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.

Well, Q1, as I said in the speech, yes, the delivery was probably in line. We had minor delays associated with interconnection and permitting issues, but our delays were anyway recovered during April and during the second quarter.

Okay, next. Do you foresee any change in the shape of delivery of the 14.1 gigawatts for 2020-2022? What is the target for 2020 and how much of it is at risk?

To remember, we have a total commitment of 14.1 gigawatts for the new plan and it is well addressed and it doesn't change. We have now 65% of this commitment to this delivery under construction or ready to build. The target for 2020 is 4 gigawatts. Here we could have some reshaping of 2020, some delays that will reshape 2020 and 2021, but it's a matter of no more than two months for the number of megawatts. It depends really on how So the crisis will develop in the next month and when the lockdowns in the different countries in which we are developing capacity will be changed, will be prolonged. But the overall target of the plan is unchanged.

Do you foresee any impact to your pipeline?

No, no material impact. We had some issues related to the negotiation of some permitting, so some delays in permitting, but nothing that is meaningful from affecting the rate of development of our pipelines.

Still linked with the development of renewable. Are you facing any bottlenecks on capacity delivery, permitting, licensing, supply chain, logistics, or end construction?

So as I said, permitting supply chain situation is not critical. And on construction site, we have piled up some delays in the lockdown. And now we are going to recover these delays. And as I said, some little reshape of the schedule of activities might arise in some countries, mainly focusing on Spain, Brazil, and South Africa.

We move specifically on Spain. Possible restart of renewable options in Spain. Any discussion with the government after it concerns the target of the PIEC for 2030?

Well, no. We have no sign that there will be change in the draft of the law on climate change. So we think that next auction in Spain, the Ministry will push forward with new auctions once the situation will stabilize. The last news on this, the Ministry has just launched a new renewable auction in the Canary Islands. And we expect to auction about 150 megawatts. And the same is due to be done for the Balearic Islands. So these are signs that the recovery will be focused mainly on the renewable development in almost all the countries in Europe.

So you keep on saying you have little disruption to your activities. What has made your projects more resilient than for other developers?

Well, I talk about myself, about my company. We think that we rely on three main drivers. The first is our scale, and this is coupled with the wide graphical diversification. so allow us to serve the crisis and to try to have different timings and different push for different countries that are different situations the second is the flexibility to our capital allocation and a deep a big pipeline that so give us the possibility to fine-tune and reshape capital And the last is the widespread digitization of our asset base and operations. Our renewable asset base is fully digitized and can be remotely controlled and managed. And we have almost all the applications for renewables and also for the other processes of our group 100% in cloud. And this provides us the possibility to operate plants from different parts of the world. This is the flexibility that gives us the continuity of services and not a disruption in any situation that might occur.

Okay, quite an articulated question around the EU. There has been hope that the European Union might prioritize renewables in its post-crisis economic stimulus efforts. What specific measures could the European Union take to stimulate renewables? For example, greater subsidies, lower taxes, easier permitting?

Well, yes, it's an articulated question, but I think it's a very relevant one. So you know that we are full in the European Green Deal. We are full supporting European Green Deal. We think it is an excellent framework not only for the direction of the new effort, but also for the reconstruction plan. It's clear that we think that for the key initiative, an acceleration of renewable development will be centered in the recovery actions based mainly on three pillars. One, new capacity with short time to market. The second is the repowering and refurbishment of existing capacity, very relevant and also with a lot of investments ready to be done. And then the replacement of coal with green technologies. And these are the three directions we think are very relevant. And then talking about the enablers, we think that simplification and harmonization at EU level of permitting procedures for wet plants, coal to gas, and storage, and modernization of hydro plants would be fundamental. And then state aid and rules and new financing instruments should be driven by sustainability and long-term while boosting development of ready-to-build projects. We see sustainable finance as a combination of all those forms of capital that accelerate the achievement of SDGs, of sustainable development goals. It can contribute to generation of environmental, social, and financial value. The recovery fund is now due to take off. This recovery fund could trigger the scale-up of sustainable investment in our region through interest subsidies to reduce cost of debt for sustainable instruments. regulation and standardization to improve corporate actors to sustainable debt, and temporary equity partnerships to reduce corporate needs capital. Improved corporate capital return is the way to boost sustainable investment in Europe and to rely with this push on the big part of the relaunch of Europe in the next month.

