ELEZY (ELEZY) Q3 2026 Earnings Report, Transcript and Summary

Good morning, everyone, and thank you for joining us today for our 9 months 2026 results presentation. With me are our CEO, Mr. Gianni Armani; and our CFO, Mr. Daniele Caprini. [Indiscernible]. Thank you once again. And now I would like to hand over to Mr. Armani.

Thank you, Isabelle. The first 9 months of the year delivered solid financial results with EBITDA up 8% year-on-year. Net income grew by 15%, while the contribution of regulated business increased, further strengthening the quality of our earnings. These results also reflect our ongoing focus on efficiencies, supporting business growth while maintaining strong financial discipline. At the same time, we continue to accelerate the execution of our investment plan with network remaining our main focus. Investment in grids rose by 42% year-on-year, in line with the reinforcement and expansion of the grid required to enable growing electrification. On Slide 4, EBITDA growth is heavily driven by the contribution of our regulated business with -- which increased from about 40% to approximately 50% of total EBITDA, reflecting the growing weight of network and non-mainland generation and further improving the visibility and predictability of our earnings. The solid performance translated into net income of EUR 2 billion, representing an EBITDA to net income conversion of 43%. Finally, cash generation was strong with EBITDA to operating free cash flow conversion around 80%, while our leverage remains flat with a very healthy 1.8x net debt to EBITDA. Moving to Slide 5. Let me briefly cover some of the key developments supporting the energy transition in Spain. Starting with networks, we are seeing greater regulatory visibility and a clear recognition of the need to reinforce and expand the grid. The approved increase in CapEx limits for the next 4 years, together with the promotion of flexible grid access should help accommodate new demand in areas where available capacity is currently constrained. In particular, it is worth putting the role of network investments into the right perspective as they are not a cost burden, but an enabler to growth in electrification. The resulting rise in access tariff revenues as demand vectors are incorporated more than offsets the increase in system cost and the increased demand helps reduce the overall tariff. On generation, security of supply remains a key priority given the scarcity of firm capacity as proven by the TSO request to delay maintenance works as well as the repeated activation of active demand response service for large consumers. Recent developments include the extension of the Almaraz nuclear license until June 2030, the approval of capacity market framework with auctions still pending and the launch of the capacity allocation process for non-mainland territories. Finally, on demand, data centers along with real estate and industrial developments represent a significant opportunity for electricity demand growth in Spain. However, unlocking the potential will require an appropriate regulatory framework and sufficient grid availability. The current draft of regulation of data center remains demanding and therefore, more proportionate controls will be key to support the future investment and help capture the opportunity. Turning now on Slide 6. Let me spend a minute to comment the market dynamics driving the activity during this period. Following a couple of quarters in which electricity prices showed a relative decoupling from global market trends, during the third quarter of 2026, pool price has soared far exceeding the EUR 100 per megawatt hour mark, reflecting the impact of stronger summer demand amid rising LNG prices and in particular, lower wind and hydro production. In addition, ancillary services cost increased 34% year-on-year to EUR 22 per megawatt hour, affected by the TSO reinforcement operations still in place. Against the challenging macroeconomic backdrop, fundamentals remain supportive as mainland demand continues to grow, and at a healthy pace. Confirming the structural electrification trends that underpins our longer-term outlook. In particular, in the first 9 months of 2026, mainland electricity demand grew by 3.3% or 1.6% in adjusted terms. Demand growth was widespread across all customer segments, in particular, residential demand recorded the strongest increase, up 5%, supported mainly by temperature effect on consumption. Services grew by 3.1%, while industrial demand increased by 1.3%, showing a clear sign of recovery compared to previous quarters. Recent market developments are highlighted once again to the -- have highlighted the role of fixed price energy contracts that shield customers from market volatility, while regulated tariffs have been directly impacted by rising energy prices. Moving on Slide 7. We continue to accelerate our investment plan with growth in CapEx and gross CapEx increasing by 19% year-on-year to EUR 1.6 billion. This investment effort continued to -- continued to support operational performance. In networks, losses have improved to 9%, while electricity distributed rose to 114 terawatt hours. On the contrary, the time of interruption was 2 minutes higher than last year due to the devastating summer wildfire that struck across the whole country. In renewables, installed capacity reached 11.4 gigawatts, and an output reached 15 terawatt hours, with 85% of mainland production coming from emission-free technologies. Finally, in the supply business, as previously anticipated, we expect the customer trends to reverse in the short to medium term, supported by the actions that we have implemented to remain -- to retain and stabilize our customer base. Let me now hand over to Daniele for the financial results.

