REN - Redes Energéticas Nacionais, SGPS, S.A. (RENE) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to REN's First Half 2026 Results Conference Call. We appreciate your time and availability this morning. Joining us today are the members of REN's Executive Committee, Rodrigo Costa, our CEO; Gonçalo Soares, our CFO; and João Conceição, our COO. Rodrigo will open with his opening remarks, and then this will be followed by a detailed overview on REN's operation and financial performance. Following the presentation, we will open the floor to your questions. Thank you again for your attention and continued interest on REN.

Well, thank you, Madalena. Good morning all, and thanks again for being with us today. This is the call that -- it's just before the holidays of most of the people. As you probably saw, we had another good quarter, both from operational and finance perspective in Portugal and also in Chile. This time, we don't have any major event to report on. And today, the introduction will be really short. And I believe we are making very good progress in all fronts, and we will go through the details. And now Gonçalo takes the lead.

Thank you, Rodrigo. Good morning to you all. So I'd say another set of good and solid results. We are delivering on the strategic update that we made to you on March of this year, say slightly ahead of that estimate. On Slide #4, you have the key messages. So EBITDA grew almost 11%, 10.8% to be more precise, mostly on the back of strong domestic EBITDA, which is mostly driven by the new regulatory framework in electricity, but also some contribution from international operations. On net profit and building on that, you also see good growth also because of improving financial results and mostly because of tax impact, not only the levy in gas that went away, but some court gains that we made from previous decisions and recuperation that we are making on the levy. So here, we should clearly expect growth, but don't expect this kind of percent-wise growth -- percentage growth for the full year. In terms of net debt stability, most of the debt is basically in line. Average cost is coming down a little bit also on the back of improving rating. On CapEx, we are delivering the growth that we have been promising. CapEx has increased around 23%. So also transfers to RAB have also increased. And this despite the fact that we have very strong storms, the Kristin storm at the beginning of the year, operating teams made an incredible job, and we're able to continue to work also on other fronts and deliver this growth. Let me just pass to João that will give you a brief update on what's going on, on more of the operating side. João?

Thanks, Gonçalo. Good morning to you all. On Slide 5, you have the key message from the operational perspective. I would highlight the fact that on the electricity grid side, the Portuguese system maintained a very high level of renewables penetration, slightly above 70% of the total consumption in the first semester of 2026 was generated from renewable sources, with approximately the same distribution per technology as the previous years, 2025. We keep seeing the consumption to increase around 3.5%, and that's the expectation -- approximately the expectation we have for the following months. Meaning that this is in line basically with the plans that we foresee and the need for additional infrastructure as we presented in our investment plan. On the natural gas side, you see here an increase on consumption of 6.1%. That's mainly driven by the usage of natural gas for electricity generation and that derives from the fact that we were forced to introduce some combined cycle plants into the system for security of supply purpose just after the last year event, the blackout in 28th of April as well as the storms like Gonçalo mentioned, the Kristin storms that we had in Portugal in January 2026. Another point to highlight related to the blackout is the fact that the Portuguese regulator classified the blackout as an exceptional event. We were kind of expecting this classification, and that's quite important because it accounts for our quality of service indicators. We also see another aspect that is relevant from the operational perspective is the fact that the Portuguese government launched the consultation and the plan, the strategic plan for storage, which again will put some extra needs for CapEx within our infrastructure. And moving to Slide #7. Basically, you have the different indicators apart from the consumption, which I mean the renewable share, which I mentioned, I would just highlight the fact that we keep the very high levels of quality of service. Even though you have an average interruption time on electricity significantly higher than the previous year, that derives from the fact that we are considering in this 3.41 minutes, the impact of the Kristin storm, although we are also expecting this to be classified as an exceptional event. And if that is the case, this won't count for the indicators and the interruption time reduces significantly to 0.01 minutes, perfectly in line with the previous years. On the natural gas, the levels of quality of service are kept at the high level as previous before. And with that, I pass to Gonçalo.

