Earnings Call: H1 2025

Jul 25, 2025

Good morning ladies and gentlemen and welcome to REN first half 2025 results conference call. We appreciate your presence here today. Joining us are the members of REN's Executive Committee. Rodrigo Costa, our CEO, Gonçalo Morais Soares is our CFO, and João Conceição, our COO. Rodrigo will begin with his opening remarks and this will be followed by a detailed overview on REN's operational and financial performance for the first half. Following the presentation, we will open the floor to your questions. Thank you again for your attention and continued interest in REN. Good morning. Thank you, Madalena. We all saw the presentations. I think we are on the right path. We just finished a quarter where we were extremely busy, and I think it will remain like that for the remainder of the year. Today we will talk about a few things. I'm sure we will cover again a little bit about the blackout on sev. We had some news that we will. Try also to provide some context. We are very busy now with the projects for the new regulation on electricity coming for next year. Also, we have a lot of work done working with the energy agency, the government, the regulator regarding what should be the next plans for the coming years. From what we learned in the past few months, from the comments we are getting from the market, the experts, or from our own people, all in all, super, super busy and I think even during the holidays we will keep being very busy preparing the remainder of the year, as I said. With that, I would move to thank you, Rodrigo. Good morning to you all. If you want to move to slide number four with the overview, I'd say that no surprise, kind of quarter and first half EBITDA very much in line with what we had last year, coming to €256.6 million for the first half. I'd say both domestic and international are more or less in line, one growing a little bit, more stable, but I'd say more or less in line with last year. On the net profit front, you see a material increase of 35% that results mainly on the way that we are accounting for the tax incentive that we had already last year, but some additional tax good news. I'll go a little bit more into it and share a little bit more details also on what we know about sales and the news. The third thing is, as you see, continued discipline and good behavior in terms of net debt. Not only the average cost of debt, net debt overall actually coming down a little bit. This, I believe, continues to be a differentiating factor for us from some of our peers that are also growing quite a bit in terms of investment. I think we are and have been able to manage leverage in a more conservative and positive way. CapEx, as you see, is growing and will continue to grow, so a little bit early, that will continue to grow for the full year. Let me just pass to João, that will comment a little bit on the key operational highlights. João, thanks, Gonçalo. Good morning to you all. From the operational side, obviously the most relevant issue during this first outflow of 2025 was the blackout on 28th April. This has obviously impacts on our operations, not only in terms of the way the consumption is evolving between electricity and natural gas, and I will briefly mention that in a second, but also on the responsibility that we have to implement additional measures to try to avoid similar events in the future. On slide 5, before speaking about the context in terms of consumption and setup of the portfolio of generation capacity in Portugal, let me highlight one issue from the regulation side. The fact that we have been appointed the provisional Portuguese entity responsible for planning, developing, and managing the future hydrogen infrastructure. This is a relatively important issue because it confirms the work that we are doing within the hydrogen sector. Obviously waiting for the developments in terms of needs and requests from the other stakeholders. I will jump to slide number seven and briefly comment you the business highlights. Starting by the electricity sector, despite the blackout which had an impact on that specific day, we in the first half of the year have an increase of 2.2% in terms of consumption and if we make the correction, the normal correction for the temperature and the weekdays, this slightly decreased to 2%, but it's still an increase and it's more or less in line with our forecast for the full year of 2025. In terms of the split of technologies, we keep with a high level of incorporation of renewables 77.3%, which is roughly the same figure of full year of 2024. The split between the different technologies in terms of renewable energy is more or less the same, with the major components being the hydropower and the wind power, with solar picking up as we are getting more and more projects connected to the grid. The big difference is the fact that we reduce significantly the imports from Spain versus 2024 from 20% to 10% and we increase the share of the electricity generation with natural gas, which increased from 6% to 10% and that fact is responsible for the increase in gas consumption that you are seeing in this slide. The 10.1% of increase is very much as a result of a sharp increase on the gas consumption to produce electricity, which comparing 2025 and 2024, we saw an overall increase of 123.5%. Speaking about the quality of service on the natural gas side, no big issue to report. We are keeping very high levels of availability of our infrastructure on the electricity