Thank you, Gianni. Now turning to Slide 9. The reported EBITDA amounted to EUR 4.6 billion, including EUR 0.2 billion workforce restructuring provision. Excluding this effect, EBITDA grew by 13%. Net income rose by 15% to EUR 2.0 billion, while net ordinary income, which is not affected by the provision increased by 22% to EUR 2.10 billion. Net financial debt was EUR 1.1 billion higher to EUR 11.2 billion with the net financial debt-to-EBITDA ratio remaining at 1.8x. Moving to Slide 10. We are going into the details by business at the EBITDA level. The strong performance during the period is mainly due to the contribution of Networks EBITDA, which rose by 25%, while generation and supply EBITDA grew by 3%, thanks to strong results in customer and non-mainland business, which were partially offset by a decline in renewables. Turning now to our Networks business on Slide 11. The gross margin increased by 20% year-on-year to EUR 2.2 billion, mainly driven by the new regulatory framework in force since January 2026 and the previous year's settlements resulting from the update of certain remuneration parameters booked in Q1 and Q3. Within this more favorable context, we significantly accelerated investment with the network CapEx up 42% to EUR 0.9 billion devoted to grid strengthening and expansion to support growing electrification. This accelerated investment is translating into continued RAB growth, reaching EUR 11.3 billion. Turning now to generation and supply. Gross margin slightly increased year-on-year, underpinned by the resilience of customers and the stronger contribution from non-mainland generation. Customers gross margin increased to EUR 1.60 billion, driven by a solid gas business and an improvement in power supply margin, which benefited from the contract revision and hedging strategies carried out as well as from lower sourcing costs, which largely absorbed the rise in ancillary services. Renewable gross margin decreased to EUR 0.7 billion despite cumulated higher volumes as a consequence of weaker achieved prices and the more negative shape effect, particularly in the third quarter with stronger solar output and lower wind and hydro resources. Finally, conventional generation remained broadly stable at EUR 1.8 billion. This was mainly supported by non-mainland generation with regulatory framework improvements, including higher remuneration rate and better O&M recognition, fuel cost optimization and the positive impact of previous year's resettlement in the court rulings. This was partially offset by the normalization of the gas management margin. Now on Slide 13, turning to Integrated Power and gas unitary margins. The free power margin remained broadly stable year-on-year at EUR 53 per megawatt hour, reflecting the dynamics previously commented in a scenario of lower sales. For full year, we expect it to hold at this level. Looking ahead, we maintained a strong power hedging position with around 98% of 2027 and 65% of 2028 volumes already secured. In gas, unitary margin declined by around 9% to approximately EUR 9 per megawatt hour, normalizing from previous levels, while total volumes slightly decreased to 52 terawatt hour. We progressed on 2027 and 2028 hedging strategy amid the current volatile price scenario. Moving to Slide 14. Efficiencies continue to deliver tangible savings with adjusted fixed costs decreasing by 8% year-on-year. These gains more than offset inflationary pressures and the costs associated with business growth supporting the ongoing reduction of our cost base. Beyond these results, we advanced on our transformation plan initiatives aimed at structurally reducing our expenses and simplifying the organization. This includes greater digitalization, automation and AI and end-to-end process simplification. Moving now to Slide 15. Net ordinary income reached EUR 2.1 billion, up 22% compared to previous year, reflecting the strength of underlying operating performance and positive nonrecurrent effects. D&A slightly increased to EUR 1.7 billion linked to higher investment. Financial results improved by EUR 0.1 billion year-on-year, mainly driven by late payment interest income recognized following several favorable administrative and judicial rulings. Finally, the effective tax rate remained broadly stable at around 24%. Turning to next slide. The cash generation remained robust with operating free cash flow reaching EUR 3.5 billion and representing a strong cash conversion of around 80%. Net financial debt increased by EUR 1.1 billion. The solid cash generation largely funded investment needs while also supporting EUR 2.6 billion of shareholder remuneration, including the dividend paid and approximately EUR 0.9 billion related to the share buyback program. This strong financial position is also reflected in an operating free cash flow to net debt ratio of 36% over the last 12 months as well as the solid leverage ratio, which provide us with a significant headroom to accelerate investment and capture future growth opportunities. And now I hand over to Gianni for the closing remarks.

