #2: We are still on the edge. However, we could be more precise on the final potential outcome only closer to the end of the observation period due to the volatility that you were mentioning before.

Speaker #2: When values will be almost crystallized and we will have more visibility on the crucial elements for the calculation of some parameters. Such as the basket of comparables for the countries included.

Speaker #1: Thank you. Thank you, Francesco. Now, we change 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 rotation or some other solution to decrease the leverage could be considered by the company.

Speaker #2: 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 solid and our capex plan for 2028 is fully sustainable under financial factors.

Speaker #2: As was confirmed by the rating upgrades that we received in 2025 from both Standard & Poor's and Moody's, consequently to a similar rating action that happened under Sovereign.

Speaker #2: Having said that, we remain firmly committed to preserving a strong risk profile and credit spend, and we are ready to take any measures that may be needed to uphold that commitment.

Speaker #2: Looking ahead, ad, when we will update our industrial plan to reflect a revised capex curve, we will then reassess the financial instruments required to confirm the financial fundamentals of the company.

Speaker #1: Excellent. Still on dive, the analyst is asking which are the growth drivers behind the acceleration of the non-regulated business for the first half in terms of EBITDA obviously compared to the same period of previous year.

Speaker #2: Well, as shown during the presentation, non-regulated business performance is driven by, on the one hand, the acceleration in both energy service segment, which accounted for 54 million euros of EBITDA, and both equipment segment, 33 million euros of total contributions.

Speaker #2: Most of this acceleration is related to the organic growth, mainly increased marginality of all the businesses. Only a residual part of it, we are talking about 10 million euros out of 106 million euros of total EBITDA, is linked to perimeter effects following the consolidation of STE in the energy services business.

Speaker #2: In general, looking into non-regulated activities at higher level, they should not be considered as standalone businesses. But they are closely linked to and complementary to our regulated core business.

Speaker #2: They are increasingly becoming an industrial platform through which we can participate in key segments of the energy transition value chain while strengthening our execution capabilities and industrial know-how.

Speaker #2: This is also a method we want to market to better appreciate because the growth of our market-based activities does not change the TERNA's risk profile.

Speaker #2: On the contrary, it reinforces our core business by creating industrial synergies and enhancing skills and supporting the execution of our industrial products. Looking ahead, we will continue to evaluate growth opportunities, including M&As, small M&A opportunities, but we will remain highly selective and disciplined.

Speaker #2: We will only consider transactions that are fully aligned with our core competencies, offer tangible industrial synergies, and generate appropriate economic returns for our shareholders.

Speaker #1: Thank you, Francesco. So now we switch more to some financial dynamics and analyst is asking on working capital dynamics for the semester and what are the expectations on the figure for year end.

Speaker #2: As to the net working capital, its evolution in the first semester of the year benefited from lower cash outflows related to past two items.

Speaker #2: And from higher receivables associated with regulated activities and margin-related items. On top of this, let me point out that in the first half of 2026, we received about 300 million euros of grants, in this context, let me also remind you that according to the new regulation, we are entitled to receive the financial incentive between 5% and 15% of the overall grant value, looking ahead a step, we expect net working capital at year end to remain broadly consistent with the current trajectory and with the execution of our investment plan while continuing to be mainly influenced by the evolution of past two items and regulated receivables which are very difficult to project.

Speaker #1: We move on to procurement. The question is if we see any risk that are particularly coming from the current tensions in the Middle East.

Speaker #2: For what concerns procurement, let me start by saying that we are well on track, given that about 92% of the projects, including in the 2024-2028 industrial plan, are covered by contract awards.

Speaker #2: If we talk about geopolitical tensions, those may have some indirect effects on the cost of key materials and on supply chain dynamics. For these reasons, we are already implementing mitigation strategies to preserve both timelines and capital expenditures this year.

Speaker #2: It is also important to remember that our regulatory framework provides protection against increases in raw material prices, since these are recognized in the regulated asset basis of the company.

Speaker #1: Clear. So I think that given the message on strategy that was given at the beginning of the presentation, we focus the Q&A only on the operating and financial aspects of this semester, although we have received two questions which are more forward-looking and I think we can stay on these two questions still with you.

Speaker #1: Francesco, the first one is, can you provide a view about the EU proposal on electrification target and the potential implications for TERNA?