side. What you see here is the overall figures, obviously without considering the blackout events of 28 April, which we are considering that sooner or later we'll have the classification of an exceptional event, as this was not caused by any source or any issue in Portugal. With that, Gonçalo, back to you. Thank you, João. If you want, slide number eight is just the main financial ally, I'll jump that one. We go to slide number nine and focus on EBITDA. You see that there's a mix of impacts here. We'll go into those in more detail. The first asset and OPEX remuneration, we focus on the mix of impact. Commercializations going up, gas returns coming a little bit down. We're being more conservative on the incentive on electricity this year. There's a little bit of a mix. The other revenues, mostly some corrections that were made. There's deviations on the last year. There's a lot of impact. The ones that have a stronger impact, Core OPEX is growing, renew, so it's personnel and some other costs, memory unmove, growing a little bit. International segment is adding a little bit. We'll see and I'll go into detail. It will continue to grow and it should grow a little bit more until the end of the year. Components of the business, I would say, are mostly stable in the first half of this year. On slide 10 and looking at our evolution, very much in line with what we've had last year. No major changes, things are very much stable and no news on this front. On slide 11, I'm looking at CapEx. As you know, it's a little bit early as always. I'd say that in the third quarter you have better visibility into what will happen. That being said, I can say that we are expecting CapEx to grow still quite a bit and we are very comfortable with the intervals that we gave you on the business plan. We are going to be, I think, ahead of that average. That being said, we still are facing some challenges both in, I'd say, the Normal project and in the solar agreements we still are facing some challenges in licensing. I'd say that if João's team didn't have those constraints, they would be executing clearly more this year. It's what it is. I don't think it affects or impacts anything materially. If they don't do it this year, they'll do it next year. It's just for you to know. It's nothing that concerns us, it's something that we have to live with. I'd say that's more or less it. Nevertheless, CapEx is expected to continue its strong evolution. Slide number 12, in raw returns, it's more or less more of the same story. Just to tell you that you see here the decrease in gas transportation, the increase you see in raw returns in electricity is less than it is. You should add also on these returns that we are having or considering from solar agreements. Those also add. If you also look at evolution when you look at that in electricity and as the solar agreement says, of course they are growing much more than the normal rep and we will be approaching, I'd say, more or less 4% this year. The 4% that we were targeting in terms of the business plan if we add those inside electricity this year as João said also, but I'll leave this for him to comment a little bit more on the Q&A. There's a new regulation approaching. We know that in October and December, in the middle of those months, is when we have the draft and then the final resolution. We think that clearly the increase that we saw in sign is positive news or supportive news in that respect. João will be able to comment a little bit more in the Q&A and I'll link that to him at that stage. On Slide 13 in OpEx, as I said, this is more or less what we had expected. We are continuing to see increases in personnel. This is mostly driven by more people as we have more to do. We are building much more, doing much more things. This anticipates a little bit the growth that we also see in the asset part. In terms of core OpEx, there's a couple of impacts. Part of it is electricity costs. Electricity costs have increased quite a bit since last year. That being said, be mindful that this tends to be then neutral. You see here the OpEx, but there's also a revenue associated with this. The impact is lower on the net, a net way of looking at it. In terms of maintenance costs, they're also growing. We've seen that maintenance costs are going up a little bit. It's something that we have to manage and will be managed this and in the next 10 years. I would say no major surprises from what we are looking at. In terms of Chile, also no news in Electrogas on the gas part. We are decreasing a little bit as expected. Gas volumes are coming down a little bit this year. Actually, I think that gas volumes are very much stable on a medium-term kind of outlook. We know that Chile is importing more not only in the south, but in the north, gas from Argentina. There is a large availability of gas from Argentina. We are expecting to have sustained revenues in this business unit. In Chile, electricity continues to grow. We are already consolidating Pensa. The small acquisition or very small acquisition that we made at this stage, it actually has a negative because we have some transaction costs associated with it that is pushing OpEx up, and so EBITDA down. These are small numbers. Very small things tend to affect this. I'd say that we are clearly on the trend to increase EBITDA a little bit more. We are, as I said, not expected to do any large increases here because what we have in the plan, we can come contribution to EBITDA of around 4.5%. What we have in the