A completely different subject, more about competition. Do you think financial difficulties at oil companies might mean they are no longer able to compete aggressively in renewables, or might it prompt them to be even more aggressive in a bid to speed up their move away from oil?

Well, so I think that the magnitude of growth of renewables is so huge that also before this crisis, there were days to accommodate a vast number of new entrants. It's a market that for the next years, That's no limitation. It's so big that our company, that is the world leader in renewables, has only 3% IP share, as you already said. So we didn't see before, and we don't see now, so no major changes to this even a scenario of more equipment away from oil. So in a case or another, we think for the foreseeable future, The market is so big that there is space for big competition without major price or margin compression.

Okay. The next is on the short position. Can you provide details on the short position? Are you expecting to benefit from this also in Q2?

Okay. As you know, we have this long position mainly in Spain, and the drop in pool prices implies a positive effect with the short position. Now, this is for the first quarter. Entering the second quarter, contribution will depend on the evolution of electricity prices. We saw another swing down in April, and it has been a positive impact in April. And for the other month, more or less, the prices were almost flat, so it has been increasing, and the increase in prices reduced the magnitude of the short position gains. So we will continue to manage the position and we expect to benefit from it in a context of a low port price, but now we have to experience what is going to happen to port prices in phase two of the internet phase.

Okay. On balancing service, can you quantify the impact of balancing service? Will this expand to Q2?

Well, balancing services contributed to the margin mainly for Italian global power generation, and the contribution was around 290 million euros per quarter, 50 million up versus previous year. The increase was mainly based on the fact that the system had and still has difficulties in rearranging the models to understand what kind of balancing is needed in a situation in which you have industries closed and people living at home. So in this case, in this phase, you have an increase in demand of balancing services, and this is why we got this increase. Expectation for Q2 is that balancing services will follow the same trend of Q1. And then the amount will depend then on the development of Phase 2. If normalization will come suddenly, so needs of balancing services will go down. If normalization will be will come slowly, so this need will be higher. It's something that we will assess better looking at the trends in the second queue.

Does the performance in conventional generation change the schedule for capacity closure?

No, the change in strategy is not affected by my question. It's something already taken and is following the developments and all the steps that we have to follow to have the complete shutdown of coal plants.

Now we move to a set of questions about networks. The first one is a decrease in volumes is the following. A decrease in volumes does not affect remuneration in Italy and Spain. Is cash flow impacted? What is the projected impact?

Well, Italy, reduction of distributed volumes does not have any impact on Q1 cash flow. We have a drop of approximately 4% in the energy distributed, and we may face limited negative impact at the end because there is a quota of transportation fees that might be not cashed in from third-party traders. I remember that as Italy works, What you didn't get in the year, you will get in the next year. So everything that we will not get in the transportation fees in 2020 will be cashed in in 2021. In Spain, the reduction of distributed volume does not affect cash flows at all.

Okay. Then networks in Italy and Spain, how are they impacted if consumers do not pay their bills?

Okay, so Italy, the regulator did not issue any resolution that extends the three days for payment. It's possible a postponement according to the Liberals 116 and 149. And the regulator is expected to define timing and recovery mechanism in case of clients that do not pay the bills on time. You know, this resolution extends the effect of the previous one and envisages the possibility to partially postpone the payment up to 30% of the invoicing related to consumption points. And generally, the cash in from ended contracts are covered by recovery mechanism of system fees, as I have already said, so that in other solutions. So all these mechanisms will be completely cashed in between this year and the next year. In Spain, the Royal Decree 11 approved all of some customers, small businesses and enterprises, to temporarily suspend the payment of their bills for six months. The retailer must pay the energy revenues to distribution companies after this period. Therefore, there is no impact estimated by the year end. Today, we have an impact that at the end will be fully reabsorbed for the year end.

In Latam, there is a volume impact. What has been so far and what do you expect for the year end?

During the Q1, we had roughly 1.5 percent increase in distributed volumes. that it will depend on how the COVID will impact these countries. Today, we have an expectation to end up with a minus 2.5% before the result. That means 3.5 terawatt hours.

Okay, saying in Latin, what measures have regulators taken to affect the crisis impact?

