ERG S p A : The Board of Directors of ERG S.p.A. approves the Interim financial report at 30 June 2023

Press release

The Board of Directors of ERG S.p.A. approves the Interim financial report at 30 June 2023

Adjusted consolidated EBITDA1: EUR 263 million, EUR 272 million in the first half of 2022

Adjusted net profit (loss) from continuing operations: EUR 116 million, EUR 82 million in the first half of 2022

• Operating results down slightly:EBITDA 263 million euros, down 3% compared to 272 million in the previous period, mainly due to very unfavourable wind conditions in the second quarter in a context of prices that experienced a significant decline during the semester compared to the particularly high prices of the same period of 2022. Falling prices averaging 50% across various reference markets, were mitigated by the Group's revenue structure which provides for sales through fixed tariffs, long-term contracts and hedging policies. These effects were partly offset by the contribution of the new capacity in operation.
• Net profit up 40%:profit, net of extraordinary measures, amounted to EUR 116 million, up sharply compared to EUR 82 million in the previous period. The lower contribution of the operating margin was offset by lower financial expenses due to the return on cash in an environment of rising interest rates as well as the elimination of windfall taxes that had burdened the same period in 2022. With regard to net income, the benefit of substantially stable amortisation, despite significant investments, due to the extension of the useful life of certain assets following the implementation of life-time extension programmes, should also be noted.
• Agreement for the sale of the CCGT:ERG takes a key step towards a "Wind & Solar" business model
  with the agreement with Achernar Assets AG, a Swiss investment holding company, for the sale of the Combined Cycle Gas Turbine (CCGT) cogeneration plant in Priolo, Syracuse.The completion of the transaction is expected by the end of the year.
• First repowering in Italy: construction completed and start-up of the 42 MW Partinico-Monreale wind farm in Palermo, the first in the portfolio to complete repowering. In line with the objective of securing revenues, the clean energy produced will be sold to Essilor-Luxottica through a 12-year Power Purchase Agreement. 274 MW of wind power is under construction in Sicily with energisation planned between 2023 and 2024, and a further 115 MW is authorised in the region for the repowering of the Carlentini wind farm.
• Growth abroad:in line with the geographical and technological diversification objectives of the 2022-2026 Business Plan, ERG continues its consolidation in Spain in the solar sector. A 149 MW photovoltaic plant under construction located in the Castilla and León region has been acquired, in addition to a 25 MW photovoltaic plant in operation located in Extremadura. An auction was awarded in France for two wind farms with a total of 18 MW; a further 28 MW was authorised in Germany, of which 6 MW already by auction.
• ESG recognitions:further confirmation of the validity of the Group's ESG strategy with SBTi approving ERG's greenhouse gas (GHG) emissions reduction target, MSCI upgrading ERG to the "AAA" rating and entry into the top ten of the Integrated Governance Index 2023. The Group's commitment to sustainable finance was also recognised as it became a part of the Nasdaq Sustainable Bond Network, a platform dedicated to Sustainable Finance on the New York electronic stock exchange.

• In order to make it easier to understand how the businesses are performing and to provide the most transparent representation possible, the financial results are presented in what is described as "adjusted" format. This means that the results are shown including the effects of the transitional measures (clawback measures/windfall taxes) enacted in various countries to offset electricity price increases, as well as any significant unusual income components (special items). A definition of the indicators and the reconciliation of the amounts involved are provided in the "Alternative Performance Indicators" section of this document.

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• 2023 Guidance: as a consequence of the declining operating results recorded in the second quarter mainly as a result of lower wind speeds in a significantly declining price environment, the guidance for consolidated EBITDA is revised downwards in the range of EUR 480-520 million compared to the previous range of EUR 500-550 million. Capital expenditure is confirmed in the range of EUR 500-600 million, and the debt guidance is also confirmed in the range of EUR 1400-1500 million due to an expected cash flow in line with previous estimates as the lower expected EBITDA is mainly offset by lower financial expenses.

Genoa, 28 July 2023 - The Board of Directors of ERG S.p.A. has today approved the interim financial report at 30 June 2023. The figures of the second quarter, not submitted to approval by the Board of Directors and not subject to audit, are to be considered pro-forma and are provided for the sake of completeness and continuity of information.

