Enel Spa Unsp/Adr

Good evening, ladies and gentlemen. I'm Monica Girardi, the head of Group Investor Relations. Welcome to our full year 2020 results presentation, which will be hosted by our CEO, Francesco Sarace, and our CFO, Alberto De Paoli. In the presentation, Francesco will provide some highlights of the period and will sum up the milestones achieved, while Alberto will take you through the operational and financial performance for the group. Following the presentation, we will have the usual Q&A session. In line with what we have done recently, we asked those connected to the webcast to send questions only via email at investor.relations.nl.com. Before we start, let me remind you that media is listening to both the presentation and the Q&A session. Thank you, and now let me hand over to Francesco.

Thank you, Monica. Good evening, everybody. So let's start with the highlight of the period. I am in slide number two of your deck. Net ordinary income came in at the top of the range, up by 9% year-on-year, demonstrating the resiliency of our business model even in a year of unprecedented disruption. Our remarkable operating and financial delivery results in a proposed dividend per share of €0.358 per share, which marks a 9% increase versus 2019. It's worth to highlight that the 2020 dividend per share is higher than the 0.35 euro per share guaranteed dividend per share for the year, demonstrating once again the capability of our business model to generate value to our shareholders. We made significant progress on decarbonization. We have achieved a new record on additional renewable capacity with 3,100 megawatts of new builds, while at the same time accelerating our exit from coal generation. Simplification of group structure accelerated further with the approval of the merging of Enel Green Power Latin America assets into the Enel Americas. asset base. Lastly, in January, Moody upgraded the group credit rating to BAA1. In the next slide, we will have a closer look at our operating and financial performance. We are now in slide number three. 2020 has brought exceptional challenges with a pandemic that imposed radical changes to the way we operate and live. Notwithstanding this long emergency, we have been able to progress on all our key strategic priorities. We have built 3,100 megawatts of renewable capacity. When I say built, I mean built and connected to the networks. The share of digitized end users reached 60%, with a total of 44 million smart meters installed. Our retail customer base in the free market grew by 200,000 customers and a further milestone in the electric mobility was achieved with more than 100,000 charging points installed. The widespread digitalization of our asset base and the use of platform has ensured operational continuity as well protected the health of our colleagues and suppliers. This top-notch delivery translated into a 22 total return for our shareholders, driven by a 17% share price appreciation and a 5% dividend yield, significantly outperforming the broader utilities sector. We are quite well positioned to meet our ambitions in the long term, and we see that in chart number four. Over the last decade, we have created the world's largest renewable asset base, standing now at 49,000 megawatts worldwide. We have been the fastest growing player in the renewable space, creating over time a robust, reliable and widespread development platform capable of managing multiple projects simultaneously, as well as building on an extensive pipeline. In 2020, we have marked up the next step up of our delivery capabilities with around 4,000 megawatts new capacity built expected. This goal was not achieved because COVID-19 caused delays in projects for around 800 MW, which were supposed to be commissioned in late 2020. However, our building platform proved its resiliency. Therefore, we expect a quick recovery of these delays in 2021 with further progress on the installation that are expected to exceed the 5,000 MW during 2021. We will triple our capacity by 2030, confirming our position as a renewable supermajor. New renewable capacity needs to be connected to a resilient and digitized network as a backbone for the energy transition. We are the biggest private network operator with 74 million end users, and we are also the most advanced in digital transformation. Over the last five years we have expanded our grid with end users connected growingly by over 20% and the regulated asset base reaching 42 billion euros in 2020. The efficient management of our networks relies on the adoption of a platform operating model. This allows us to increase the level of service quality. In fact, SAIDI decreased 12% in this Higher quality will couple with an expanding value of our asset base, which will reach $70 billion by 2030. Now we move to our positioning on customers and the value associated with them. This is chart number 6. Our group manages the largest customer base worldwide. Benefits from a unique position of around 60% of our customers are in developed areas and a very large portion is living in megacities. The composition of our commercial portfolio allows us to minimize the impact of COVID-19 