Well, regulators are looking to implement a wide range of response measures, adapting solution to facilitate the economic situation of customers and smoothing the impact on distribution companies. In South America, regulators and institutions are activating special funds or liquidity payment facilities to provide financial resources for the regulatory interventions that will support the overall system. We are closely monitoring the development of the supporting mechanisms to understand potential impacts deriving from the unfolding COVID situation. decided also in some countries the postponement of all inspection and sanction procedures in charge of distributors related to quality of service. This is an important impact because of the impossibility to manage properly the network and also the quality of some networks that we manage. in Latin America maybe.

Okay, we move to retail. Can you provide more color on margins for B2B and B2C for both Italy and Spain?

Okay, Italy and Spain, no relevant impact in margin because of COVID crisis. We have a reduction on the B2B cross margin and that is due to lower volumes but it's quite completely upset by positive impact on b2c gross margin that's because the the unitary marginality is completely different from the marginality of b2b and b2c so the two things that we're standing we have a big decrease in volume b2b and an increase in volume b2c that is lower compared with the b2b b2b for the different composition of unitary margin the impact on overall margin is neutral and this is something that is the same nonetheless in italy and spain

Okay, next, what is the demand evolution that you have experienced? Is it showing any recovery? What can be expected for Q2 for Italy and Spain?

Well, now we had the first decrease in Italy and Liberia in the first quarter, mainly for the restriction that affected the last two weeks. of the Q1 results. We expect a further reduction in Q2 with the lockdown because we had a complete shutdown in April. And then we have a hypothesis of recovery in May to June. And so this is seen to be roughly five terawatt hours in Italy and Spain of lower demand But we have seen a recovery in consumption, in particular in corporate segments in Italy and Spain, just right after the phase two beginning. that was and is already higher than expected. So we have good signs in terms of recovery of demand in the second phase.

Okay. A few questions around financial management. Worsening of the net working capital of around $400 million in Q1. What is the net working capital poised to be at the end when it can be reabsorbed?

Well, the expectation we have is to reach roughly 2 billion euros of temporary impact on working capital as an increase in working capital at the peak of the crisis. And we think this peak will be reached within the end of the second Q and the beginning of Q3. we think that half of this amount will be potentially recovered by the end as the situation normalizes.

Okay. More technical on working capital. Receivables within working capital. At which point do you conclude the customers will never pay and write off the receivables in earnings? Three months, six months, 12 months?

Well, this is made in accordance with IFRS 9 guidelines. So recognition in the profit and loss of the no payment of the customers will have an impact due to the accrual of that debt according to the loss rate of each country. So regarding the write-off, it is a different thing. It is important to remark that it depends on each country's local regulation and the execution of all the previous steps in order to support the operation. Taking this into consideration, the average term of this law's recognition is between two to five years for any group countries.

Okay, now what is the impact on your bed deck provision and what are the measures that will be implemented in order to recover it?

Well, so we expect an increase in the level of bed deck. As local regulators have stopped gardening activities and have closed physical collection channels in some countries. The magnitude of the increase will be a function of the timing of the lockdowns and the pace of recovery when the situation will normalize. Key drivers to smoothen this impact will be more towards the digitalization of payments. And this is something that we are doing to try now to move a lot of people on digitized payments. All in all, we think that the bad debt, so we don't know how the recovery phase will be, but the first assumption, we think that a 15% increase in bad debt versus the normal 15-20% increase versus the normal size of bad debt will be possible along 2020.

Okay, a recurring question on taxes and new taxes. Now governments are in need for cash. What is the mood in Italy and Spain towards increasing taxes to the sector?

Well, so I don't think there are any upcoming risks for government intervention. I think, on the contrary, that governments might urge to stimulate the economy, And the utility sector can play a central role because the investment into sustainable activities will address two important things. To have a short-term investment increase on one side and on the other side addressing the sustainable path that mainly in Europe and also in other countries is the main task for COVID-19.

Okay, we go back to the business with a set of questions that are more, say, ex-COVID topics. We start from renewables. Are you expecting any portfolio rotation on renewables for 2020?

No, we don't expect any major portfolio rotation on renewables.