	2nd Quarter					1st Half Year
									Performance highlights (Euro million)
	2023			2022			Var %				2023			2022			Var. %
103		108		-4%		EBITDA adjusted	263		272		-3%
50		54		-7%		EBIT adjusted	155		165		-6%
37		15		151%		Net result from continuing operations adjusted	116		82		41%
												30/06/2023			31/12/2022			Variation
									Net financial indebtedness of continuing	1,516		1,434		81
									operations (Euro million)
									Leverage (1)	42%		41%

1. Ratio of total net financial indebtedness continuing operations (including project financing) to net invested capital

Paolo Merli, Chief Executive Officer of ERG commented: "The operating results in the second quarter were lower than our expectations mainly due to extraordinarily poor wind conditions. Net profit has significantly increased, thanks to lower financial expenses as well as the absence of windfall taxes. The progress of the Business Plan continued apace in the second quarter, with the start-upof our first repowering plant in Italy and the consolidation of our presence in Spain. During the period, we also made significant progress in the development of the pipeline with the obtaining of a single authorisation for a repowering project totalling 115 MW in Italy, as well as further authorisations in Germany and in France for a total of 46 MW. The agreement for the sale of the CCGT power plant in Priolo, which is expected to be finalised in the second half of the year, marks a fundamental step towards the Group's transformation into a pure renewable operator and the achievement of the "Net Zero" objective set out in the ESG plan. Given the weakness of the results in the second quarter, we opted to revise the EBITDA guidance for the year in the range of EUR 480-520million, while the guidance on capital expenditure and debt remains unchanged, thanks to an expected cash flow in line with the previous estimate".

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Regulatory measures to curb energy price rises (clawback measure and windfall tax)

During 2022, measures were introduced in Italy and abroad to contain the effects of price increases in the electricity sector, as already described in the Group Financial Statements at 31 December 2022.

The implementation of these measures led to refunds that negatively affected EBITDA in the first half of 2023 by approximately EUR 7 million (EUR 6 million on the net result of continuing operations).

The table below shows the Group's adjusted results both gross and net of the effects of the transitional measures (clawback measures/windfall taxes) in order to give the most transparent representation possible of the impacts in 2023 and 2022, of an extraordinary and temporary nature, resulting from the regulations introduced in various countries in order to counteract the increase in electricity prices.

FY 2022	2°Quarter 2023	2°Quarter	Variation	(milioni di Euro)	1°Half 2023		1°Half 2022	Variation
			2022
749		157	159	(2) Revenues (gross clawback)		377	374	3
35		1	2	(1)	(-) clawback measures		7	5	2
7		-	-	-	Italy		0		-	0
7		0	-	0	France		2		-	2
2		-	-	-	Germany		-		-	-
19		1	2	(1)	East Europe		5		5	(0)
714		157	157	(1)	Revenues (net clawback)		370		369	1
537		103	110	(6)	EBITDA (gross clawback)		270		277	(7)
35		1	2	(1)	(-) clawback measures		7		5	2
7		-	-	-	Italy		0		-	0
7		0	-	0	France		2		-	2
2		-	-	-	Germany		-		-	-
19		1	2	(1)	East Europe		5		5	(0)
502		103	108	(5)	EBITDA (net clawback)		263		272	(9)
216		38	38	(0)	Net Result continued operations (gross clawback &	windfall tax )	121		122	(1)
83		1	23	(23)	(-) clawback measures e windfall tax (1)		6		40	(34)
61		-	22	(22)	Italy		-	36	(36)
5		0	-	0	France		2	-	2
2		-	-	-	Germany		-	-	-
16		1	1	(0)	East Europe		4	4	(0)
				22						34
133		37	15	Net Result from continued operations (net clawback & windfall tax )	116	82

1. The first half of 2022 included windfall tax measures recognised in the tax line of EUR 36 million, deriving from the Italian Decree Law of 21 March 2022.

For the sake of clarity, in this press release the adjusted results will be shown net of these charges and will therefore be understood as "net clawbacks and windfall taxes".

Change in business scope

Solar Spain

On 23 December 2022 ERG, through its subsidiary ERG Spain HoldCo SLU, signed an agreement with Renertia Investment Company for the acquisition of 100% of the share capital of a company that owns a photovoltaic solar plant located in Fregenal de la Sierra, in the autonomous community of Extremadura, with an installed capacity of 25 MW.

