Earnings call transcript: Terna Q3 2025 shows strong revenue growth

Terna Rete Elettrica Nazionale SpA reported solid financial results for the third quarter of 2025, with significant increases in revenue and net income. The company's stock, however, experienced a slight decline of 1.26% following the earnings announcement. Despite this, Terna maintained its positive outlook for the remainder of the year, emphasizing its ongoing investments in grid modernization and renewable energy infrastructure.

Key Takeaways

• Q1-Q3 2025 group revenues rose 9% year-over-year to €2,882 million.
• Net income for the first nine months increased by 5% to €853 million.
• Total capital expenditure surged by 23% to €2.1 billion.
• Stock price fell 1.26% post-earnings announcement.
• Continued focus on energy transition and infrastructure development.

Company Performance

Terna demonstrated robust performance in the third quarter, driven by strategic investments in infrastructure and renewable energy projects. The company's revenue and net income showed healthy year-over-year growth, reflecting its strong market position and successful execution of its industrial plan. Terna's leadership in renewable energy transmission infrastructure continues to bolster its competitive edge.

Financial Highlights

• Revenue: €2,882 million (+9% YoY)
• EBITDA: €2,026 million (+7% YoY)
• Net income: €853 million (+5% YoY)
• Total CapEx: €2.1 billion (+23% YoY)
• Net debt: €11.7 billion (up from €11.2 billion in 2024)

Market Reaction

Following the earnings release, Terna's stock price declined by 1.26%, closing at €9.014. This movement came despite the company's positive financial performance, possibly reflecting investor caution amid broader market trends or specific concerns about future growth prospects.

Outlook & Guidance

Terna reiterated its full-year 2025 guidance, projecting revenues of €4.03 billion, EBITDA of €2.7 billion, and net profit of €1.08 billion. The company plans to invest approximately €3.4 billion, focusing on energy transition and grid modernization initiatives. Looking ahead, Terna expects continued regulatory support for its projects, which are crucial for Italy's energy transition.

Executive Commentary

"We remain strongly focused on executing our industrial plan," stated Francesco Beccali, CFO. He emphasized the rapid advancement of the broader energy transition and highlighted the role of data centers in driving future power demand. Beccali's comments underscore Terna's commitment to maintaining its leadership in renewable energy infrastructure.

Risks and Challenges

• Regulatory changes could impact project timelines and profitability.
• Economic uncertainties may affect electricity demand and pricing.
• Supply chain disruptions could delay infrastructure projects.
• Competition in the renewable energy sector is intensifying.
• Fluctuations in interest rates may impact financing costs.

Q&A

During the earnings call, analysts raised questions about the potential sale of a transmission grid stake, which Terna denied. The company also addressed its financial solidity and sustainable CapEx plan. Additionally, Terna highlighted strong interest in data center connections, with 378 active requests totaling 64 GW, indicating robust future demand.

Full transcript - Terna Rete Elettrica Nazionale SpA (TRN) Q3 2025:

Conference Moderator: Afternoon, ladies and gentlemen, and welcome to Terna 9 Month 2025 Consolidated Results Presentation. At this time, all participants are in listen-only mode. Please be advised that today's conference is being recorded. I would like to hand the conference over to our host speaker today, Mr. Stefano Gamberini, Head of Investor Relations. Please go ahead, sir.

Stefano Gamberini, Head of Investor Relations, Terna: Thank you very much. Good afternoon, everyone, and welcome to the presentation of Terna's 9 Month Results 2025. This call will be hosted by our CFO, Francesco Beccali. Following the presentation, there will be the Q&A session, so we kindly ask you to send your question to our email address, investor.relations@terna.it. Please, Francesco.