Okay, another really... Dedicated question on renewable. Headlines suggest you are seeking a JV partner in Africa. What is the current status of the JV initiative and how quickly could we see progress in signing agreements and adding gigawatts?

Well, the process is in place and it is also at an advanced stage. So we are confident that we can sign agreements before year-end. The development, the Africa development through joint venture is part of the additional growth project for 2022. And so it's clear that the additional will be also dependent on the region and how the region will address the race framework in the coming months.

Okay. Now on hydro-availability, how 2020 has been so far for hydro-availability and what is the expectation for the full year?

Well, talking about hydro-resources, resources in the first quarter have been quite poor. Hydrogeneration in Q1 has been very strong thanks to the reservoirs. We think that the full year expectation is aligned to the trend experienced in Q1. So we will have a strong production and based mainly on the . What we think, with the exception of some countries, At the end, we can stay at the level of at the beginning of the year and having done the production expected.

Okay. On conventional generation, can you provide more color on efficiencies recorded over the period?

Well, here, $30 million is in progress. It's clearly based mainly on employees on one side because we moved employees to other more efficient way out of the coal plant and also external costs. So the vast majority is the efficiency program that pertains to the shutdown coal plant program that we have in progress.

Okay, staying on conventional generation, any progress on hedging for 2021?

Yes, you have also in the analysis the situation today, but we have progressed our hedging. Now we are ranging at 50% 20% run production hedges in Italy, 80% for Spain. We have now an average hedge price of 52 euros in Italy and 75 in Spain. In Spain, 75 included also the marginality of retail. So this is more or less the situation today. So we are moving, notwithstanding the very low price at the spot level. and so we are finding space to cover 2021 almost in line with the level of the business plan.

Okay, networks. What is the outlook for regulatory frameworks across countries of operations?

Well, so I'll say mutual to positive. It's clear that a big discussion now is going to be done in Europe and also in other countries to discuss about the central role of distributors in the energy transition and also which will be the center of an increased investment plan. that could be triggered also by these recovery needs. So renewables and distribution can be a big basket of increasing investments in Europe and also in other countries. It's clear that in Europe regulators are trying to understand how regulatory principles would converge among the European countries. And so it just happened in Spain with the addition of your regulatory framework. It also happened in Romania. And we are just now rollout has been planned for the next years. On the other side, also in South America, regulatory frameworks are moving towards European schemes. And so regulatory authorities are stabilizing initial steps also there for smart meters. So we see a normalization. We see discussion around the central role of distributors in the energy transition. The fact that networks will need higher investments to get this role. And on the other side, to not to decrease to try to decrease the step-by-step remuneration of networks at the time in which investments would be needed and will have to flow in the networks in all the countries in which we are, and also in all the countries that are addressing energy transition.

Okay. Staying on networks, is there any regulatory risk to be taken into consideration?

Well, not in the foreseeable future. New regulatory cycles have just started in Spain, new tariffs have been defined in Colombia, and they are all aligned with our expectations. In Chile, regulatory authorities are working to design elements for the new cycle that will start in November 2020, and we expect The results will be close to our expectations. These are the outcome of the first discussion we are holding with the regulators.

Okay. Retail. How did the commercial portfolio change over the first quarter in terms of customers acquired and lost?

Well, in Spain, customer base is up by around 200,000 customers. driven by a solid performance in Italy and Spain that remained broadly flat over the period. So, say, on the other side, the customer lost more or less in line with the previous quarter. For the first quarter, the expectations are that so the market will go it's going down in terms of acquisition and in terms of lost customers during the lockdown that is something that we are experiencing along April and so along the last two weeks of March and along the month of April where so all the activities of acquisition have been suspended of very very

Okay, a quick question on retail. What's the level of churn rate?

Churn rate in Italy was roughly around 12%. The share rate declined 1.1 points versus the previous year, and we are working around 10%. This is also because the reduction, now we will think the second quarter will be bigger because of the lockdown of April that will impact in the share rate reducing a little bit because of less lost customers in April mainly.

Okay. Now we move to a set of questions that I think are the most burning one, more related to general financials. The first one is looking at the guidance. What are the main strengths to your full year guidance and what can be the financial impact?

