Enel Spa Unsp/Adr

Good evening, ladies and gentlemen. I'm Monica Girardi, Head of Group Investor Relations. A warm welcome to the first quarter of 2020 results presentation, which will be hosted by our CFO, Alberto De Paoli. We hope you and your families are well and safe in these difficult times. In this presentation, Alberto will walk you through the highlights of the quarter, as well as the operational and financial performance for BNI Group. During the call, we will also touch base on the main evidences that we have seen during the quarter in terms of impacts related to coronavirus, as well as how NS solid liquidity position and balance sheet allow withstanding even the most volatile scenarios. Following the presentation, we will have the usual Q&A session. Similarly to what was done for the full year results, we ask those connected to send the questions only via email at investor.relations.nl.com. Before we start, let me remind you that the media is listening to both the presentation and the Q&A session. Thank you, and now let me hand over to Alberto.

Thank you, Monica. Good evening to everybody. As usual, our opening slide is dedicated to the highlights of the period. I am on page number one. During the first quarter of 2020, Group delivered solid financial results, showing a high level of resiliency against the sudden temporary shock. The VTAC grew 6% and net income increased double digit. Financial effects associated with COVID-19 crisis were limited, but the group integrated model offered an operating protection. I will elaborate on this later in the presentation. More than 400 megawatts of renewable capacity were built in the first three months of the year, following an exceptionally high level of new capacity installed during the last quarter of 2019. which contributed in full to first quarter financials. Thanks to the acceleration of new renewable installation, ongoing actions on coal power plants, and the reduction of thermal gas, 65% of the group production was emission-free. Certification of the group structure continues, and we made significant progress to reach a 65% stake in both Enel Americas and Enel Chile. Before analyzing financial indices, let me spend the next couple of slides wrapping up on COVID-19. I'm on page number two. Before deep diving in the Q1 results, let me go to the main business and financial evolution that we have seen during the quarter in relation to COVID-19, focusing on our business lines. During the quarter, we did not experience any material disruption in the supply chain of renewables, and this allowed us to build more than 400 megawatts as already said. On the conventional generation site, our structurally short position and our hedging policy offset lower volumes and decreasing market prices impact overall. Since the outbreak of the virus, we also witnessed high activity on the balancing services due to a more difficult prediction of the network load. Regulatory frameworks in Europe proved protective against a 5% and a 3% drop in distributed volumes in Italy and Spain. In Latin America, the decrease has been a mere 1% decrease, with almost nil impact on our account. Energy sold in the free market has decreased by 4% globally, so the most evident impact on our retail business has been in terms of composition of the demand, as lockdowns have caused an important shift from business to domestic consumption. In Italy and Spain in particular, we have witnessed a 3% decrease in business demand, coupled with a 1% increase in domestic demand due to lockdowns. Overall, our retained EBITDA has increased by 9% year-on-year, as we will see later in the presentation. And finally, the negative effects impact on the quarter, driven by the devaluation of Latin American currencies, amount to around $130 million, which more than half is linked to the depreciation registered from the beginning of the year, so registered due to the COVID outbreak. The negative impact at net income level was around 20 million euros. Moving now on the financial management, liquidity is abundant. It's amounting to around 26 billion euros as of April, the end of April. Around 6 billion euros is cash on end and the best readily available committed credit lines. Level of liquidity drops maturities up to the end of 2021 because they total in 5.9 billion euros. We have a coverage ratio of 4.4 times. And in addition, the current level of available liquidity covers 2.1 times their maturity through 2022. In the first quarter, working capital increased by approximately 400 million euros. due to the bill's delayed payments attributable to COVID-19. And a strong balance sheet with a lower debt leverage compared to our average peers allow us to face even the most volatile scenarios as the one we have been seeing in the last couple of months. Moving now on page number three, This is a quick look at the initiatives that Enel has taken so far. Current COVID-19 crisis has highlighted the importance of Enel's past investments in securing business continuity, even in the most adverse scenarios. As of today, 37,500 Enel employees work remotely. There are 55% of our global workforce. And so we can demonstrate that people can work from remote