João, thank you. So on Slide #8, just the main highlights. I think I've gone through this, the increase in EBITDA, the increase of 42% in net profit, net debt stable. So moving on to Slide #9 in EBITDA. You can see that most of the increase comes from the asset and OpEx remuneration, and this is basically the increase in new regulation in electricity. There's also an increase in the semester of the incentives, which at year-end should actually be slightly lower than we had last year as they are a little bit more challenging to achieve and that we actually made the expectation to you. So this will probably slightly be lower at the end of the year, but the logic is the same. The costs are increasing mostly by personnel and some other external costs, which are also included partially in additional OpEx allowances that you see on the asset and OpEx remuneration, okay? The International segment delivered well. And so what you can see is electricity growing and surpassing clearly 2/3 of what is the weight in EBITDA. And you also see the international growing close to 6%. So still a small number as we like to keep it, but growing at a good pace. In Slide #10, you see basically the increase of rates in electricity, although rates do are coming up a little bit. So probably the rates of return on the assets at the final -- when we determine them in 30th of September will be slightly higher, but not very much higher, but slightly higher than what was initially estimated at the beginning of the year. In terms of 11 -- of investment, I'm sorry, in Slide 11. As you know, it's still early, but I think that despite the fact, as João was mentioning that we have the Kristin storm and that we have all of the operating teams in the field, the fact that we are still delivering strong CapEx and we are still delivering strong transfers to RAB is a very positive sign. So we are, I'd say, very optimistic and very constructive in looking at the full year. We -- I'd say, a nice double-digit growth in CapEx versus last year, which would -- versus 2024 because last year, you had some, I'd say, special CapEx in Chile. But if you compare it to 2024, you would have, I'd say, significant increase in CapEx versus that year, okay? In terms of RAB returns in Slide 12, a little bit what you already know. So the normal dynamic in these several segments, nothing to add here. Let me just move to Slide 13 to comment on OpEx. So I'd say that this is in line. We are still going after and controlling OpEx quite well, but the business is growing. So it's normal that OpEx growth. This is basically on personnel driven by more people and some normal general increases. And in core external, it's basically tied to maintenance costs and IT costs, which are then protected also under the regulation. It's normal that in the first year of regulation, the spread and these are a little bit and you are not still recuperating what you want to recuperate in terms of external costs, but this is going to be quickly being recuperated through the regulatory framework, okay? In terms of international in Slide #14, I'd say, solid results. So Transemel growing a lot, but this is mostly also -- not only but mostly because of the small acquisitions that we made last year. So everything completely already internalized. The assets are already functioning well. And the -- I'd say, the normal assets that we have in Transemel are also progressing quite well, and we are in line to keep the investments and to be able to fulfill the investments that we had planned for Transemel this year in Chile. In Electrogas, you see very small decreases year-on-year. But the reality, to be honest, is that we are optimistic on this business. We are seeing a renewed push for increase in the gas imports from Argentina, and there may be some growth here also in the coming future. So I think that this is also a segment that although not as sexy and although not having as much growth as electricity is also performing quite well and could actually have some growth in the coming years. Looking at below EBITDA. So depreciation basically in line, nothing there to add. In terms of financial results, there is an improvement. This comes from several sources. First, because we are receiving interest from the levies that we are winning in court. So that's important. Second, because net debt is slightly lower and in line. Third, because we are able to decrease a little bit the average cost of debt. Bear in mind that the average cost of debt may increase now again because we are seeing increases being implemented by ECB. There may be another increase in September. So although we issued very well at the time that we issued in February, there may be some pickup. But the fact is that we -- the improvement in the ratings that we are also -- now seeing also is helping us insulate from these increases and is helping us control and maintain the cost of debt at a very optimized level. In terms of taxes, basically, the story is, one, the elimination of the levy in gas that we already have this year. So it's the EUR 10 million less. And secondly is the recuperation that we are seeing. We have this recuperation of EUR 4.1 million already in the accounts. Although nothing changed structurally in levy. So we have no news. We didn't have any court case in electricity that would be interesting to tell you. But what we are seeing is that the court cases in gas are slightly accelerating the dynamics. So we are seeing more court cases being out. So we already recognized. It could be that during the year, we will recognize more things until the year-end relating to court cases of gas and recuperations in court, okay? So in terms of net profit, all of this in Slide 16 put together, so strong EBITDA, strong financial results, strong tax recuperation, okay? All of these make this 42% increase. As I said, we are not expecting this -- we are expecting an increase, but not this increase for the full year. On Slide 17, in debt, everything very much in line. So net debt actually evolving positively quite well. Part of it is because of tariff deviations that are now at a very low level. And also because we are still in the dynamic of receiving and implementing the solar agreements. This other line that you see here is mostly related to that. So we are receiving sometimes the CapEx we do a few months later. So this is also kind of a timing issue as João's teams are building and implementing the solar agreement CapEx that we have in line, okay? So net debt very stable, maturity stable at 5 years, a lot of liquidity still. So controlled cost debt. So we are very comfortable with our funding position. We are seeing improving ratings. So we are clearly building flexibility here also at the net debt level, okay. Slide 18, just the share price is going up. Now in the last few days have come down a little bit. So I think we are still performing well with the market, but this is kind of going up and down the normal dynamic, nothing here to add. In terms of the ESG, just on Slide 20, just to repeat, and this builds on the comments that João made. So the most interesting here is that you see the greenhouse gas emission growing a little bit around 3%, the Scope 1 and 2. This is driven by what João explained, the security of supply issues and measures that we took. So they made this increase. We are expecting this to level off a little bit more on a full year kind of one, okay? I'm not going to go through the detail of Slide 21. Slide 22 with the ratings, you are basically seeing that improvements are getting smaller. So I think we did a lot of job. We are still investing a lot of time and resources in this -- in ESG, but the results in terms of ratings are going to be slightly smaller because we are getting to higher level, okay? So in terms of closing remarks, just to tell you on Slide 24. So this is basically what we've been and what we told you in the update. In EBITDA, we are seeing the positive impact of the constructive regulatory framework in electricity. In net profit, and building on that, we see the impact of not only funding, but also of the tax recuperation that we knew. In CapEx, we are seeing the growth that we promised to deliver. In net debt, we are basically seeing the strong balance sheet that is enabling improvement in rates. What you can also expect and what we can also tell you is that versus what we told you in March of this year in the strategy update, we are delivering. We are comfortable with the EBITDA interval that we gave you and with the consensus that we gave you. We are actually very comfortable with the net income consensus and the interval that we gave you on that. And on CapEx, we are also very comfortable with the interval, and I think we'll probably be closer to the upper range of the level that we gave you on that interval rather than to the middle, okay? So I think we are delivering well on what we promised you. And with that, I conclude and I open up to any questions that you may have. Thank you.