Okay, so first of all, I want to underline that this crisis is peculiar. It might result in lots of moving parts, both positive and negative, and we are totally monitoring to ask from this. So, if I have to summarize the main headwind that we are seeing at the moment, we have devaluation of local currencies against Euro, and based on current effect projections, might have an impact on EBITDA of around 500 million euros. And this might translate into net income impact of around 150 million euros. out of the 5.4 billion euros target we have in 2020. Impacts of volume exposure in LATAM will depend on regulatory protective measures that would be made available by local regulators. This is for LATAM because in Europe, re-grading activities are not exposed to volumes as frameworks are. Another headwind will be by debt, that potentially will increase, but the final number will depend on how long the lockdown persists and how quickly the economic recovery materializes. Regulators also might have to recognize this cost and therefore neutralize the economic impact. So we have to make a longer observation of all these things to understand what the final benefit impact might be. Next three months and recovery curves in countries of presence are key to properly assess positive and negatives on numbers As of today, we can confirm that the underlying business continues to prove very solid and the strategic trajectory of the group is well on track. Monica, I guess you are on mute.

Sorry, I put myself on mute without remembering it. Cost of debt is down by 55 basis points versus 19. Can we expect a steeper reduction versus plan assumptions?

Cost of debt Q1 was 3.9% and it has been in line with our plan assumption for 2020 of 4%. We have limited refinancing out of us, and we will continue with our active liability management activities. So more or less not having big refinancing in the next quarter, we think that we will stay stick to the target that we have taken in the strategic planning.

OK, a really popular question on the provision reversal in Spain. Can you provide more details? Was it included in the 2020-2022 plan?

OK, so this is a new collective agreement signed last January and it provides for a new and more flexible social benefit scheme. and it establishes a modification of certain social benefits, mainly that corresponding mainly to electricity subsidies for active and passive employees, now more aligned to the average family consumption in Spain. The provision reversal was included in the plan as negotiation with the unions on this collective agreement were ongoing by the time of presenting the strategy plan 2022 last November. It's clear that this impact might not be the final impact of this universal provision because other measures are going to be taken in Spain and one has been already taken in the first quarter, so other provisions to have flexibility in managing other costs or the personal costs will be taken accordingly with future agreements with unions that are now progressing and they are now discussing during this period.

Okay. Another question. more on the non-organic uh part of the business so has your outlook on m&a changed as a result of the crisis do you think it's prudent to pause acquisitions or could this actually be good opportunity to deal with attractive multiples well so we have no

First of all, we have not changed in our M&A approach. In the present, we have four bolt-on mid-size steels, mainly on networks because of renewables. We think that we can rely on our organic capacity to develop our fleet. I think current crisis now is putting to a break on M&A. In this period, it's difficult now to press from any part in M&A during the lockdowns and recovery. I think that current crisis will potentially open up opportunities and mainly for who has big financial shoulders. And I think that to the year end it would be possible to identify those players that managed through the crisis and those that did not. And yes, financial difficulties might trigger asset sale or consolidation of players. that in turn can bring us to the market. So we think that a new phase of M&A will arise, not now, but in the last part of this year. And so we will be looking at the market and we will evaluate opportunities and ready to capture some opportunities as always happened in the past.

Staying into non-organic, how is the minorities' buyout progressing in South America?

We are well advanced in the program, supported also by the weakening of effects of the Latin currencies. As you know, we have launched a share swap transaction on both Enel Americas and Enel Chile. On Americas, we expect to complete the outstanding share swap and reach 62.3% by May 2020. And we have already entered into two new share swap transactions to reach 65% of our stake. Enel Chile, we are progressing well. and we'll announce shortly the outcome of the shared work transactions that we have in place.

Okay. Now, two questions on the upcoming AGM. Considering your current share price, is it likely to have a share buyback as soon as the AGM will approve it in May?

Well, on March, the Board of Directors asked the AGM to renew the authorization to purchase and subsequently dispose of treasury shares to be carried out in one or more transactions up to a maximum of $500 million of ordinary share surveillance that represents about 4.9% of shares capital. We have already expressed that this is as a value of around $2 billion. As we have always said, we have elected to retain this optionality, but it will always be benchmarked against other options for capital deployment and the value accretion that is attached to them. All in all, as I said, Always looking forward, it's clear that these opportunities to stay in the basket, but looking at the prices, for instance, the prices at which we are doing the share swap in Latin America, it is more EPS accretive to devote capital to this kind of transaction than this one. So we will benchmark and we will rank all the opportunities And so we will decide to deploy capital on our strict financial discipline to give money to options that are the best in the rankings.