plan is to be around 5.5%. Even if we grow a little bit faster, we are going to be 6.5% of EBITDA. Chile is a small unit that is growing well, but is growing in a disciplined way that we want to do mainly in electricity. I said that it's relative to Chile. Looking at below EBITDA on slide number 15. No comments on depreciation. Financial results. Net debt coming down. I'll look a little bit more into it in terms of average cost of debt clearly stabilizing, even decreasing very slightly. This is around 2.7, but the reality was a little bit over 2.7. Now it's a little bit below 2.7. It has come down very slightly. I'd say that it is stabilizing. It should be around these numbers. Do not expect this. We also see ECB stabilizing rates in the market. I'd say that this is it in terms of taxes. What you see first is that contribution from the accounting of the tax incentives. You are seeing that we have two quarters already in, so 15.5. Total amount full year of around expected 31. We will see at the end of the year. It should be around this. This is the estimate we are making now. There is also some tax recoveries from previous years, I think some normal ones, some more related to R&D that we did. These are and could still, there's still some of them that we are still going to recuperate in the remaining of the year in principle. I'd say that is a little bit larger than usual. The reality is that every year we recuperate some taxes here. I think that this is a very good management that we've also done at this line. Third, in terms of the levies, just to comment a little bit. The positive news that we had is that the Constitutional Court had said that for 2019 and for the gas assets it is generically unconstitutional. All the court cases that were related to those assets for that year are lost by the state. If you remind, if you don't know, we have already one, two relative 2019, we had one that we had not won. This amounts to more or less €5.4 million. This is an amount that is not in the account, but we should expect it to be in the account, let's say in the short term. If it's not in the third quarter, in principle until the end of the year the lawyers are looking at what the Constitutional Court said, but apparently it's kind of done. Secondly, and kind of looking forward, it doesn't mean anything formally for 2020, 2022, but informally it does. I think it increases the probability that we will have, mainly in the gas part, that we will have a positive outcome for us. I think it's good news for 2019, it's good news for the following years, although let's face that we only know about 2019, so we have to wait for the rest. In terms of net profit, 16 is just the sum up of this, explaining why it's increasing 35%. Moving to slide 17 and talking about net test, as I said, I think this is something that is differentiating us from some of our peers. We are, as I said, increasing CapEx but at the same time actually increasing debt. You can see that is not. Only driven. By tariff deviations that still, I say, decreased versus last year, but are now more or less stabilizing slightly below $100 million, but let's say $100 million more or less. It is also driven by the fact that, as we said, we received a little bit more money in advance from solar agreements. We are executing, we have some delays. In terms of cash flow, CapEx is a little bit below what we thought it would be. That's why we are, I'd say, decreasing a little bit more net debt than we had anticipated. I'd say that this is not what you should expect. You should expect net debt to grow a little bit more. Although actually, looking at credit metrics, those are improving or stabilizing quite a bit. You see that there is a very well spread maturity in terms of net debt. Net debt close to five years of maturity, a lot of liquidity available. I think we are in a very, very comfortable position. We are also expected during later in the year to be considering issuing a bond. This is something that we do on a recurring basis to maintain not only maturity but to reposition again and liquidity. That is something that in principle will happen until the end of the year. Slide 18. Just looking at share price and return, we are doing okay. Share price is actually a little bit higher than what you have now in December. I think good performance clearly in the year. I think that some of these upsides that I told you about, where we trickle through, I think that the business plan is being executed. That also gave comfort. I think there's a lot of good things that are impacting shareholders. Going very fast to ESG and slide 20. You have the number here. The only thing that I want to highlight to you, as you can see, the increase, which is kind of a different trend in the past years in the greenhouse gas emissions in Scope 1, there's a 30% increase. The explanation is in the next slide, in slide 21. João also in there in these highlights also explained. First, there's slightly less renewables in the first half versus last year. That accounts for a little bit. Secondly, mostly as Jean said, gas has contributed more in terms of generation of electricity. That was a result of the blackout, as continues to be because of those days, but because of safety of system. That has an impact in these metrics. We are following this and we are and continue to be strongly committed to the targets that we have. We were clearly ahead of schedule. This is something that we look into, but we are not concerned on the ratings. No major news