Thank you, Daniele. Let me conclude with a few messages. First, following the first results -- the sound results reported, we confirm our net ordinary income guidance of more than EUR 2.4 billion despite the more challenging market conditions expected in the fourth quarter. Looking at the broader energy landscape in Spain, the importance of firm capacity to ensure security of supply is increasingly recognized as key process was made on nuclear life extension and the approval of capacity payment mechanism. At the same time, electricity demand is growing, reinforcing our positive outlook for Spain and the acceleration of electrification. On fixed price powered offering in a context of higher price volatility, this provides greater protection to consumers than regulated tariff. And to support this acceleration of electrification, grid investment will be essential to unlock new conditions and allow additional demand to materialize. Finally, we will represent our strategic plan update in February 2027, providing a more comprehensive view of our strategic priorities going forward. Thank you for the attention, and we will now open to Q&A session. But let me -- before going forward on the Q&A, let me express our condolences, the family that -- and the relatives that have been affected by the train accident occurred this morning in the high-speed line, Madrid-Seville. We are close to the families. And of course, in this context, our discussion on the numbers is quite not important.

Thank you, Gianni. For the Q&A, in addition to our CEO and our CFO, we will also be joined by the General Manager of Institutional Affairs, Regulation and Sustainability, Mr. Jose Casas, who will cover the regulatory questions raised. We received many questions ahead of the call, which we have grouped by topic. In particular, we received questions from Meike Becker, HSBC; Jenny Ping, Citi; Manuel Palomo, BNP Paribas; Fernando Garcia, RBC; Jorge Alonso, Bernstein; Javier Garrido, JPMorgan; Pablo Cuadrado, JB Capital; Peter Bisztyga, Bank of America; Pedro Alves, Caixa Bank; Arturo Murua, Jefferies,; Rob Pulleyn, Morgan Stanley; Alberto Gandolfi, Goldman Sachs; and Javier Suarez from Mediobanca. Thank you all for your participation. The first question is about our 9 months results. What were the main drivers of the strong performance in this period?

As said, the main drivers for performance were mainly growth in network, of course, driven by higher investment. This is a progress that is rolling and will have an impact also in the future. Also the regulatory framework that has been modified this year and ruling on the positive ruling on previous year settlements that has been registered this year. In addition, we had the clarification and resettlement with court rulings on non-mainland regulation that has reset and clarified the regulation on this part of the regulated business. Retail has expressed a very resilient model, in particular in defending the value of customers in a context of rising prices and also in a context of higher ancillary services. Lower renewables earnings and lower prices registered by renewables in the first half of the year have been, in any case, offset -- partially offset by our gas wholesale margins. And efficiency program has been one of the key drivers in providing more effective processes and also more efficient cost management.

Next question is on full year guidance. Given the strong performance, is there a scope to raise 2026 guidance further? And how far above the EUR 2.4 billion net ordinary income target could Endesa go?

Thank you. We have not raised our guidance in this context given the volatility of prices that we are registering and also the unusual condition -- weather conditions that we have registered all through the third quarter with a significant lack of production, both in hydro and particularly in wind that has affected also the availability of firm capacity in the market. In these conditions, we don't see a change in the fundamentals of our business and in the position -- competitive position of Endesa, but we don't -- we cannot foresee the future at least on short-term climate conditions. And for this reason, we have not been changing the guidance.

Thank you. I think the next set of questions is for our CFO, Daniele. Starting with nonrecurring impacts, we are being asked about the total amount recognized in 2026 and what investors should consider as the underlying earnings base going forward.