with an unchanged level of efficiency and effectiveness. NRS protected its workforce not only through smart working and space measures implemented, but also through an interim policy covering all of our employees worldwide that is granting a cash allowance in case of hospitalizations. Initially, for employees engaged in operational activities that cannot be carried out remotely and which are currently reduced or suspended for periods in activity, a vacation day bank mechanism has been created. As of April 3rd, around 21,000 days have been voluntarily donated by annual employees and around 30,000 by the companies. In addition, as recently communicated, the MBO targets of this year have been changed in order to tackle employee safety and service continuity during the COVID-19 crisis. As an immediate response to the MS emergency, any group identified in all of these countries or presence over 200 initiatives, 70% directly support health organization while the remaining 8% and mitigating the social economic impact on communities with a specific focus on areas close to our power plants and construction sites. Group donated around 50 million globally for a series of measures to support the organization involved in providing health services and support in response to the COVID emergency. Moreover, the CEO and the top management reporting directly to him has committed to donate an amount equal to the remuneration matured during the lockdown period in Italy, or almost 50% of the total remuneration. And finally, Enel is also leveraging its crowdsourcing platform, OpenInnovability.com, to launch internal calls for ideas to help countries dealing with the emergency. And now we can move to slide number four on our sustainable cap expense. As you can see from the chart, overall capex in the first quarter was equal 1.9 billion euros in line with last year. Around 90% of total investments were devoted to infrastructure and network and renewables, to the ongoing effort to digitalize and decarbonize our generation fleet. Development capex stood at 1 billion euros and represented more than 50% of total investments. of which 70% was allocated to renewables, mainly in Latin America and North America. Looking at 2022 period, around 70% of asset development capacity is already addressed, probing high visibility for industrial targets for the time period. Now moving to slide number five and focusing on our decarbonization strategy. As you can see from the chart, in the first quarter of the year, as already said, we built more than 400 megawatts, and we sold around 200 megawatts of managed capacity, reaching 46 gigawatts in total. In terms of production, it's worth highlighting that renewables production increased by 9% versus previous year, while coal production collapsed by almost 80%. as a consequence of shrinking thermal gap and the ongoing cold phase out process. As a result, the shared emission, emission free production increased to 65%, 12 percentage points higher than in Q1 2019. The deployment of new renewable capacity will be supported by 3.2 gigawatts that are in execution phase and 0.4 gigawatts fully permitted. Before going through the details of the financial performance, let me comment on our progress and efficiencies, which you see analyzed in the following slide, and I am on slide number six. In the first quarter, of the year operating expenses decreased by around 4 percent or around 80 million mainly thanks to the efficiencies recorded in the period. The level of OPEX which amounts to 1.7 billion has been positively affected also by the provisions released in Spain for around 356 million which we will detail in the following slide. Over the period We recorded efficiencies for around 80 million euros, twice the amount registered in the same period of the last year, mainly in conventional generation, retail, and networks. The level of efficiency locked during the Q1 does well for full-year targets. We will now go through the details of the operating and financial performance for the period, and now we are on flight number eight. As you can see from the recap, EBITDA grew by 6% and came in at 4.7 billion. Excluding the impact of FX devaluation for around 130 million euros, EBITDA would have grown by up 9% to 4.9 billion. The FX negative impact attributable to COVID-19 has been around 80 million euros, representing the devaluation effect in the period January, March 2020. since the start of lockdown measures in China. Group net ordinary income came in at 1.3 billion, 11% higher versus last year. FFO reached 2.1 million, down 17% year-on-year, due to around 400 million euros increase in working capital attributable to COVID-19 crisis. to the 47.1 billion, increasing by 4% to 1.9 billion versus the year end of 2019. Let's now take a look at the Group EBITDA on slide number 9. As already commented, ordinary EBITDA grew 6% to 290 million euros. Main drivers of this evolution are the following. 