Speaker #2: Sure. Let me start by highlighting that it is only a policy document so far, and that there are still no bilingual targets. Either at EU level or at national level.

Speaker #2: Having said that, the electrification action plan, which indicates 46% from the current 22%, are the European 2040 target for electrification of final energy consumption, further confirms my view, the importance of electrification to strengthen the union's energy autonomy and counter tensions on energy prices, as well as the Commission's determinations to continue in this direction.

Speaker #2: This makes it essential to continue with a robust investment plan in transmission networks that we expect the regulators of individual countries will have to support.

Speaker #2: To this extent, it is worth noting that the electricity transmission cost in Italy is among the lowest in Europe. Coming back to the document, the Commission indicates that an accelerated energy transition with electrification at its core could reduce imports of gas by more than 70%, and of crude oil by more than 40% by '24.

Speaker #2: The EU could save up to 260 million per year by '2040 on its fossil fuel import bill, a possible reduction by '2040 of gas imports by more than 70%, and crude oil imports by more than 40%.

Speaker #2: Savings on the European fossil import bill of up to 160 million euros per year and a reduction in electricity generation cost of about 20%.

Speaker #2: The document, this document confirms my view, the EAB's commitment to mobilize more than 75 billion euros over the

Speaker #1: Thank you, Francesco. We still remain with one question, the final one, still forward-looking, more on CAPEX though. The question is, how do you think about pace of CAPEX beyond 2028, and when do you expect to present the new 10 years development plan?

Speaker #2: For what concerns the expected investments beyond the planned ed horizon, and focusing on the development segment, which is, by the way, the most important one, the one that contributed the most to our total amount of CAPEX, the biggest share of our investment, the latter national development plan, the one we published in 2025, provides for investments of more than 23 billion euros over the decade.

Speaker #2: On top of this, TERNA will, of course, continue to invest also on the security plan and on the renewal of the bill. The new 10-year development plan will be presented in the first semester of 2027, and it will include all the development projects foreseen in the period 2027-2036.

Speaker #1: Thank you. Francesco, so this was the last question of the Q&A, so we can conclude also the Q&A session. I want to thank our management, CEO Pasqualino Monti and CFO Francesco Beccali, for attending the call, and obviously for all of the analysts and investors that attended the call, the Investor Relations team is at your disposal for further questions or any clarification that you might need.

Speaker #1: Thank you.

Speaker #2: Thanks, Fabrizio, and thanks to everybody for attending the call. Bye.

Speaker #3: Ladies and gentlemen, this concludes today's presentation. Thank you for joining us. You may now disconnect your line. Have a great day.

Speaker #1: Mr. Monti.

Speaker #2: Thank you, Fabrizio, and good afternoon. We'll start with some opening remarks on the first half of 2026. Solid execution in the development of our grid infrastructure is the main priority.

Speaker #2: We have achieved relevant progress on the Tyrrhenian Link, with the completion of some marine cable installations on the eastern section, and we are on track of the major development milestones of our investment plan.

Speaker #1: I'd like to hand the conference over to our host speaker today, Fabrizio Ragnazzi. Head of Investor Relations. Please, go ahead, sir.

Speaker #2: Thank you. Good afternoon, ladies and gentlemen, and welcome to TERNA's first-half 2026 results presentation. The call will be hosted by our CEO and General Manager, Pasqualino Monti, and our CFO, Francesco Beccali.

Speaker #2: TERNA continues to play its key role in the Italian electricity system, enabling renewables integration 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.

Speaker #2: 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 a Q&A session.

Speaker #2: I kindly ask you to send any question to our email address, investor@relations@.

Speaker #2: As the energy transition continues to gain momentum, Trilliant's guaranteed to connection casts show visible growth, up by 1.2 times of renewables and by 1.4 times for storage year-to-date.

Speaker #2: 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.

Speaker #2: As you know, by 2027, ARERA will update the current regulatory 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.

Speaker #2: 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.

Speaker #2: And now, let me hand over to our CFO, Francesco Beccali.

Speaker #3: Thank you, Pasqualino. And good afternoon, everybody. The group delivered another solid set of results in the first half of the year. Therefore, one improved across all our key financial indicators, showing once again the solidity of our business model.

Speaker #3: I will deep dive later in the presentation on domain drive. We continue to accelerate investment to support development of the electricity system, while maintaining discipline and sustainable financial profile.