Another really popular question, is there any risk on dividend payments?

There are no risks. So now we have, you know, we have the board approved the payment of the dividend equal to 0.328 euros per share. So in 2019, 16 cents already paid as interim dividend. The balance will be paid in July. And so we confirmed the current dividend policies, not only for what is the payment for 2019, but also for the 2020 where we set the minimum payment, minimum DPS at 0.35 euros per share.

Okay, now two questions on the remuneration policy. Can you provide more color on the rationale of the recent changes to the MBO and LTI programs?

Well, so the rationale was clearly the fact that after having said MBO and LTI programs before the crisis, has changed priorities for 2020. And so priorities for this company in 2020 are now more set on the ability of the service on one side and on to make our employees safe in working for the stability of service. So this is a bigger part of the effort that we are doing. And the board decided that it was right to put the priority that this management has to follow in 2020. On the other side, because the sustainability effort that is was already in the LTI program because of the emissions. It was set for the renewable development. It's been defined as a big important and relevant target for the medium term for the LTI fund. And it's because it is unchanged. So it's not because some delays might arise in 2020 that we have room to reduce this effort in the medium term. And on the other side, also to underline that these kind of investments will have to be the key for the restarting phase, not only for us, but also for Europe or for the countries that want to take two things together. We start on one side and a big step towards sustainability and energy transition. This is the main philosophy under this change of target.

Okay, before going into the list of questions that keeps on going through our inbox, coming through our inbox, one question that is, again, another really popular question is on OpenFiber. If you can just share with the market updates on possible merger sale of OpenFiber.

I think the priorities in this field have changed. The real priority the company has is to provide continuity of service on one side and to speed up the development of this project because it has been proven central in a crisis like this and I think after this the central role of fiber optics in a country will be more and more important. because also it's the way in which we will work, the way in which we will act. I think this crisis will change completely. The things and new needs will arise, and these needs will stay to have a future-proof network like the one the open-source is developing. So this is the real focus of the company. We have no signs of any steps in other direction for companies that are fully busy in doing these things.

Okay. I would pick a few questions starting from the beginning. I will try to pick them up orderly. So the first question that came through was on the working capital in the first quarter due to COVID. Can you elaborate on that and can you please provide guidance for Q2? I think that we have already addressed this question. Popular question on the provision release at Endesa. Basically, some analysts are asking if this release And the inclusion of this release in the ordinary results is an in-flight downgrade of the guidance that we provided last November. Or there are some items that we'll go through and will basically potentially offset this impact at the end of the year.

Well, I think I have already answered the question. So I said this is the first step. So the first step was a release in February. of this provision on one side, but we have also put another provision that is going to cover some agreement with unions related to personnel on fees, on distribution, on generation that we have already had. What we think is that a lot of other things will be needed in Spain, because Spain is entering, like the other countries, in this energy transition phase. It's going to shut down coal plants. It's going to digitalize the networks. Now that the power working is coming in, and a very big part of the new way of working. So these are things that Spain will have to discuss with unions in the next month. And that's why the final impact, economically speaking, at the end of the year, would not stay that level because other commission will arise following the discussion that they are doing with unions in this month.

Okay. I'm going through quickly the question that came through. I think there is a question that we really didn't answer, although you were clear in assessing the commitment of the group on the 2020-2022 targets, but it's linked with our SDG bond. And the question is, do you expect to hit the KPI targets on your sustainability-linked bond despite the slowdown in the renewable industry?

Yes, definitely. So we don't see, so looking at what the headwinds we had this year, we might have this year, and also looking at so that now we are entering phase two and we will not come back to phase one. So looking at this normalization of activity, everything, the maximum impact we might have is two, three-month delays in some of development of 2020 that will translate and hopefully will move in 2021. But the overall KPI is not impacted, so today .

Okay, we have some questions that I think have been already addressed. If any was left behind, we will do it via email. So I think this can conclude our call perfectly on time. So thanks, Alberto. Thanks to all of the people that were connected and that continue to support us. And let's talk soon. Thank you.