90 million associated with global power generation, The new business line we have created to take full advantage of the energy transition, networked with NLX, representing our enablers of the decarbonization strategy accounting for almost $140 million, and finally, recorded an $80 million growth. I will detail key drivers for each business in the next slide, starting from global power generation on slide number 10. In the slide, we take a look at the performance of the global generation line, for which we will now comment on the main factors that have driven its results, while we will go in more detail through the performance of the constituents of energy-grade power and the conventional generation in the following slides. Global power generation originally reached €1.8 billion, making an increase of 5%. It is worth reminding you that last year, performance included around 100 million capital gain associated with the full consolidation of our North America assets, as well as 160 million positive contributions associated with the early termination of our PPA contract in Chile. This year, the quarter has been positively impacted by a provision reversal in Spain for around 170 million euros. Net of not replicable items recorded in both Q1-19 and Q1-20, the underlying operating performance has recorded an overall improvement of 12% or around €180 million, a remarkable achievement whose components I will analyze in the next two slides dedicated to energy grid power and conventional generation. I will start from energy grid power on page 11. As you can see from the chart, ordinary EBITDA came in at 1.1 billion. As mentioned previously, Q1 2019 EBITDA has been positively affected by the net capital gain and the positive contribution associated with the early termination of the PPA contract in Chile. As a result, the underlying operating performance has recorded an improvement by 7%, or more than 70 million euros. of which 40 million for new renewable capacity made in North America and Liberia, 60 million coming from higher volumes, particularly in Spain and Italy, where renewable production overall increased by 1.6 terawatt-hours, driven by better hydro performance, and plus 40 million as a result of higher prices fully hedged, driven by Italy and Latin America. We had a negative impact on delta perimeter for around 20 million euros, mainly attributable to the EBITDA of the capacity sold in Brazil at the very start of 2019. And finally, it's worth highlighting that FX depreciation weighed negatively for around 50 million euros, with the effect mostly attributable to Latin American currencies. with more than two-thirds of the impact occurring in the first quarter of the year as an effect of the COVID-19. Moving now to conventional generation, and I am on page 12, ordinary EBITDA increased by 39% and came in at 700 million. The current quarter was positively impacted by the provision reversal in Spain for around 170 million euros, while last year the ordinary FIDA included the positive contribution associated with the early termination of a PPA contract in Chile for €80 million. Next of these items, the underlying operating performance has recorded an improvement of 25%, or around €110 million, mainly due to €60 million as a result of the group short position. resulting from higher prices hedged and from balancing services in Italy and Spain, and more than 30 million from efficiencies made in Spain and Italy. Delta perimeter impacted negatively for around 20 million attributable to EBITDA in Russia. and effects depreciation of Latin America impacted for 20 million euros negatively. Let's now take a look at our infrastructure and network of slide 13. As you can see, ordinary EBITDA increased by 7% year-on-year and came in at 2 billion euros. The reversal of the provision in Spain impacted the ordinary EBITDA for around 180 million euros, As a result, the underlying operating performance has been broadly stable year on year. The main moving parts have been the following. 30 million increase related to investments, efficiencies for around 10 million euros, and then negative impact on CPIs on OPEX for 30 million euros, and currency devaluation that impacted negatively for around 60 million euros. On this amount, around 40 million euros attributable to COVID-19 crisis. On the operating side, volumes dropped by 4% in Europe and 1% in Latin American countries. European regulatory frameworks are based on revenue cap system that are not exposing net worth remuneration to volumes In LATAM, price cap mechanisms leave a certain rate of exposure to volumes within the regulatory period. During the first quarter, the corresponding financial impact has been negligible. And finally, on retail, I'm on page 14. Ordinary EBITDA reached more than 900 million euros, increasing 9% versus last year. The increase is almost entirely attributable to the free market. In particular, free markets have been dug through by around 75 million or plus 10%. The main components of this performance are as follows. In Spain, a 40% increase in power unitary margin, more than a 3% decrease in electricity volumes. The results in the period were mainly driven by gas operations. In fact, gas retailing beta was down around 30 million euros on declining consumption coupled with declining unitary margins. Electricity retailing beta proved broadly stable, protected by a changing volume mix more skewed towards B2C and unchanged unitary