Francesco Beccali, CFO, Terna: Thank you, Stefano, and good afternoon, everyone. Before looking at the figures, I'd like to take a moment to highlight some of our most recent achievements. Let's start with grid development, where we have made significant progress across multiple fronts in the past few months, starting with the Tyrrhenian Link, one of the flagship projects in our 2024-2028 industrial plan. Let me remind you that before the summer, we completed the laying of the first submarine cable of the eastern section, and on September 16, Terna and Nexans began the first installation phase of the western section, connecting Sicily and Sardinia. Once completed, it will set a world record for the deepest high-voltage subsea cable installation, reaching 2,150 meters below sea level. This project will also represent a significant step towards Italy's urbanization target.

On October 21, the Ministry of Environment and Energy Security formally launched the authorization process for the Central Link project, which plans to rebuild the 220 kilovolt backbone between Umbria and Tuscany, a crucial step to enhance transmission capacity, grid robustness, and renewable integration. Shortly after, on October 27, the Ministry initiated the authorization procedure for the Sardinian Link, a project to reconstruct and modernize Sardinia's grid infrastructure, strengthening the island's transmission capacity and ensuring a more stable and resilient electricity system. These projects are included in the development plan and are scheduled beyond the business plan horizon. A distinctive feature of both the Central and Sardinian Links will be the use of Terna's proprietary five-phases technology in their construction, an innovative design that represents a major step forward in the evolution of transmission infrastructure.

These new pylons are lighter, more environmentally integrated, and capable of increasing transport capacity while reducing electric and magnetic fields, contributing to a more efficient and sustainable growth of the grid. Moreover, with regard to the authorization update, we signed a five-year memorandum of understanding with the Marche Region to enhance the planning of new infrastructure, and the Ministry kicked off the approval process for overhauling the city of Ferrara's electricity grid. Lastly, in September, Terna completed the acquisition of part of the high-voltage grid in Rome from ACEA for EUR 227 million. An operation aimed at strengthening the continuity and security of the electricity transmission service. This acquisition will also allow for more effective decision-making on renewal and development investments across the central Italy transmission network, while having only a limited impact on Terna's financial leverage and remaining neutral for our credit rating.

Beyond infrastructure development, we have also made important progress on the procurement front. Let's move to the next slide. We continue to effectively manage potential supply chain risks through timely and efficient mitigation actions. As of today, around 88% of our 2024-2028 CapEx plan is already covered by procurement contracts, up from more than 80% in March. All major projects, including the Tyrrhenian, Adriatic, and SACOI, three links, are fully contracted. For the element interconnection between Italy and Tunisia, the cable portion is already secured, while tenders for the converter stations are currently underway. The residual and first portion of the planned procurement contracts primarily relate to projects scheduled for the latter part of the period, whose procurement will naturally be finalized over time. That means now to regulation.

A few days ago, ARERA published Resolution 476 of 2025, verifying whether the conditions for the activation of the trigger mechanism for 2026 were met. As the variation in market parameters of the formula remained below the 30 basis point threshold defined in the regulatory framework, the current WACC of 5.5% for electricity transmission will remain unchanged in 2026. As regards to ROS mechanism, the regulator published in August the Resolution 390 of 2025, launching the experimental phase of ROS integral mechanism for the 2026 and 2027 period. In October, Terna submitted to ARERA its 2026-2027 business plan and proposals for incentives linked to operational and performance efficiency. The business plan will be the reference for the fast money slow money mechanism and for the new incentive penalty mechanism introduced by the regulator for the accuracy of CapEx.

Still on the regulatory side, in October, ARERA also published Resolution 440, recognizing Terna's EUR 93 million of out-based incentives for additional interzonal transmission capacity and investment efficiency. Finally, regarding shareholder remuneration, today, the Board of Directors approved the 2025 interim dividend at EUR 11.92 per share, flat compared to last year's interim dividend. Please note that the new dividend policy communicated to the market in March sets a minimum dividend per share equal to the 2024 dividend for the entire duration of the 2024-28 business plan. Now, let me briefly give you the usual overview of the Italian electricity market. Turning to the next slide. As you can see from the chart, in the first nine months of 2025, national demand was about 233 terawatt-hours, recording a negligible contraction of 1.2% in comparison with the same period of last year, when national demand was about 236 terawatt-hours.