and position us for the years to come. The acceleration of electrification will dramatically increase the market dimension and the ongoing elimination of the regulated tariff is creating new value pools. In this concept, our B2C, B2B and B2G customers managed through a single and cross-company platform are offered with beyond commodity services That represents a crucial competitive advantage that will drive the increase of retail value that we see over the next decade. This positioning of the group has been built over time. We have invested significantly in this. Now let's focus on the CAPEX that we deployed in 2020 on slide seven. We deployed in 2020 more than 10 billion euros of CAPEX. In the ownership business model, 50% of this CAPEX was devoted to the generation business, out of which 4.2 billion for renewables development and more than 40% has been invested in networks to foster digitalization and quality improvements. From a geographical perspective, Gross CAPEX was deployed mainly in Italy, Spain and Latin America. Through the stewardship model, We have invested 800 million euros, of which 100 million through equity injection, by further catalyzing around 1.5 billion of investments from third parties. These investments were devoted to renewables, where we continue to add capacity managed by our joint ventures, and then by NLX and Open Fiber. Looking closely at our global generation business on slide number 8, We can see that thanks to a continued effort on decarbonization, renewables production is up 5% versus last year, accounting for more than half of the total 217 terawatt hours generated in 2020, overtaking the conventional generation. As a consequence of the cold phase-out process we're putting in place and the contraction in demand, which resulted from the COVID pandemia, thermal generation declined by 22% year-on-year, driven by these two factors, the sharp contraction of coal production, which turned down, went down by 65% year on year. This led CO2 specific emissions down by 28% year on year, reaching 214 grams of CO2 per kilowatt hour, which positions us well on track to reach the science-based target of CO2 specific emissions of 82 grams per kilowatt hour in 2030. Now let's focus on the progress we made in renewable growth. So we go to the Enel Green Power slide number nine, where you see that renewable capacity built last year amounted to, like I said, 3,100 megawatts, breaking yet another delivery record, which was the one we established last year, despite the postponement of around 800 megawatts imposed by COVID-19 related conditions. Out of this amount, 1,400 MW were commissioned in the last quarter of 2020. As such, they have not yet fully contributed to the group's financial results. The total renewable capacity now stands at 49 GW, representing almost 60% of the installed base. The green repositioning of our generation portfolio drives the share of emission-free production up It is now 65% up 8 percentage points versus 2019. This year, 2021, you will see a further acceleration. New capacity built is set to total in the year more than 5,000 megawatts and is currently fully visible because it is underway and it is already 100% in execution process. The decarbonization process is also predicated on the acceleration on coal phase out and you can see that In the chart number 10, which follows over the year, we have reduced by almost 25% our coal capacity, shutting down 2.8 GW and bringing the coal and soil capacity below 9. The key milestones of the year were in Italy, following the green light of the early closure of human number 2 of the Brindisi power plant, the shutdown was executed by the end of 2020. In Chile, Enel Generación Chile terminated the operation of Boca Mina 1 in December, three years earlier than the original schedule. And also, it's worth to mention that during 2020, we agreed with the Chilean government the early closure of Boca Mina 2 in May 2022, instead of the original deadline of 2040. So this is 18 years earlier. Production from coal stood at 13.2 terawatt hours, down by an outstanding 65% from previous year. Revenues from coal now amount to 2.5% of total NL group revenues, down by one percentage point versus last year. Now let's focus on the main engine supporting our growth ambition in renewables. That is our large pipeline. This is page 11. This is where the next growth will come from. So our future deployment target rely on this ample technologically balanced and geographically diversified pipeline, which as of December 2020 has reached more than 200,000 megawatts, 1.5 times higher than the one presented in a capital market day in November. Mature phase pipeline worth around 60,000 megawatts provides a giant reservoir for our 2123 capacity deployment, offering ample flexibility in terms of capital allocation and protection of returns. With respect to the 19.5 targeted addition for the three years period, we stand at around 54% of this target already addressed, with over 10,000 megawatts currently in execution. The residual target of 9.5 gigawatts is covered 3.5 times by the portion of our mature pipeline with commissioning data within 2023. This offers