Speaker #3: Let's start with CAPEX turning to the electrical next slide. In the period CAPEX amounted to 1.6 billion euros, marking a 20% increase compared to the same period of last year.

Speaker #3: Out of this amount, around 1.5 billion was invested in regulated activities, with 60% devoted to development, almost 30% for asset renewal and efficiency, and the rest for defense capital.

Speaker #3: Among the main projects of the period, our investment efforts mainly focused on the Tyrrhenian Link, the STAKOI P, the interconnection Italy and Tunisia, the Chiaromonte-Gulf-Ichimina power lines, and the so-called Adriatic Link.

Speaker #3: On defense, investment totaled around 172 million euros, in line with our defense plan, with the aim of ensuring grid resilience and security, through the installation of synchronous compensators shunt reactors and damping resistor systems.

Speaker #3: Non-regulated and other CAPEX reached around 116 million euros, of which about 41 million euros of non-regulated investment and 76 million euros of capitalized financial charges.

Speaker #3: As of today, about 92% of the projects, included in our business plan, are covered by contract awarded and 93% completed the authorization process. Let us now move to the main figures of the P&L turning to the slide number 7.

Speaker #3: Let's start with our revenues performance. In the first half of 2026, group revenues increased by around 12%, reaching 2.1 billion euros, an improvement of approximately 219 million euros compared to the same period of last year.

Speaker #3: Regulated revenues reached 1.66 billion euros, with an increase of 4%, vis-à-vis previous year. The group was mainly driven by higher output-based incentives, a rapid increase in the recognized depreciation from new assets entered on stream, and also all of this partially offset by lower plasmonic components, following the update of the notional capitalization rate for the 2026-27 regulatory period, and lower revenues recognized during the period compared with the first half of 2025, which included the estimated assessment of the tariff decoupling mechanism.

Speaker #3: Let me remind that in the first half of 2025, we booked 17 million euros, one half related to previous year's inflation recognition, following the shift to HICP for RAB revaluation.

Speaker #3: Net of this effect, revenues in the first half of 2026 would have increased by 13%. Non-regulated revenues reached 451 million euros, up 50% year-on-year.

Speaker #3: The improvement replaced the higher contribution from the energy services segment, following also the consolidation of STE energy in the second part of 2025. And also the contribution from the equipment segment supported by a strong market environment and higher order intake, with both group cables and Tamini group as key contributors.

Speaker #3: Now, let's go through operating cost analysis. Total operating costs came in 647 million euros, up 21% year-on-year, marking an increase of around 112 million euros compared to the first half of 2025.

Speaker #3: In the regulated segment, the cost base increased by 3%, mainly reflecting higher headcounts cost and increased external services and other operating expenses. This increase was largely offset by higher capitalization.

Speaker #3: As for non-regulated activities, the evolution of operating costs was mainly driven by the increase of perimeter in the energy services business and higher volumes on the equipment segment.

Speaker #3: Let me now move to EBITDA at the following slide. Group EBITDA reached around 1.5 billion euros in the first half of 2026, up 8% year-on-year, corresponding to an increase of approximately 107 million euros.

Speaker #3: The increase was mainly driven by regulated activities, recording an EBITDA of 1.4 billion euros, up by 60 million euros versus previous year. Non-regulated activities recorded a strong performance, with EBITDA increasing by around 81% to 106 million euros.

Speaker #3: This translated 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 represents the foundation for the achievement of our full-year guideline, which we see well within reach.

Speaker #3: Let's now take a closer look at the rest of the P&L turning to the next slide. DNA amounted to 506 million euros, the increase versus last year was mainly due to the impact of new assets coming on stream during the period.

Speaker #3: As a result, EBIT reached 161 million euros, up 5% year-on-year. Net financial expenses were 94 million euros, up by around 17 million euros versus last year.

Speaker #3: Mainly reflecting the higher average cost of debt compared with the first half of 2025. Taxes, stood at 274 million euros, 25 million euros higher versus last year, a tributable to the higher profit-before-tax and to the temporary 2% touchpoint increase in the IRAP tax rate for 2026 and 2027, our tax rate was 31.6%, vis-à-vis 29.8% in the first half of 2025.

Speaker #3: As a result, group net income reached 591 million euros, 1% higher versus last year. Adjusting first half 2025 figures for higher IRAP tax introduced by the so-called energy decrease, net income in the first half of 2026 would have been up 4%, highlighting the underlying strength of the group's performance.