also change here in analytics. We kind of don't understand really the rationale because this is also tied to the blackout which, as Jean said, we have nothing to do with. We are talking with them and explaining to them that in our opinion this doesn't make sense because it had an impact on parametrics. We will correct this view and we'll continue to interact with them. Closing remarks, I say that everything kind of on track. Some additional positive tax news and both factory recuperated and looking forward. I say that on track also for a strong investment and CapEx. Okay, with that I conclude and we'll open up the floor to any questions that you have. Thank you. Thank you. As a reminder, to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one for any question. To withdraw your question, please press star one and one again. Thank you. We are now going to proceed with our first question and the questions come from the line of Fernando Garcia from RBC. Please ask your question. Good morning and thank you for taking my questions. I have two. The first one is about the fiscal effect related to the capitalization of operational companies that you have accounted their €15.5 million in the first half. It looks like you treated this item as non-recurring in first quarter, but I think now you are considering it recurring. Let me know if I am right in this appreciation, and if that is the case, can you explain the rationale for that? The second question is about the Constitutional Court in Gaza, also this €5 million revenue mining for 2019 that you mentioned, Gonçalo, what else do you need to account for it? What else do you need to happen for the following years? Also, if you think that the rational use for gas is if there is something that can be applied as well for electricity. Thank you very much. Okay, Fernando, thank you for the question. The 15.5, we are treating it as more to current because this is something that we have in 2025, 2026, 2027. We don't feel that it portrays the nature. We do feel that this is recurrent. We've told you and explained why we have this expectation. That's a little bit changed. It was only to make it more coherent and that's it. This is the amount that's around €31 million we are expecting this year. We have told you that it should be around €30 million. It can be one year €31 million, the other €29 million. We are not certain. It is recurrent at least for these three years that we told you. Second, in terms of the constitutional for the 5.4. This was very recent. This was very recent and that's why we haven't accounted it. It was actually after the end of the quarter. We are just looking and making sure that everything is okay legally. I would say that there is a strong probability that either in the third or in the fourth quarter, these €5.4 million are going to be accounted for because legally we have. I'd say the case is already made, there is no reason for us not to account for it. This is the way that you look at accounting in any given. You have to have the decision and that applies for the following years. Jul, I don't know if you want to come. Yeah. Thank you. I think what is happening, you know, sometimes we forget that on the sales case every year is, let's say, an independent case. The decision was on the gas side for 2019. That one, you know, it's supposed to be closed, as Gonçalo Morais Soares said, it happened already, you know, after the second quarter. We are now trying to understand exactly if the judges, if the court is going to make any decisions regarding the future cases. In 2019, as 2020, 2021, 2022, 2023, 2024, they are single cases. It's a law that is published each year and when the court decides, they decide regarding that single year. We don't know exactly, and there is no way we can know, of course, how they will decide regarding the future cases. When we are asked if this creates a precedent for the future, you know, of course we do believe it creates a precedent. If we are asked if this will have impact on the electricity cases, I think it should have impact also. You know, something we learned a long time ago, we are not supposed to anticipate judges' decisions, they are the ones who have to make them. Regarding another question that we always get, hey, but how much money are you expecting to recover? To be honest, you know, in the past we lost some cases, we already won some cases. In the future we expect to win more cases, but we don't know, period. That's why, you know, we have our lawyers dealing into the case, investigating, trying to understand what should be our expectations, but that's where we are today. Thank you. We are now going to proceed with our next question. The questions come from the line of Enrico Bartoli from Mediobanca. Please ask your question. Good afternoon and thanks for taking my question. First question is regarding some comments that you may have on, say, the work that you're doing on the new regulation for relative transmission. In particular, if you have any comments on possible read across from the first proposal that was made for the remuneration around 6.5% in Spain from the regulator there and what you think that could be, let's say, a satisfactory level of return that you would consider from the upcoming regulatory review. Second question is regarding the evolution of operating cost. In the first half you highlighted that there was some increase. If I understood well from your comments, you said that those increases will be offset from higher OPEX revenues