ample visibility on delivery of our three years target and confidence in achieving even more than this as it is, as you have probably seen our custom. The level of target addressed and the flexibility offered by our pipeline backstop, the probability of targeted addition expected to remain stable at 200 basis points spread over WACC in line with our planned expectation. It is worth to highlight that in terms of equipment we have already contracted orders that cover almost in full our needs until 2022. So if we look at the operating achievement, we now move to global infrastructure and networks, and this is slide number 12. The efforts devoted to quality and efficiency yielded a remarkable progress, sliding down across all grids operated by us by around 12%, notwithstanding COVID-19. Activities on networks remain centered on the digitalization of the grid with the number of total smart meters installed that has reached 44 million, resulting in approximately 60% of our end user now fully digitized. In 2020, volume of electricity distributed decreased by 4.5% across all countries of operation due to the dynamics associated with lockdown measures. Worth to highlight that the first six months of the year have been the most impacted because in the first six months we saw volumes down 8% on average, while in the second half of 2020 volumes started to show progressive recovery. This trend is expected and observed to continue in 2021. As a matter of fact, in the first three months of 2021, we observed a level of distributed energy almost in line with pre-COVID levels. Now, Alberto will walk you through the economic impact associated with networks for the period later on. Let's now look at the closer look on the customer dimension. This is chart number 13. Client's positioning has continued to strengthen via retail traditional operation as well as on new services and infrastructures. This is allowing us to tap future value associated with increasing electrification of consumption. 200,000 new customers' nets have been added in the free market, mainly in Italy. Energy sold in the free market is down 7% due to COVID-19 dynamics. Alberto will detail later the economic performance of the retail business, which, as you will see, has proven very resilient, leveraging on the group integrated positioning. Looking at Enel X, This global business line has performed extremely well despite COVID-19. More than 100,000 charging points have been installed at this point, reaching around 190,000, up 2.3 times versus last year. Lighting points have reached 2.8 million around the world, up by 17%. Battery storage has reached a capacity of over 120 megawatts, and 6,000 megawatts of demand response capacity was offered globally. In fiber, we have passed 11.1 million households in Italy, up 41% year-on-year. Let me now briefly summarize our progress on the simplification of the group. on slide number 14. In September 2020, the Board of Directors of Enel Americas has announced the mergers of EGP assets in Latin America with the assets of Enel Americas. This is a related party transaction which was approved by the EGM in December 2020. Together with the merger, the AGM also approved the elimination of the 65% shareholding limit established by the silos. Following completion of the merger, expected by a few days from now, April 1st, annual stake in Latin America will be slightly above 75%. Furthermore, on March 15, we have launched a voluntary partial public tender offer for the acquisition of shares in ADS of Enel Americas, representing up to 10% of the current share capital for a total maximum cash out of around 1.2 billion euros. The price of the offer has been set at 140 Chilean pesos per share. Once completed and if this will be fully subscribed, this public tender could lead to Enel of owning an 82% stake in Enel Americas. The public tender is expected to run until mid of April. Enel America's new asset structure will now be aligned with the rest of the other subsidiaries of the group. The merger of renewable capacity will unlock synergies as well as reduce operational and financial risk and will drive growth into Enel America's. Finally, let's move to shareholder remuneration on slide number 15. The resiliency of the business model we have, the high standards of operating performance and the action of the management have put in place allowed us to deliver sound operating and financial results, notwithstanding the COVID crisis. We will therefore propose a dividend per share of €0.358 per share, up 9% versus the previous year. And also above the minimum guaranteed dividend per share set for 2020, that was €0.35 per share. From next year, the remuneration will follow the strategic guidelines that we have outlined in November, where we set a simple and predictable dividend policy guaranteeing a fixed dividend per share over the next three years. which you see in chart number 15, 0.38, 0.40, 0.43 in the years 21, 22, 23. This policy, coupled with earnings, with the growth of earnings, will position Enel as a top-tiered total return company. Now I hand over to Alberto, who will go through the details of the 2020 financial performance. Alberto.