Over the period, renewable sources covered about 43% of national demand, in line with the level registered last year. For what concerns national net total production, this stood at 201 terawatt-hours, up by 1% compared to the same period of 2024. In the period, renewable sources accounted for about 50% of the national net total production, essentially in line with the level recorded in the same period of last year, when renewable energy sources covered about 51% of net total production. To conclude, let me highlight the remarkable increase in photovoltaic production, which grew by 23% versus the first nine months of last year, compensating the reduction in hydro generation. With renewables continuing to play a major role in Italy's power mix, flexibility becomes crucial. Before moving to the financial results of the company, let's turn to storage and the progress made under the MAXIM mechanism.

Moving to the next slide. As you know, storage is the next frontier of the energy transition, essential to ensure flexibility and a system increasingly powered by renewables. As of September 30, Italy's total electrochemical storage capacity stood at 17.4 gigawatt-hours, mostly small-scale systems, of which around 4.4 gigawatt-hours were installed since December 2024. While small-scale installations still represent the majority, we are now witnessing a sharp acceleration in large-scale battery projects. In September, we successfully held the first auction under the MAXIM framework. The auction awarded a total of 10 gigawatt-hours of storage capacity, fully covering the demand. Results confirmed strong market interest in the mechanism, with bids exceeding demand by more than four times and average clearing prices around 65% lower than the reserve premium, around EUR 30,000 per megawatt-hour and year, compared to a cap of EUR 37,000.

The contracted facilities are expected to enter into operation by 2028, alongside renewable plants from the FEDEX auctions, helping to balance the system and reduce reliance on fossil fuels for power generation, in line with the national decarbonization objectives. On this, the first auction of the so-called transitional FEDEX closed in September, with final rankings expected by December 11. It saw strong participation, awarding up to 12 gigawatts of wind and solar capacity to be commissioned by 2028. A second FEDEX auction, which focused on resilient photovoltaic systems, was held in October and offered an additional capacity of almost 2 gigawatts. The final rankings are expected by the end of December. Overall, these results mark a major step forward in Italy's energy transition. Now, let's move to the main figures of the period at slide number 8.

In the first nine months of 2025, group revenues and EBITDA increased by 9% and 7% respectively versus last year, increasing by approximately EUR 135 million and EUR 134 million compared to the first nine months of 2024. We also reported a group net income of EUR 853 million, with a growth of 5% compared to the same period of last year. Group CapEx reached around EUR 2.1 billion, marking an increase of approximately 23% versus the first nine months of last year and setting a new record in Terna's history. This confirms once again our effort to accelerate investments to serve system needs. To support this CapEx acceleration, at the end of September 2025, net debt stood at EUR 11.7 billion, slightly higher compared to the value recorded at 2024 year-end of about EUR 11.2 billion. Now, let's have a closer look at the results moving forward. Let's start, as usual, with revenues analysis.

In the first nine months of 2025, total revenues increased by 9%, reaching EUR 2,882 million, up by EUR 235 million versus last year. The growth was attributable both to regulated and non-regulated activities, which contributed for EUR 135 million and EUR 99 million respectively. Let's now take a closer look at the evolution of revenues, turning to the next slide. Regulated revenues reached EUR 2,357 million, with an increase of more than 6% versus previous year. The growth was mainly driven by the rapid growth deriving from the recognition in tariffs of 2024 capital expenditure, including the update and revaluation of capital cost parameters. The early recognition in tariffs of depreciation related to 2024 capital expenditure, one year in advance compared to the previous regulatory framework, and the fast money component set on the conventional capitalization rate defined under the ROS application.

These factors more than offset the weighted average cost of capital reduction from 5.8% to 5.5% in 2025 and the lower out-based incentives contribution versus last year. Non-regulated revenues reached EUR 525 million, recording a double-digit increase of 22.3% in comparison with the same period of last year. The improvement mainly reflects the higher contribution from the equipment segment, which includes Tamini and Brook cables, and from the energy services segment. Now, let's go to operating cost analysis. As you can see in this chart, total operating cost stood at EUR 856 million, 13% higher than last year. The regulated activities' cost increase is mainly driven by the rise in the headcounts and the higher average cost of labor, partially offset by higher capitalizations. The non-regulated activities were primarily impacted by higher costs for material and services related to the development of activities, mainly in the energy services segment and equipment segment.