margins. Regulated market EBITDA slightly increased by 3%, reaching 150 million euros at the end of the period, mainly thanks to the contribution of Romania and Spain. In fact, we recorded efficiencies for around 10 million euros made in Italy and Spain, both in the free and in the regulated markets. Now we have gone through business drivers, and we can now move to the financial management section. And I'm now on page 15. Ordinary group net income came in at $1.3 billion, 11% higher than last year, many thanks to the increase in ordinary EBITDA and lower financial expenses, which more than offset increases in G&A and then higher tax rate. G&A This slightly increase mainly refers to investments deployed, in part compensated by lower depreciation in Italy and Iberia, thanks to coal impairments made in 2019. The decrease in financial expenses reflects the continuous decrease of the cost of debt, which declined by around 20 basis points versus the year 2019. Results from equity investments stood at 14 million euros. Tax increased by $185 million year-on-year, mainly due to $105 million for higher earnings before taxes, and because in 2019 we recognized the first tax absence in the U.S. and in Argentina. Minorities increased by another percent, reflecting a higher total net income. Moving now on page 16 on the cash flow. SFO stands at $2.1 billion, about $500 million lower than last year. Delta is mainly a pivot hole to movements in working capital, which reached $1.5 billion in the first quarter 2020 versus $1.1 billion last year. The increase is due to delays in bills collection related to the lockdown status in different countries. We expect to partially recover the negative working capital in the second half of the year as a consequence of the return to a stabilizing situation worldwide, hoping that the war is over. Turkish law stood at $100 million, confirming the capacity of the group to cover the investment and growth with the operating cash generation, notwithstanding the extraordinary scenarios. And now on page 17, have a look on the net debt. Net debt to the 47.1 billion. Changes are driven by the positive frequency flow of 200 million, as already commented. Dividends paid for 2.2 billion euros in the quarter. partial flow relating to the further increase in the share of Central Americas through the equity swap, and 200 million positive FX impact from evaluation of local currencies against the euro. The level of net debt at the FX rates set through hedges amounts to 46.1%. Our gross debt increased by around 1.5 billion euros, mainly explained by the evolution of the debt already committed. Before the closing remarks, let's take a deeper look into our liquidity position and forcoming debt maturities at page 18. Our total liquidity at the end of April stood at nearly 26 billion, 6 billion in cash on end, and the remaining 20 billion in readily available committed credit lines. The level of liquidity covers 2.1 times the debt maturing throughout 2020-2022 and amounting at 12 billion euros, net of short-term debt that is rolled over every month and every period. Also including the short-term debt, the liquidity to debt coverage ratio would still be at 1.3 times. Our counterparty risk is minimized through an ample diversification. Our cash is invested in a total of around 70 banks with 95% of cash in current accounts or overnight deposits. Our committed credit lines encompass a total of around 50 banks. And now, on page 19, some closing remarks. The first quarter of the year showed a solid evolution of the underlying performance despite the anti-COVID-19 measures that have been implemented in some of the markets where the group operates. For the time being, we project limited impacts associated with lockdowns. Moreover, we see this impact as manageable and not to affect the growth trajectory of the company. The resiliency of the group is due to a robust integrated business model which absorbs temporary shocks and limits economic and financial volatility. Additionally, active profits to enhance the business guarantees continuity, protecting our people first. Actions we put in place are not a detriment of business performance. They are sustainable in the medium and long term and set to last at least until December. As scheduled, the Annual General Meeting to be held on May 14 will approve the final dividend payment in July and the new remuneration policy for sustainability will take a central role in the short term protecting the health of our employees and in the long term to support the economic recovery of our country of princess. Thank you for your attention and let's now open for the Q&A session.

Okay, great. We now jump on Q&A. So far, we have received questions from Equitas, Santander Mediobanca, Main First, Caixa Bank, J.P. Morgan, Morgan Stanley, Merrill Lynch Bank of America, Acros, Credit Suisse, Berenberg, Deutsche Bank, Sochenex, Sun, Goldman Sachs, and Barclays. Thanks to all of you. As usual, we aim at having a half-stop at 7.30 p.m. Central European time, so let's get started. We start with a number of questions which are related to COVID-19. The first one is on the renewable capacity bills. Q1 delivery came in as planned.