Thank you, Francesco. Good afternoon to you all. So let's now have a look on the financials of the year. And now we are on page 17. If we got to the 17.9 million euros in line versus previous year, group net ordinary income increased to 5.29% higher versus last year. FFO reached 11.5 billion, broadly in line versus last year, mainly thanks to the improvements in working capital, which has been almost totally reabsorbed in the last quarter of the year, despite the second wave of COVID-19. And finally, group net debt to the 45 billion euros, increasing by 1% versus the end of 2019. Before going through the details of the financial performance of each division, let me commence the evolution of the scenario over 2020. And I'm on page 18. As commented during previous releases, this unprecedented global emergency translated into a strong deterioration of the market context, impacting negatively demand and treating the severe devaluation of currencies. FX represented the main handwind to our 2020 results and worth around 1 billion euros at the digital level. Latam currencies devaluated by 20% on average over the year, with Brazil and Malaysia as one of the currencies that has beaten the most. As you can see on the right side of the chart, electricity demand has shown a progressive recovery in the second half of the year across all countries of presence, even if still shows negative trends compared to the last year. I will show in the next slide the impact of business headwinds. We are now on slide number 19. The group CVDA was mainly affected by the following negative impacts. As said, around 1 billion euros from the devaluation of currencies and 730 million euros associated with COVID-19 dynamics related to the sharp contraction of volumes for roughly 600 million euros impacting retail activities worldwide and networks in Latam, and other dynamics mainly associated with losses, downlink processes and delays in investments and developments for around 130 million euros. Net of both COVID-19 impacts and effects, EBITDA would have been up by nine percent year on year at 19.6 billion euros moving down the profit and loss the pandemic affected dna pushing up the level of bad debt provisioning by roughly 300 million euros On the Group's ordinary net income, the crisis translated into a burden of €450 million, toppled up by a negative effects impact of around €250 million. Net of both COVID-19 effects, net income would have been up by around 24%. Let's now commence Group EBITDA and I'm on slide number 20. As already commented, reported EBITDA 17.9 flat year-on-year and showing a solid improvement of the underlying operating performance despite the adverse scenario. On generation, The new renewable capacity developed has driven the operating performance, while the management of generation margins together with our retail portfolio continue to protect the economic results against market fluctuations. And finally, on networks, the performance recorded in the European countries has been supported by solid regulatory frameworks, as well as by our quality and efficiency programs. while LATAM has been severely hit by currencies and demand contraction. Now we will move in a deeper analysis, and now we are on page 21 on global power generation. where we take, on page 21, we take a look at the performance of the global power generation division. And in the following slides, we will go more in detail to the performance of energy power and conventional generation. Overall, the global power generation ordinary EBITDA stood at around 7 billion euros, 12% higher versus the same period of last year. including the negative impact of effects, performance was up by 20% year on year. The unitary gross margin increased by 8% from 39.9 to 43.2, as you can see in the chart. This improved profitability comes from a higher share of renewables in the mix compared to one year ago. Worth to remind, due that last year performance included around €100 million of capital gain associated with the full consolidation of our North American assets, as well as €160 million of positive contribution associated with the early termination of a PPA contract in Chile. In addition, as already commented during the previous releases, the period has been positively affected by a provision reversal in Spain, for around 170 million euros mainly booked within conventional generation and now we'll go a deep dive on energy power and we move on slide 22. ordinary EBITDA stood at 4.7 billion euros two percent higher versus last year as mentioned in the previous slide 2019 was also associated with the full consolidation of North American assets and the early termination of PPA contracts in Chile, the overall impact in 2019 was 180 million euros. So the underlying operating performance is up 300 million euros taking into account also this one-off. And so the main items of this 300 million euros are a positive contribution of 500 million euros coming from the initial additional capacity installed in 2020 mainly in us and brazil and worth to highlight that around 1.4 gigawatts commissioned in the last quarter have not yet fully contributed the results and will generate around 160 million euros in 2021 Then we had 100 million euros coming from an improving performance of hydropower plants. Higher and fully hedged price that impacted positively for around 75 million euros. 