[Operator Instructions] And the questions come from the line of Alessandro Di Vito, Mediobanca.

I have 2. First one, I understand that you are comfortable with the ranges that you provided with the strategic update. That said, the net income of first half is a little bit ahead of the midpoint of the range that you provided. So I wanted to understand whether do you see maybe some upside at bottom line at full year? Or should we expect some seasonality maybe in the second half? And if yes, what could be the explanation of that? Second question, I would be interested if you could provide some color on the consultation on the electricity storage that you mentioned at the beginning of the presentation. Specifically, if this could be also an opportunity for you or if this, let's say, this segment would be only focused for liberalized operators?

Okay. So on your first question, I think that everything that we have on the update is kind of coming out as we planned. So all of the impact of regulation, all of the CapEx, everything, all of the costs. I think what makes it be a little bit ahead or not also may be the tax recuperation. So if they happen faster and they fall, that's a timing that we don't control when they happen. So if they happen at, I'd say, at a faster pace, we may beat a little bit the number that we gave you. If they don't happen so fast, we may -- so it's not that it's anything structural with the business that would make you. But yes, there is a possibility of an upside versus the interval that we gave you. So that's why I told you that we are very comfortable. But most of it is, I'd say, is driven by this reason. João, do you want to comment on the storage?

Sure. Thanks, Gonçalo, and thanks for the question. Well, regarding the -- what has been announced by the government is a push both on chemical storage, so the usage of batteries, what considered to be the short-term storage, but complemented by what they consider to be the long-term storage, which is pumping storage. So they have some targets for that was announced, more short-term targets for the batteries, medium, long-term targets for the pumping storage. The storage are -- is supposed to be developed by market agents and market operators. So it's not considered to be something that is under the operation of the system management or the network operator. Having said that, in order to connect this new capacity, we will be obliged to develop extra grid elements, and we will be obliged to increase our CapEx so that this capacity is fully connected to the grid.