The enterprise value of the transaction was EUR 30 million. The transaction was completed on 30 June.

It should be noted that the newly acquired Spanish company has been consolidated on an equity basis since 30 June 2023.

Solar Spain

On 5 May 2023, ERG, through its subsidiary ERG Spain HoldCo SLU, signed an agreement with IBV Solar Parks, B.V., a company belonging to the German group ib vogt GmbH, a global platform for the development of industrial solar plants. The agreement concerns the acquisition of a 100% stake in Garnacha Solar SL, a company that owns a solar power plant located in the region of Castilla and León, in northwestern Spain. The plant, currently in an advanced phase of construction for an installed capacity of 149 MW, is expected to enter into commercial operation by the end of 2023. The value of the transaction in terms of enterprise value at the Commercial Operating Date was estimated to be EUR 170 million, of which approximately EUR 90 million related to bank loans, and an equity value of EUR 80.5 million. The transaction was completed on 23 June. The newly acquired

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Spanish company has been consolidated on an equity basis since 30 June 2023.

In light of the above, the impact on net financial debt for "continuing operations" at 30 June 2023 (EUR 152 million) does not reflect the investments still to be made until the plant enters into operation.

It should also be noted that, during the first half of the year, a wind farm in the United Kingdom with a total capacity of 92 MW, developed and constructed in-house, became fully operational.

Moreover, ERG completed construction and started energising the Partinico-Monreale wind farm in Palermo, the first in the group's portfolio to complete repowering operations.

Second quarter 2023

In the second quarter of 2023, adjusted revenues amounted to EUR 157 million, in line with the second quarter of 2022 (EUR 157 million), mainly as a result of the lower production and lower market prices, which were in fact offset by the contribution deriving from the acquisitions made in the second half of 2022, and the entry into operation of the wind farms developed internally and gradually becoming operational during the second half of 2022 and at the beginning of 2023.

Production amounted to 1.2 TWh, up 92 GWh compared to 2022 (+8%), thanks to the contribution of the new wind farms (154 GWh) which more than offset the lower production due to the poor wind conditions recorded in the period, significantly lower than historical averages. The quarter was also characterised by significantly lower market prices compared to the particularly high prices of 2022, which only marginally affected the results as the group adopts a hedging policy involving sales through fixed rates, PPAs under pre-established conditions and financial hedging agreements.

It should be noted that the adjusted EBITDA amounted to EUR 103 million in the second quarter of 2023 (EUR 108 million in the second quarter of 2022).

ITALY

• Wind (EUR 41 million): EBITDA down slightly (EUR -3 million) compared with the second quarter of 2022 (EUR 44 million) due to the lower wind speeds experienced, which were significantly lower than historical averages, and the lower market prices captured, in particular due to the elimination of the incentive value (equivalent to EUR 43 per MWh in 2022), partly offset by the scope effect (+61 GWh) resulting from the acquisition of wind farms in the second half of 2022 and the initial contribution of a repowered farm that came into operation in June. Output amounted to 486 GWh in the second quarter of 2023 compared to 468 GWh in the second quarter of 2022, mainly due to the scope effect.
• Solar (EUR 25 million): EBITDA up (EUR +2 million) compared with the second quarter of 2022 (EUR 23 million) due to the acquisition of photovoltaic farms in the second half of 2022 (+9 GWh) partially offset by lower irradiation recorded in the quarter and by revamping/repowering activities on some of the plants. Production totalled 79 GWh in the second quarter of 2023 (77 GWh in the same period of 2022).

ABROAD

• Wind (EUR 35 million): EBITDA down slightly (EUR -3 million) compared to the second quarter of 2022 (EUR 38 million) mainly due to the slightly poorer wind conditions than those in the second quarter of 2022 and the lower market prices captured in some geographic areas, partly offset by the contribution of the farms built internally in 2022 and in the early months of 2023. Output amounted to 555 GWh in the second quarter of 2023 compared to 479 GWh in the second quarter of 2022, mainly due to the scope effect.
• Solar (EUR 8 million): EBITDA of EUR 8 million in the second quarter of 2023 (EUR 9 million in the same period of 2022), due to lower radiation in Spain and lower market prices captured. Output amounted to 89 GWh in the second quarter of 2023 compared to 93 GWh in the second quarter of 2022.