We have communicated in the previous call around EUR 200 million of extraordinary items coming from non-mainland and distribution. And what I want to remark is that this one-off impacted also the current remuneration and the future remuneration. So while we were saying that was an impact of around EUR 200 million, what I can say that this impact obviously improved. And we are some dozens on top of EUR 200 million impacting -- but this is regarding previous year items. This is both for distribution and non-mainland. Then what I want to say that the underlying earnings base remains strong. The distribution remuneration scheme has improved and will sustain our results in the quarter and in the future. And regarding generation and supply, as also Gianni said, we have a lack of revenues in renewables. This is mainly due to the that our power generation distribution during the year was more in the initial months of the year with lower prices. And now we are experimenting a lower -- lack of resource, especially in wind and hydro in this part of the year. Finally, and I take all the questions regarding our margin. Regarding our customer base. What we are experiencing and what we are estimating for the October month is that we have reduced our loss of clients of customer base more than 50% in respect of what we have experimented in July and June in the previous quarter. This is due to all the measures that we have implemented. We have revised our channel. And what we believe that is during the next -- the final of this year and the beginning of the next year, this phenomenon will be over.

And going slightly deeper on margins, how do you expect the free power margin to evolve considering generation prices, higher ancillary services and reduced position opportunities? Perhaps you have already answered part of this question.

The margin, the retained margin was resilient to the higher ancillary services. We maintain the margin. And we translate part of ancillary services because they were very high, but this is not affecting our margin right now.

And just one more question on gas margins, if you can go deeper on that.

We are very positive on gas margin because what we are seeing that now we can hedge future margin for gas at higher prices than expected for the next years and also 2028.

Okay. Next question is on ancillary services cost, and I think this time is for our CEO. What is your estimate for this cost and what regulatory or market developments could help bring them down over time?

We are -- we are experiencing a significant growth in ancillary service cost, 40% up to the end of September. The total amount is above EUR 4 billion, and we forecast at the end of the year between EUR 5.5 billion and EUR 6 billion estimate total cost. It's clearly a significant impact on which retail customers have been protected for a significant part by the liberalized market, but is totally transferred in most of the B2B contracts. For this reason, we have been registering a negative impact on mainly on supply, the retail part of supply by EUR 200 million and that is partially offset by EUR 100 million on the thermal generation. In the long term, we see that clearly, we need a significant plan -- investment plan and that should be implemented in the short-term possible time in order to guarantee a better dispatching program for Spain and also more secure exercise system equilibrium during the providing of the provision of energy. And this, of course, may require the contribution of all the players. But in regulated terms, we see that most of the markets in Europe, as it has been implemented in Portugal are transferring this cost in a regulated fashion to customers being this shared cost for security that should be supported by all consumers. Clearly, there is a value also in implementing and guaranteeing firm capacity that is also flexible in the longer terms.

Thank you, And now looking at the market context, we are asked what are the key sensitivities that Endesa has to power prices, inflation and interest rates for 2027, 2028.

On commodities being that we have a limited exposure to unhedged volumes up to 2028, we don't see a significant impact. Clearly, the impact is mainly on investment strategy in particular in regulated businesses, given the fact that the Spanish regulatory framework still does not provide an indexation to inflation in current market conditions and with short -- only a short-term impact, this may not be affecting the strategy of investments, but it's clear that in a repeated and in a longer-term scenario with high inflation, specific provision or an intervention from the regulator will be needed. On the debt part, this probably Daniele would say it much clearer, but we have a limited exposure given the fact that more than 50% of our debt is at fixed rate in our scenario, short-term scenario.

Yes, Gianni, I confirm what you have said, we have a great part of our debt at fixed interest. And what I can say is also -- our indebtedness of the company is not so high.

Next question is on efficiencies. Given the strong impact of your efficiency measures, how much further upside can we expect considering that Endesa is already perceived as a very efficient company?

In reality, efficiency is a never-ending process, particularly being in the midst of such a technology change, we have to review our way to manage business in all the processes that could be affected by the addition of information technology, in particular, artificial intelligence. We are now running one of the rounds of plans that we have put in place with a 9-month result that [cut] costs by 9% year-on-year with an impact of around EUR 140 million that we registered at this point. We expect further savings in the fourth quarter, and we are studying for a new wave in 2027.

Okay. I had another question about competition, but I think it has been covered by Daniele. I don't know if you want to add something more, but otherwise, we can go to the next one. So next one is on the shares outperformance. They are asking, what do you see as the main catalyst for further upside from current high levels?

Could you repeat the question?

Yes. The question is on the shares. Our shares have significantly outperformed during the 9 months. So they are asking what are the main catalysts that we can consider for further upside from current levels if we still have [room] to go above this?