These increases were driven by higher volume of activities, reflected also in revenues growth. Regarding EBITDA, moving to the next slide. Thanks to the acceleration in revenues, nine months 2025 group EBITDA reached EUR 2,026 million, 7% higher than the same period of last year. The improvement was mainly attributable to regulated activities, which contributed for about EUR 99 million more versus the first nine months of the previous year, showing an EBITDA of EUR 1,923 million. EBITDA from non-regulated activities increased by 51% to EUR 103 million, mainly driven by a stronger contribution from the equipment segment, with improving margins from both the Tamini and Brook cables groups, as well as better results from the energy services. Let's now have a look to the lower part of the P&L, turning to the next slide. DNA amounted to EUR 679 million.

The rise versus last year figure was mainly related to the entry into service of new infrastructures. As a consequence, the EBIT reached EUR 1,348 million, 7% higher versus the first nine months of 2024. The net financial expenses amounted to EUR 132 million. The slight year-on-year increase of EUR 27 million is mainly due to the drawdown of new financing and the lower financial income resulting from cash investments, partially offset by higher capitalized financial charges. Taxes stood at EUR 362 million, 24 million higher versus last year, essentially due to improved results. Our tax rate was 29.8% compared to 29.4% in the nine months of 2024. As a result, group net income reached EUR 853 million, marking a 5% growth versus the same period of last year. Moving now to CapEx analysis.

In the first nine months of 2025, total CapEx reached around EUR 2.1 billion, up by 23% year-on-year, confirming the solid CapEx acceleration in line with planned targets. We invested about EUR 1,972 million in regulated activities. Among the main projects of the period, it is worth mentioning the Tyrrhenian Link, the Adriatic Link, SACOI three, the modernization of the high-voltage grid in the locations due to also the Winter Olympics in 2026, and the Keramonte Gulfish Mina power line. Moreover, we should consider the investments planned under the Defense Plan, which play a crucial role in reinforcing the resilience of the national transmission system through the installation of synchronous compensators, shunt reactors, and dumping resistor systems. Among CapEx categories, development CapEx represented 57% of total regulated investments. Defense CapEx stood at 13%, while asset renewal and efficiency was at 30%. Non-regulated and other CapEx stood at EUR 115 million.

This includes capitalized financial charges and other investments. Turning to the next slide, cash flow generation from the period amounted to around EUR 2.2 billion. This was the result of around EUR 1.5 billion of operating cash flow and around EUR 700 million of working capital and other items. Net debt at the end of September 2025 was about EUR 11.7 billion, around EUR 500 million higher than 2024 year-end level, primarily due to the CapEx acceleration and the dividend payment. Let's now make a deeper analysis of our debt profile, moving to slide 17. At the end of September 2025, we registered a fixed floating ratio on gross debt of around 83%, with an average duration of approximately six years.

Consistent with Terna's strategic approach of aligning capital allocation with sustainability goals to enhance long-term value, as of the end of September, Terna's sustainable financing portfolio included EUR 3.75 billion in senior green bonds and EUR 1.85 billion in perpetual subordinated hybrid green bonds. On this, let me remind you about the successful launch of the first European green bond, with a total nominal amount of EUR 750 million made in July. This bond, which received a very favorable market response, will pay an annual coupon of 3%. In addition, Terna can rely on EUR 2 billion in ESG-linked term loans, three ESG-linked revolving credit facilities for a total of approximately EUR 4.3 billion and EUR 2 billion Euro Commercial Paper Program dedicated to the issuance of short-term conventional or ESG notice.