60 million euros from efficiencies. And on notice, OpEx Mega was decreased 10% versus the end of 2019, highlighting the continued focus of the group on efficiencies. FX, the valuation of LATAM currencies had a negative impact of around 340 million euros. We had a net lower incentive because our incentives are going progressively down of 100 million euros. Net of all these items, FX and recurring items, EBITDA would have been increased by 14%. Now we will move to conventional generation and trading. I'm on page 23. Well, you can see that ordinary EBITDA increased by around 40%, delivered by trading activities, and reached 2.2 billion euros. Conventional generation is flat at around 1.6 billion. Net of non-recurring items booked in the period the performance would have recorded a minus 5%. So the main operating moving parts were as follows. 22% contraction in volumes with a negligible impact on our results due to the low marginality associated with two thermal assets. Around 100 million euros negative impact associated with the regulation of the islands in Spain and effects depreciation for around 140 million euros. These items were partially offset by the positive contribution 130 million euros mainly in Italy and Spain. On the other side, trading activities impacted also by the dynamics associated with the COVID-19 have been the key driver of the double digit increase in this business segment contributing for around 600 million euros mainly thanks to the management of our gas portfolio for around 230 million euros, the managing of the short position in Spain that impacted positively for 190 million euros, and a positive contribution for around 135 million euros associated with trading activities mainly in Italy. Let's now take a look at our infrastructure and network, and I'm on slide 24. Ordinary EBITDA for networks stood at 7.7 billion euros, decreasing 6% versus last year. In the European countries, EBITDA increased by 2%, demonstrating once again the resiliency of our European networks, which have been supported by solid regulatory frameworks. In LATAM, despite the recovery in demand recorded in the second half of the year, the operating performance has been negatively impacted by effects and volumes contraction, mainly in Brazil. As said in the previous releases, discussions with regulators in LATAM are ongoing and we expect other actions to be taken to offset the economic impact. The main moving parts of the period have been the following. Currency devaluation, 500 million euros of impact. Volume contraction in Latam with an effect of roughly 200 million euros, mainly in Brazil. 100 million euros associated with losses that are losses not manageable because of the stop of damming activities in many countries in Latin America. And on the other side, an increase of roughly 300 million euros in EBITDA related to new investments in digitization and improved service quality, mainly in Italy and Spain. The reversal of the provision in Spain impacted the ordinary EBITDA for around 180 million euros, while last year EBITDA was positively impacted by the regulatory settlement in Argentina for 140. And now we can move on retail, slide number 25. EBITDA for the retail business came in at 3.2 billion euros with a slight decline versus previous year, despite the extreme conditions experienced in 2020 and associated with the COVID-19. Notwithstanding the challenging environment, the group continued to expand its free market customer base by adding 200,000 new customers over the last 12 months and progressed as well in the cost reduction effort with the office per customer down 7%. Looking closely at EBITDA of the free and regulated market, free market EBITDA declined for around 180 million euros, or 6% year-on-year, and this is mainly attributable to a temporary long position driven by a sharp contraction in volumes in Italy and Spain. Initially EBITDA remained flat year-on-year, recovering from the negative results recorded in the 9 months driven by a pick-up of volumes in the B2B segment in the last quarter of the year, with average unitary margins for both B2B and B2C broadly unchanged. In Iberia, EBITDA declined by 29% or more than 200 billion euros, driven mainly by the already commented temporary long position impact. In Romania, retail EBITDA increased by 40 million euros or two times. Regulated