over the next quarter. If you can comment on this, if let's say my understanding is correct, and the last one is regarding the CapEx for the full year. If I understand well, you are seeing some delays in some authorizations. If you can provide some more comments and more or less a level of CapEx that would be reasonable to expect to be achieved at full year level. Thank you. Thank you for your questions. I will try to start with the first one on the regulation. As you know, what we know so far is what is public, which is the public consultation that the Portuguese regulator made with the guidelines for the new framework of the regulation. There. What we can see is that in terms of the model the regulator is proposing or thinking about proposing something stable compared to what we had in the previous period. Specifically speaking about the totex model and the way it works, we don't see any substantial difference in the modeling of these totex. The news are coming from the incentives because they are upgrading the availability incentive, introducing some additional parameters, and mostly from a new incentive that they are thinking about to apply to the system operation activity in terms of maximizing the participation of renewables in the ancillary service markets. Also, in a very detailed technical issue on dynamic line rating management of our grids, specifically where's your question on the first proposal in Spain, the 6.46% of ROAR, obviously we see this as a positive sign because it reflects the trend of increasing versus what we have today. Traditionally, regulators benchmark what other regulatory models are doing, but that's not necessarily meaning that they are going to do exactly the same. Our expectation is obviously to see an increase in terms of the rate of return as a reflection of the new market conditions. On the OpEx costs. Just to clarify, what I said is that part of the cost, the electricity ones that are relevant, have an offset in terms of revenue. The impact is not directly, so you see it in OpEx, but there is a counterpart. In EBITDA it doesn't impact, but the other costs and some other costs, some O&M, some personnel, they are increasing. We are expecting operating costs decreasing in the year. In terms of CapEx, as I said also, we do have some delays. João's teams do have some challenges, but we are expecting versus last year CapEx to increase. I don't know if it's 10%, if it's more, if it's less, but we are expecting CapEx to increase this year again versus what we had last year. This was already an increase. Thank you. We are now going to proceed with our next question. The questions come from the line of Ignacio Dominic from JB Capital. Please ask your question. Hi, good morning. Thank you for the presentation and for taking my questions. The first one is just if you could remind us of the portion of the special energy tax related with the electricity assets from 2019 to 2024. The second one is related on the investment plan. If I remember correctly, the regulator recently asked REN to draft these investments given that it could actually be ahead of the schedule or of the €1.7 billion plan. I just wanted to get a clarification on the relationship between electricity and gas, particularly on green gases, given the delays in the deployment of hydrogen. In the event that there's. A. Better or a regulation that incentivizes the investments in electricity, you would actually prioritize. Electricity versus natural gas. Thank you. Ignatio, I don't know. The first question was how much we had paid off back in 2019. The value was around €28.3 million. It's around €17.4 million electricity and the rest is gas. Of the ones that are gas, as I said, there's €5.4 million that we still have to get. The other two items that we already got last year, those are the ones that contribute to those €5.6 million that we accounted for. The €5.4 million is what we are expecting them to account this year. The €17.4 million of electricity, we have no news to give you. This number then is more or less the same in 2021, 2022, 2023, 2024. They vary between €28.5 million and €27 million. That's how it varies along these years. It's more or less around €28 million. More or less the same thing. More or less the same thing. Investment. Sabir Shram, you want to comment on this? On this? Yes. Regarding the electricity plan, the investment plan, you are right. Actually, we presented a plan of around roughly €1.7 billion for the next 10 years. The regulator did the public consultation and has already released its own opinion. Basically, if you see the opinion, our understanding is that in what concerns to what we call the base projects or the projects that derive from a proposal from needs for the network, the regulator gives a favorable opinion to a large majority of the projects related to the first half of the 10 years and gives an opinion subjected to two main conditions that we believe that we can justify when we present the final draft, specifically for projects that are related to equipment necessary to improve the conditions of managing the voltage fluctuations and the voltage control, which was identified as the main issue for the origin of the breakouts in Spain and then subsequently in Portugal. We presented this in December. Obviously, we had no idea that we would have a blackout at the end of April, but it now has the best justification for the need of this investment. We believe that a significant part of, or almost the total value of, the