To conclude, as already communicated to the market in July, the European Investment Bank, Terna, Intesa Sanpaolo, and SACE have signed agreements totaling EUR 1.5 billion to support the development and construction of the Adriatic Link, the submarine power cable linking the Italian regions of Marche and Abruzzo. Thank you for your attention. Let me now conclude this presentation with some closing remarks. First of all, I would like to emphasize that we remain strongly focused on executing our industrial plan. As I stated during the presentation, alongside delivering a solid set of results, we continue to make tangible progress across all our main projects while keeping a disciplined approach on the procurement front despite a still challenging environment. All of this confirms once again our ability to deliver on our commitments. At the same time, the broader energy transition continues to advance rapidly.

The recent FEDEX and MAXIM auctions have shown clear evidence of this progress, with over 12 gigawatts of new renewable capacity awarded under the FEDEX scheme and 10 gigawatt-hours of storage capacity contracted in the first MAXIM auction, both at competitive prices well below the respective caps. These results confirm the market's strong momentum and the soundness of the regulatory framework supporting the transition. To conclude, we firmly confirm our full year 2025 guidance. We expect to achieve revenues of EUR 4.03 billion, an EBITDA of EUR 2.7 billion, and a net profit of EUR 1.08 billion. In terms of investments, the group has set a target of approximately EUR 3.4 billion for 2025. Thank you for your attention. We are now ready for the Q&A session. Thank you, Francesco. Now we are ready to start with the Q&A session.

Francesco, we received many questions regarding the press rumor about potential sale of transmission grid stakes. Could you comment about it? Despite we do not use to comment on press rumors, let me be clear on this point. At current stage, this is not an option on our table. We constantly analyze all the possible instruments available to finance the development and maintenance of the national transmission grid, and the results of these analyses are always reflected in the decisions set out in the industrial plan. In this sense, let me confirm what we have been stating since we presented the update of our plan back in March. Our CapEx plan to 2028 is fully sustainable under financial standpoint.

The upgrade of our rating to A- for standard improvements and the revision of the outlook to positive from stable by Moody's registered in April are further confirmation of our financial solidity. As of today, the range of flexibility tools we could evaluate are the remaining hybrid issuance capacity, which is worth more than EUR 2 billion, as well as seeking additional public contributions to strengthen the financial structure and considering options to valorize and monetize our non-regulated activities. Now move about out-based incentives. What is the number of OBIs accounted in the nine months 2025? Is your expectation for the full year confirmed? In the nine months revenues, there is no contribution coming from the out-based incentives related to dispatching services market efficiency incentives. These will be recognized in the last quarter when we will have full visibility and certainty in line with the accounting principle.

In the nine months, we have instead registered EUR 16 million relative to the interzonal incentives. With reference to the full year, our expectations reflect the update in the performance estimated for 2025, which allow us to reach and possibly exceed the guidance already provided after the first quarter of 2025 of more than EUR 50 million of OBIs contribution. Thank you. Still about guidance. Why are you not increasing the guidance for full year despite you are already at around 80% on full year net income guidance? The strong results we registered in the first nine months increase the visibility and the reliability of the guidance we communicated back in March.

However, as I've just underlined in the previous answer, we still miss full visibility on some elements, such for example, dispatching incentives, for which we need to wait the end of the year to determine the early performance with full certainty. Let me remind that this is the first year of the new dispatching incentives framework renewal. All the incentives we will account for for this in 2025 will depend on 2025 performance. Thank you. Given resolution 440/2025 on interzonal incentives recognized to Terna, do you upgrade guidance on OBIs? As we have already stated in the presentation, we wish to highlight that these around EUR 93 million of interzonal incentives improve the visibility on EUR 900 million guidance of total OBIs for the 2024-2028 period. As we always reported, these interzonal incentives will be accounted for over three years starting by next month.

In the first half of 2025, we have already registered EUR 16 million of interzonal incentives recognized from previous years. We did not disclose the breakdown of our OBIs guidance among the different mechanisms. However, let me remind you that the overall amount mostly refers to existing out-based incentives framework with a bigger contribution from the dispatching service and for a residual part relative to instead the ROS integrale schemes back to loaded. Okay. Can you comment on the ROS integrale expected incentives and potential timeline? The last resolution published by ARERA basically confirms ARERA's focus on the need to incentivize companies to deliver strategic high-value energy infrastructure in an efficient way. ARERA allows companies to submit proposals for new reward-only out-based incentives as part of their business plan, which will be subject to the regulator's scrutiny and approval.