We say mainly our -- the condition of our business. We are, of course, in a condition of instability that is registered in the market with high volatility. This, of course, puts in different positions, integrated players like ours that have the ability to cover and with real assets and real processes along the value chain. This is clearly different for players that are pure players in different part of the businesses. And particularly those that have invested in renewables and that experienced the variability in weather conditions and in prices with our prices that have been negative in some hours and fewer production in other months. And players that are pure players in supply, this variability of prices impact directly the possibility to respond effectively and to protect customers in the longer term. We see an opportunity in this by being an integrated player, and this will be more so in the future.

Thank you, Gianni. Another topic is the share buyback, the share buyback program. They're asking how will Endesa decide the pace of the remaining execution? And how will the new strategic plan affect capital allocation in this regard?

We are in the process of executing by -- we have been authorized through December 2027 to implement the EUR 2 billion share buyback program. We are 9 months of 2026 at 70% completion. And with EUR 1.4 billion executed, we will implement this program and of course, are not programming at this point additional share buyback, clearly considering also that around 75% of this tranche has been completed. And considering also the liquidity that is currently visible in the market. For this reason, we are fully committed in finalizing what -- what has been approved by the Board and nothing beyond that for the moment.

Another hot topic at this time for the Head of Regulation, Pepe. What are the implications of the November general elections for the Spanish power sector, particularly in terms of pending regulatory measures and investment visibility?

Thank you, Isabel, for the question. Good morning, everybody. Regardless of the election outcome, the long-term fundamentals remain unchanged. Grid investment, electrification, renewable deployment, flexibility and security of supply enjoy broad political support at European and national levels. In this regard, we expect that these core priorities will be maintained whatever the election outcome. Consequently, Endesa's investment decisions continue to be driven by the structural growth opportunities. Notably, from the sector perspective, the key pending measure in the current legislature is the approval of the 2025-2030 transmission grid plan. Although the government's aim is to approve it before election, parliamentary approval is still required. We foresee its approval either before or immediately after the election regardless of the election outcome. Other regulatory initiatives relevant for Endesa and for the whole system are the final development of the capacity market framework, including the holding of the auction and the capacity auction in non-mainland territories. Both initiatives do not depend on normal parliamentary activity and are urgent given the current market condition and security of supply needs. This will be the most important point to keep in mind regarding this question.

Perhaps another question, but this time for the CEO. How do you assess the risk of political intervention in the Spanish power market if energy prices remain so elevated?

Clearly, in the context of political elections and high prices, the regulatory risk is always there. First of all, there is a timing effect that may be -- may create difficulties in implementing. We see also that the real decree '25, 2026 has avoided both windfall tax and the restatement of the Iberian gas cap. This really goes in the direction of reinforcing the regulatory stability and the visibility for investments. These are the 3 elements that we see important for guaranteeing future stability in the market and attracting investments for the energy transition.

Thank you. Looking ahead to the next CMD, they are asking what additional growth opportunities the new Spanish regulatory framework could create for our distribution business?

As said before, we -- the fundamentals are there to create value both for consumers and to increase the growth in economy. And the electricity sector is the fundamental tool to guarantee this future growth. For this reason, the need for investment is clearly needs to be favored by the regulator. The main element that should be monitored is the evolution of rate of returns and inflation that might be needed to be captured by the regulation in terms of -- to reinforce the framework and guarantee stability of long-term plans for investment. And this is needed not only for the network but also to guarantee stability in firm capacity programs. And also for investments that will provide a reduction in the cost of service -- dispatching services. Connecting new demand is fundamental in this sense. And as said in the presentation, the connection of new demand is clearly increases requires an increased capital in the network, but this is more than offset by the additional consumption that will be added in the network and that contributes to the tariff expenses. These are the main elements that we see as potential opportunities and that should be considered in the regulation. Of course, the facilitation of demand, as I said in the presentation is part of the bureaucracy that cannot be [indiscernible] to be rolled out much faster in Spain.

Thank you, Gianni. Pepe, I think the next 2 questions are for you. The first one is, when do you expect the first capacity market auctions to take place? And what could be the potential earnings contribution for Endesa?