Overall, the scope effect linked to the new operating MW is EUR 13 million due to the contribution of the plants developed internally and commissioned during 2022 and the first half of 2023, mostly still in the production ramp- up phase, as well as the acquisitions carried out in 2022.

It should be noted that the total gross operating profit (EBITDA) is impacted by the electricity price hedging policies implemented in line with the Group's risk policies.

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Adjusted EBIT amounted to EUR 50 million (EUR 54 million in the second half of 2022). Depreciation and amortisation amounted to EUR 52 million, broadly in line with the second quarter of 2022 (EUR 53 million) and reflect the full contribution of the new assets (EUR 10 million), fully offset by both the extension of the useful life of wind power assets in Italy and abroad (EUR 8 million) as a result of the Life-Time-Extension programmes and the end of the useful life of some wind farm and photovoltaic components (EUR 3 million) also as a result of the start of Repowering investments.

The adjusted net result from continuing operations amounted to EUR 37 million (EUR 15 million in the second quarter of 2022) and reflects, in addition to the above, also financial expenses of EUR 2 million (EUR 6 million in the second quarter of 2022), a significant decrease as a result of the optimisation of the capital structure and the improved remuneration of liquidity.

As already indicated in the introduction, the item reflects the clawback measures and windfall taxes, which, due to the sharp and sudden drop in electricity prices in all reference markets below the various "revenues caps", resulted in refunds with a negligible negative impact estimated at EUR 1 million on the net result (EUR 23 million in the second quarter of 2022).

Adjusted profit attributable to the owners of the parent, also including the contribution of ERG Power S.r.l., owner of the CCGT plant recognised in discontinued operations in accordance with IFRS 5 rules, amounted to EUR 34 million, up compared to the result for the second quarter of 2022 (EUR 14 million).

First Half of 2023

In the first half of 2023, adjusted revenues amounted to EUR 370 million, substantially in line with the first half of 2022 (EUR 369 million), as a result of the full contribution deriving from the acquisitions made in the second half of 2022, and the entry into operation of the wind farms developed internally and gradually becoming operational during the second half of 2022 and at the beginning of 2023, substantially offset by lower market prices in all countries and lower wind and solar production in the half-year.

Production amounted to 3.0 TWh, up 0.3 TWh compared to 2022 (+13%), thanks to the contribution of the new wind farms which more than offset the lower production due to the poor wind conditions recorded compared to the same period of 2022. The first half was characterised by significantly lower market prices compared to the particularly high prices of 2022, which only marginally affected the results as the group adopts a hedging policy involving sales through fixed rates, PPAs under pre-established conditions and financial agreements.

It should be noted that the adjusted EBITDA amounted to EUR 263 million in the first half of 2023 (EUR 272 million in the first half of 2022).

ITALY

• Wind (EUR 110 million): EBITDA down slightly compared with the first half of 2022 (EUR 113 million) due to the lower wind speeds experienced and the lower market prices captured, in particular due to the elimination of the incentive value (equivalent to EUR 43 per MWh in 2022), partly offset by the scope deriving from the acquisition of wind farms carried out in the second half of 2022 and by the first contributions from the farm that came into operation in June. Output amounted to 1,224 GWh in the first half of 2023 compared to 1,129 GWh in the first half of 2022, mainly due to the scope effect (+170 GWh).
• Solar (EUR 38 million): EBITDA up compared with the first half of 2022 (EUR 36 million) due to the acquisition of photovoltaic farms in the second half of 2022 (+21 GWh) partially offset by lower irradiation recorded in the half-year. Output amounted to 125 GWh in the first half of 2023 compared to 122 GWh in the first half of 2022.

ABROAD

• Wind (EUR 114 million): EBITDA down slightly compared to the first half of 2022 (EUR 121 million) mainly due to lower market prices captured in some geographic areas, partly offset by the contribution deriving from the farms built internally in 2022 and in the early months of 2023. The change also reflects higher refunds (clawback measures) of approximately EUR 2 million. Output amounted to 1,499 GWh in the first half of 2023 compared to 1,266 GWh in the first half of 2022, mainly due to the scope effect (+222 GWh).

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