We do not rule out the possibility the regulator will issue new incentives before the end of the current regulatory period. Okay. Now on data centers. Do you see any significant acceleration in data center projects? In Italy, the connection requests to the grid associated with the construction of data centers have experienced strong and continuous growth in recent years. As of the 31st of October of this year, the total high-voltage connection requests reached approximately 64 gigawatts, with around 378 active requests. Geographically, around 80% of connection requests are concentrated in northern part of Italy, especially in Lombardy, around Milan, confirming the region as the primary hub for data center development. For this reason, data centers will represent one of the drivers, together with the electrification of domestic consumption and electric mobility, underlying the expected increase in power demand in future years.

Now, could you please provide an update of authorization and procurement status over industrial plan horizon? Sure. The procurement process for our investments is progressing in line with the industrial plan. Projects currently still in the authorization phase, with expected completion beyond the plan horizon, are not strategic and have a limited impact on total CapEx. The authorization processes for major projects planned after 2028 will be launched in due course. As of today, all our main HVDC projects included in the current plan have received the necessary authorizations, and around 92% of the projects in the plan have completed the approval processes. Moreover, we are actively working to complete all authorization procedures according to the planned implementation timelines, both for 2030 and for the longer term horizon toward 2024. On procurement, we are fully aware of the potential supply chain shortages and bottlenecks affecting the industry.

To manage this risk, we have taken several steps to ensure continuity. Thanks in part to the support of Brookheaderwood and Tamini, around 88% of 2024-2028 CapEx is already covered by existing procurement contracts, up from the 80% in March. Very well. Now, moving to the working capital, could you give a bit of color on the dynamics in nine months 2025 and your expectation for year-end working capital figure? In the third quarter, the working capital and other items reports a decrease of about EUR 700 million compared to the end of 2024. This variation has a positive impact, obviously, on our cash flow.

This result is mainly attributable on the one end to an increase of about EUR 390 million in net pass-through energy payables, mainly due to higher debt from the essential plants for the security and electricity system, the so-called unit essentials, and the capacity market, partially offset by higher credits from the cost of procuring resources on the dispatching market services. On top of that, we have to take account of the increase in other net liabilities, essentially due to the increase in security deposits received from operators participating in the capacity market and the higher planned subsidies received from third parties.

We also have to take into account the decrease of about EUR 156 million in the receivables resulting from regulated activities attributable to the collection of the previous year's dispatching market efficiency incentive, partially offset by the higher receivables attributable to the transmission revenues due to the tariff update set by ARERA Resolution 579 of 2024. Finally, this amount also includes the effect of the closing of the acquisition of the high-voltage grid portion from ACEA. Regarding working capital forecast for year-end, due to the ordinary seasonality, let me remind that we expect a significant reduction in working capital liabilities pending payment resolutions from ARERA. Thank you. Finally, about regulation. When do you expect new board of ARERA? Do you see any risk of ARERA changing approach towards the energy transition and the support for investment in the electricity networks?

As we always say, the rationale underlying the energy transition in Italy is very strong because it basically allows to reduce the dependency of the country from imported energy and commodities. The energy transition could not go ahead without investments, and we play a central role in such process. We understand that the new board of ARERA should be appointed before the end of the year, and we do not expect a significant change in ARERA's approach towards the energy transition. Law 481 establishes that commissioners must be chosen among people of outstanding competence. We are confident that what we mentioned, we just mentioned, represents good rationales to prevent regulatory risk. Many thanks, Francesco. Thank you. The Q&A section is now over. As always, the investor relations team is available to answer any follow-up questions you might have.

Thank you, everybody, for your participation, and have a nice evening. Thank you, everybody. Nice evening.

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