Thank you, Isabele. As I mentioned earlier, capacity market implementation could still progress despite the election is not dependent on parliamentary approval. As you all know, the regulatory framework is largely developed with the auction resolution and the first tender call being the main pending steps. We foresee the first auction are likely before 2027, given the remaining regulatory and qualification processes. Not to mention that the implementation of the capacity mechanism will be crucial to provide adequate investment signals for the technologies that deliver firmness and flexibility for the system such as flexible thermal generation, storage and demand response. In response to the second part of the question, capacity market will provide an incremental EBITDA contribution while reinforcing the value of Endesa's flexible generation portfolio. Our business plan currently assumes a prudent annual contribution from 2027 onwards. But the ultimate earning contribution will depend on auction design, [indiscernible] coefficient, contracted volumes and remunerated levels, which are yet to be defined.

Thank you. And also on data center regulation, they are asking what is Endesa's view on the latest proposal submitted to the Council of State? And could it affect data center development and future electricity demand growth in Spain?

First, it's important to point out that this regulation does not have a direct impact on Endesa. However, data centers together with new real estate and industry development represent a strategic opportunity for Spain, supporting network and renewable investment, electricity demand growth, job creation and the development of the digital and AI economy. Having said that, we think that the latest draft submitted to the Council of State introduces some welcome flexibility, although demanding requirements remain compared with other jurisdictions. Notably, the key constraint remains the 80% of renewable matching requirement. The alternative 5-year transitional regime considering the new draft provides some relief, but data centers opting for this flexibility will have to participate in the active demand response mechanism, the so-called SRAD, potentially exposing them to grid disconnection without compensation. Therefore, we see the latest changes as not being enough to fully remove the main barrier to investment. Overall, the framework will still slow down data center development in Spain, particularly where project economics become more challenging. This could ultimately limit part of the potential upside to electricity demand growth and the associated investment opportunity in generation and network.

Thank you very much, Pepe. Turning now to more strategic topics for the CEO. We have received some questions on how Endesa is adapting its renewables strategy to lower capture prices, negative pricing hours and rising curtailments.

First of all, we are now in the conditions in which renewables investments must grow with taking into consideration the growth of demand. This is the factor that will impact in the future remuneration of this kind of investments. It is clear also that the remuneration of this investment can be obtained if they are combined with a wider and more diversified mix of production, in particular, capacity to accumulate and to modulate or substitute the\ availability -- the unavailability of the renewable source of production with firm capacity. In this sense, our investment position is to be highly disciplined and selective in choosing investments based on the effective total cost during the lifetime of the plant and in focusing mainly on repowering and hybridization of existing plants that will optimize their functionality. Clearly, having an integrated business model, we are best positioned to exploit and to create value in management of these assets.

Next question is on nuclear. What are the implications of the Almaraz extension to 2030? And how likely is a broader review of the nuclear phase schedule under a future government?

First of all, the extension of Almaraz is not a definitive decision because it changes only for a few years, the extension of life of these assets, but it sets some of the key cornerstones for a future evaluation. First of all, it clarifies that it's not the only element that clarifies it, but it is part of the clarification of the context that in the Iberian system, firm capacity is strategically needed. And nuclear is part of this strategic context because it guarantees emission-free production and is also less exposed to market volatility. Therefore, the life extension in the short term is a way to maintain a highly valuable firm capacity production. There is also combined with the extension of Almaraz, the review of the Endesa tariff, which provides longer-term sustainability on life extension for these plants that have a huge burden of taxes that infringe the longer-term sustainability, in particular of additional investments that provide life extension. These elements clearly prepare for a review of the [old] nuclear park in Spain that we see that the next year will be part of the discussion with the institutions.

And finally, on M&A, given the strength of your balance sheet, do you expect any changes to capital allocation? And how are you thinking about the balance between buybacks and M&A?

We -- as said before, we have -- we are implementing the final part of our buyback. We don't have an additional plan on buybacks. We have -- and of course, we are working on a new strategic plan that will allocate our investment capacity on the opportunities that we see, and this will be part of the plan. In these opportunities, as said, we see a condition in which M&A opportunities in the sectors that we -- that create much more value may be opening in particular from pure players that are exposed to market volatility. In this sense, in an opportunistic way and looking at being very selective, we are there in the market to capture these opportunities.

Well, thank you all. With this, we cover all the questions we have received so far, so we can conclude today's presentation now. As always, let me remind you that the Investor Relations team remains available for any follow-up questions you may have after this call. So thank you very much, everybody, for joining us today, and I hope you all have a great day. Bye-bye.