market EBITDA increased by 6% on around 40 million euros. And finally, we recorded efficiencies for 65 million euros, both in the free and regulated market, mainly in Italy. Now we have gone through business drivers, and now we can move to the financial management section. We are on slide 26. And as you can see, ordinary group net income came in 5.2 at the top of guidance range. And now we can show in the next slide the sales items that have supported the growth in the earnings during 2020. And we move to page 27. Well, you can see that the 5.2 billion euros result was driven by lower DNA. financial expenses and a reduction in minority interest, which more than offset the normalization of the tax rate at 28% versus 23% of the previous year, in which we accounted a positive one-off on the tax items. DNA declined versus previous year as a consequence of a lower depreciation in Italy, Liberia and Chile. thanks to the cold impairments which more than offset the increase in bad debt accruals due to COVID-19 pandemic and investment exploits. Reduction in financial expenses, as already commented in the previous releases, is the result of a reduction of a cost of debt. Results from equity investments stood at $134 million, the remarkable swing which last year is attributable to the negative impact of around 19 million from J&V unwinding in the US recorded in 2019, and improving results of other non-consolidated companies, primarily open fiber. Taxes have increased by around 600 million euros. driven by higher earning before tax and the recognition in 2019 of the deferred tax assets in US, US, Argentina and Brazil. Minorities decreased by 21%, reflecting the continued simplification effort and operating dynamics in Latin America. And now we move to the cash flow. We are on page 28. FFO has said standard 11.5, broadly in line with the previous year, recovering almost entirely the negative impact related to COVID-19. These results highlight the resiliency of the group and its cash generation capability. In more details, the dynamics underlying the FFO evolution can be summarized as follows. A bid timeline, change in provision, which increased by around 30 million euros, mainly due to high and bad debt accruals for COVID-19, on working capital, It's worth to highlight that we have almost fully recovered the 2 billion euros impact due to the pandemic as shown during the first half results call. This leaves us only 400 million negative delta working capital at the end of 2020, which will be reabsorbed in early 2021. Then we had lower taxes paid mainly due to advanced tax payment, lower financial charges paid mainly thanks to lower cost of debt. Free cash flow stood at 1.3 billion euros, confirming the ability of the group to cover the capital expenditure with the operating cash generation. And now on page 29, we have a look on the net debt level. Net debt is equal to 45.4 billion, well below the level communicated at the Capital Market Day, mainly thanks to the positive FX impact from the devaluation of local currencies and the different timing of hybrid bond equity accounting conversion. Changes are driven by the positive frequency of 1.3, dividends paid for 4.7 billion euros, cash outflows related to equity swaps performed in Latin America and Chile, Hybrid bonds accounted as equity and positive impact from effects of about 2.3 billion euros. The reduction in gross debt from 51.5 to 59 is attributable to the accounting of hybrid bonds as equity while the reduction in cash in the period is related to the financing of 2020 activities performed in late 2019. And before the closing remarks, let's take a deeper look into our liquidity position and forecoming debt maturities. I'm now on page 30 and you can see our total liquidity as of December stood at nearly 25 billion euros, of which 6 billion in cash and the remaining 18.6 in readily available committed credit lines. Level of liquidity covers 1.7 times the debt maturing throughout 2021-2023 plan period, amounting to 14.9 billion euros, net of short-term debt that is routinely rolled over. Our credit metrics show a stable level of leverage, notwithstanding the extremely adverse impact of cash dynamics deriving from COVID-19, with a net debt-to-beta ratio of 2.5 times and a performance debt of 25%. The strength of our credit metrics is further testified by current trading levels and outlooks, which reflects the solidity of our credit profile even in the current discretionary. In this regard, it is worth to highlight that in January this year, the Group has been upgraded to BAA1 from BAA2 by Moody's, and in February, Standard & Poor's widened the proportional adjusted FFO to debt range by 100 basis points, in light of an health position as one of the most resilient utility in the sector. And now I hand over to Francesco for the closing remarks. Francesco.