Speaker #3: Moving now to cash flow and net debt evolution. At the end of June 2026, net debt stood at 12.6 billion euros, around 0.5 billion euros below the 2025 year-end level.

Speaker #3: Reflecting our disciplined financial management. These figures also continue to benefit from the 850 million euro European Green Ivory Bond issued in January which is accounted for as equity.

Speaker #3: Cash flow generation was around 1.7 billion euros, enabling us to fully fund our investment program while maintaining a sound financial position. Looking at our debt profile, around 72% of gross debt was at fixed rate at the end of June, while the average debt maturity stood at approximately 60, confirming the resilience of our liability structure.

Speaker #3: As previously mentioned, during the first half of the year we further strengthened our sustainable finance profile, in January we successfully placed an 850 million euros European Green Ivory Bond, which received orders of more than 7 million euros, almost nine times the amount offered.

Speaker #3: The transaction represented the first green bond standard Ivory issuance in the Italian market and achieved the lowest subordination premium ever recorded for a euro denominated corporate Ivory bond in Europe.

Speaker #3: Below 60 basis points, confirming the strong confidence investors placed in TERNA's credit profile. In addition, we continued to expand our sustainability-linked funding framework through the signing in March of a new 100 million euros ESG-linked credit facility with financing conditions linked to specific ESG targets.

Speaker #3: Finally, in June we increased the size of our EMTM program from 4 billion to 6 billion euros, further enhancing our financial traceability and strengthening our access to international capital markets.

Speaker #3: Overall, our funding structure remains well diversified and fully aligned with the group strategy, providing the financial flexibility needed to support our investment ambition. And now some closing remarks.

Speaker #3: 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 with important milestones achieved on our main projects, confirming our strong focus on execution.

Speaker #3: 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 management.

Speaker #3: Building on this strong set of results and thanks to the high level of visibility we have for the rest of the year, we can fully confirm our 2026 guideline.

Speaker #3: Thank you for your attention. We are now ready for the Q&A session.

Speaker #1: 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 OBIs.

Speaker #1: The first one is 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.

Speaker #2: And 33 million euros related to the MSD incentive schemes for the 2025 performance. The last pair number figure reflects the final outcome of Parera's regulatory assessment, which confirmed an higher incentive amount than the prudential estimates recognized at the year-end of 2025, broadly validating the assumptions and calculations previously submitted by TERNA to the authority.

Speaker #1: Excellent. Then the second one, the second part of the questions on the OBIs is if the CFO could remind what was the guidance for OBIs for full year 2026.

Speaker #2: What I can tell you is that output-based incentives in 2026 will remain mainly linked to the mechanism for reducing dispatching service market cost. For the 2026, considering both dispatching and interzonal, and including all the potential grants incentives, we expect to book more or less 200 million euros of incentives overall.

Speaker #1: Thanks. Then we switch a bit to more to the regulatory side of things. The question is, when do you expect Parera to make substantial progress with its consultation and publications on the ROS system for electricity transmission?

Speaker #2: Therefore, the relative consultation process will likely be held during 2027.

Speaker #2: However, the geopolitical situation and the resulting volatility as well as macroeconomic caution. As part of the consultation process, on the other hand, Parera could revise the current basket of comparables in case recent trends in interest rates spread and credit ratings proceed.

Speaker #2: When values will be almost crystallized and we will have more visibility on the crucial elements for the calculation of some parameters, such as the basket of comparables for the countries included.

Speaker #1: Thank you. Thank you, Francesco. Now we change 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 rotation or some other solution to decrease the leverage could be considered by the company.

Speaker #2: 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 solid and our capital plan to 2028 is fully sustainable under a financial standpoint.

Speaker #2: As was confirmed by the rating affidavits that we received in 2025 from both Standard & Poor's and Moody's, consequently to a similar rating action that happened under Sovereign.

Speaker #2: Having said that, we remain firmly committed to preserving a strong risk profile and credit status, and we are ready to take any measures that may be needed to uphold that commitment.

Speaker #2: Looking ahead, when we will update our industrial plan to reflect a revised capex curve, we will then reassess the financial instruments required to confirm the financial fundamentals of the company.

Speaker #1: Excellent. Still on the results and a bit of a deep dive, the analyst is asking which are the growth drivers behind the acceleration of the non-regulated business for the first half in terms of EBITDA obviously compared to the same period of previous year.