investments we propose that requires a final investment decision in the short term, and those are applicable to the first half of the five years projects that are proposed by us, we got a favorable opinion from the regulator. What the regulator says regarding the other part is that for projects that are related to the second half, as we will have to present a new plan in two years' time, his opinion is that we should analyze these future projects when we present this new plan in two years' time. Finally, regarding the projects that derive from needs that the government decides, the regulator basically says that this has to be the government that has to take the decision. In all, we believe that this opinion is favorable for what we need related to final investment decisions on the relatively short term. I would say the first five years' time of the investment plan. In what concerns to hydrogen, the hydrogen investments are presented in the equivalent plan for. Gas. Or some specific requests we present to the government directly. This last one, we got recent approvals of some CapEx for this new first step into the hydrogen blending within our infrastructure. In what concerns to the gas plan, the public consultation made by the regulator just finished a couple of weeks ago. We need to wait for the opinion of the regulator. Thank you. Thank you. Thank you. As a reminder to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Thank you. We are now going to proceed with our next question. The questions come from the line of Fernando La Fuente from Alantra. Please ask your question. Hello, good morning. Thank you for the presentation. Just one question and a follow-up. The follow-up is on CapEx regarding your guidance or basically your assumptions. Of growing CapEx in 2025 compared to 2024. What should be the trend if we. Exclude the CapEx related to solar? Regulated CapEx is also expected to grow in 2025 compared to 2024. The second question is related to hydrogen. Following up again on the comments you made in the previous question, assuming a normal scenario in which hydrogen goes ahead, what is the investment potential for the next, let's say, five to ten years in the Portuguese system? Do you have kind of an estimation? Of where investments could go over the period? Thank you so much. No, no, that's a little bit of detail if you want what you are asking. Of course, CapEx at the solar grows a little bit. I mean we don't, we don't usually actually separate it. For us, we put everything together. We look at electricity, everything together. It is also, I say, electricity CapEx tends to be a little bit more stable and growing, and the growth comes clearly, or a lot of the differential in growth, consequently also for electricity in the solar green, which is where João's teams are executing most. I say that, and when I say that there's some delays in solar, that's why we are also saying that we are seeing some delays in overall CapEx because that's where most of the CapEx in 2025 versus 2024 in terms of growth was also coming from. I hope that clarifies what you are asking, João. Regarding the hydrogen, I think it's important to understand where we are at the moment. First, I think it's still missing a lot of, let's say, information and decisions from Brussels. Then we will need also decisions from the local government. We are working, like already mentioned before, we are working in several projects. Some are in Portugal focusing on some industrial projects that are happening and we are planning to build some of the infrastructures to carry the hydrogen in those areas. We are also working in terms of doing the certification of our network, of distribution network inclusive, which we already did to support a blend of hydrogen. We are also working with our European partners in Spain and France and also in Germany to design and to present a solution that will be a cross border hydrogen pipe that will start in Portugal and it will end in Germany. You know, we are already working, we are doing some studies for the connection between Portugal and Spain. Going back to your question, how much investment we are predicting, I think at the moment it would be absolutely impossible to give you a number. Maybe, you know, by the fall end of the year we will be able to have more data and we can give you a number. For the moment, I don't know, João, if you want to add something. Extra, just the only number we can give, and it's public, is actually what we presented in the gas plan that was under the public consultation and specifically for hydrogen. In terms of the upgrading of the existing gas infrastructure to accommodate the full blending of gas and hydrogen, we forecast around €111 million of investment for the period of the plan, which is basically 10 years. As Rodrigo said, this is very much subjective to the pace of development of the hydrogen within the energy economy equation. If it goes faster, we will have to execute this, otherwise you don't have the infrastructure to inject the hydrogen that is produced. If it goes slower, we can adjust the timing of these investments and spread it a little bit for a longer period. This is what we can say for the moment. Thank you. Very clear. Thank you so much. We have no further questions at this time. I'll hand back to you for any closing remarks. Thank you everyone on the line. We remain available for any additional questions that you may have. Have a good day. Thank you. Thank you. In case. Thank you. Thank you so much.