Speaker #2: Most of this acceleration is related to the organic growth, mainly increased marginality. Of all the businesses, only a residual part of it we are talking about 10 million euros out of 106 million euros of total EBITDA is linked to perimeter effect following the consolidation of STE in the energy services business.

Speaker #2: In general, looking into non-regulated activity at higher level, they should not be considered a standalone business. But they are closely linked to and complementary also to our regulated core business.

Speaker #2: This is also a message we want to market to better appreciate because the growth of our market-based activity does not change the TERNA's risk profile.

Speaker #2: As to the networking capital, its evolution in the first semester of the year benefited from lower cash outflows related to past two items. And from higher receivables associated with regulated activities and margin-related items.

Speaker #2: On top of this, let me point out that in the first half of 2026, we received about 300 million euros of grant in this context.

Speaker #2: Let me also remind you that according to the new regulation, we are entitled to receive the financial incentive between 5% and 15% of the overall grant value, looking ahead set we expect net working capital at year end to remain broadly consistent with the current trajectory and with the execution of our investment plan while continuing to be mainly influenced by the evolution of past two items and regulated receivables which are very difficult to project.

Speaker #1: We move on to procurement. The question is if we see any risk that are particularly coming from the current tensions in the Middle East.

Speaker #2: For what concerns procurement, let me start by saying that we are well on track given that about 92% of the projects, included in the 2024-2028 industrial plan, are covered by contract awards.

Speaker #1: Clear. So I think that given the message on strategies that was given at the beginning of the presentation, we focus the Q&A only on the operating and financial aspects of this semester, although we have received two questions which are more forward-looking and I think we can stay on these two questions still with you.

Speaker #1: Francesco, the first one is, can you provide a view about the EU proposal on electrification target and the potential implications for TERNA?

Speaker #2: Sure. Let me start by highlighting that it is only a policy document so far. And that there are still no bilingual targets. Either at EU level or at national level.

Speaker #2: Having said that, the electrification action plan, which indicates 46% from the current 22%, as the European 2040 target for electrification of final energy consumption, further confirms my view, the importance of electrification to strengthen the union's energy autonomy and counter tensions on energy prices, as well as the Commission's determinations to continue in this direction.

Speaker #2: This makes it essential to continue with a robust investment plan in transmission networks that we expect the regulators of individual countries will have to support.

Speaker #2: To this extent, it is worth noting that the increasing transmission cost in Italy is among the lowest in Europe. Coming back to the document, the Commission indicates that an accelerated energy transition with electrification at its core could reduce imports of gas by more than 70% and of crude oil by more than 40% by '24.

Speaker #2: The EU could say up to 260 million per year by '2040 on its fossil fuel import bill, a possible reduction by '2040 of gas imports by more than 70% and crude oil imports by more than 40%.

Speaker #2: Savings on the European fossil import bill of up to 160 million euros per year and a reduction in electricity generation cost of about 20%.

Speaker #2: The document, this document confirms my view the EAB's commitment to mobilize more than 75 billion euros over the next year.

Speaker #1: Thank you, Francesco. We still remain with one question, the final one, still forward-looking, more on CAPEX though. The question is, how do you think about space of CAPEX beyond 2028?

Speaker #1: And when do you expect to present the new 10 years development plan?

Speaker #2: For what concerns the expected investments beyond the planned horizon, and focusing on the development segment, which is by the way the most important one, the one that contributed the most to our total amount of CAPEX, the biggest share of our investment, the latest national development plan, the one we published in 2025, provides for investment of more than 23 billion euros over the decade.

Speaker #2: On top of this, TERNA will of course continue to invest also on the security plan and on the renewal of the bill. The new 10-year development plan will be presented in the first semester of 2027.

Speaker #2: And it will include all the development projects foreseen in the period 2027-2036.

Speaker #1: Thank you, Francesco. So this was the last question of the Q&A. So we can conclude also the Q&A session. I want to thank our management, CEO Pasqualino Monti and CFO Francesco Beccali for attending the call.

Speaker #1: And obviously for all of the analysts and investors that attended the call, the investor relations team is at your disposal for further questions or any clarification that you might need.

Speaker #1: Thank you.

Speaker #2: Thanks Fabrizio and thanks to everybody for attending the call. Bye.

Half Year 2026 Terna Rete Elettrica Nazionale SpA Earnings Call

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