Enel Spa Unsp/Adr

Ladies and gentlemen, thank you for standing by and welcome to HENEL 9 Months 2021 Results. At this time, all participants are in listen-only mode. I would now like to hand the conference over to the Head of Investigation, Monica Girardi. Please go ahead, ma'am.

Thank you. Good evening, ladies and gentlemen. A warm welcome to our 9 Months 2021 Results presentation, which will be hosted by our CFO, Alberto De Paoli. In the presentation, Alberto will provide some highlights of the period and will walk you through the operational and financial performance for the group. Following the presentation, we will have the usual Q&A session. We ask 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 Alberto.

Thank you, Monica. Good evening, everybody. Let's start with the highlights of the period on page number one. The operating dynamics of the first nine months of the year showed a trend of significant recovery with industrial rebounds now clearly visible. The turnaround across all KPIs has accelerated. starting from the first half of the year, and the growth curve is now landing at the level which is back to the pre-COVID-19 period. Investments are up double digits in line with expectations, demonstrating once again our deployment capabilities that will fuel future growth. Thanks to this ability, we made significant progress in the renewable installation, by building four gigawatts of capacity over the last 12 months. And in light of the predictable evolution of the business, we can therefore confirm our targets for the year, including the guaranteed EPS of 38 cents per share for 2021, which implies a 5% dividend yield at current price. On slide two, now we dive into some industrial KPI for the nine months. As you can see, in renewables, the additional build capacity was equal to 2.3 gigawatts, up by 35% versus nine months of 2020, and positioning us ideally to close the year with more than 5,000 megawatts of new builds. On networks, volume distributed continued to grow and stand now at 382 terawatt-hours, up by 6% versus previous year. In customers, electricity sold in the free market increased for the third consecutive quarter this year, up by 9% versus previous year, with 139 terawatt-hours sold over the period. The industrial performance has been incredibly strong while overshadowed by temporary headwinds and effects impact. And now I'm on page number three where you can see that ordinary EBITDA overall is down 4% year on year. Worth to open the performance in three main blocks. of analysis to make a clean comparison vis-à-vis last year. First, the performance has been affected by the normalization of non-recurring items. I want to remind you that last year we booked around 640 million euros positive non-recurring items, mainly associated with the provision reversal in Spain and the resolution number 50 in Italy. Second, numbers are impacted by 300 million euros of effects devaluation mainly due to the weakening of brazilian reais third we faced we faced some temporary headbands worth around 600 million euros in total of which 300 from lower prices hedge in 2020 as a consequence of the last year depressed environment and compression in margins due to the recent spike in prices. Another around 300 million euros from the severe drought in Chile and the gas shortage from Argentina, and then the effect of the tax high storm in Texas faced at the beginning of the year. These three headwinds have been counterbalanced by the recovery of the operating performance across all businesses' line. In particular, the lion's share of operating growth is associated with global power generation, where, amongst other effects that I will detail later, the development of new capacity contributed remarkably. The progressive stabilization of the level of electricity distributed in LATAM, coupled with the tariff indexation, in particular in Brazil, embedded volumes dynamics in the retail business, particularly in Italy. By taking out the temporary headwinds faced in 2021, our EBITDA would have remained flat versus last year, so covered the delta of non-recurring FX impact through the increase in operating results. Let's now see how these moves are reflected in the bottom line. And net income results, I'm now on page number four, has been affected not only by the headwinds commented at EBITDA level, but also by other not recurring items, particularly on taxes and financial expenses that have further obscured the solid operating growth. In particular, Temporary from EBITDA had an impact for more than 300 million euros on earnings. On taxes, we recorded 150 million euros impact from not recording deferred tax in Argentina and Colombia following the recent change in the fiscal law in these two countries. And third, the liability management program put in place to reduce the cost of debt in the next years, increased our financial expenses in this year for around €300 million as a one-off. Worth to remind that the Liability Management Program has been executed to partially reabsorb the gain from the Open Fibre Deal, which has not already materialized and will materialize in the fourth quarter. Incidentally, the net income trajectory of this quarter is not representative of the full year perspectives. Excluding the temporary headwinds faced in 2021, our net income would have increased by 13%. Deployment of investments continue to be robust. We are now on page number five. We invested 8 billion euros in the period. an increase of 21% versus previous year. In the ownership business model, investments were almost entirely allocated to renewables and networks that total around 3.4 billion euros each, with the remaining portion deployed on conventional generation and customers. From a geographical perspective, around 70% was spent across Europe and the United States, of which 3.9 in Europe and the remaining 1.3 in North America, and 2.3 were spent in Latin America. We have invested around 450 million euros through the stewardship business model, focusing primarily on NLX and renewables capacity. And this 450 million euros catalyzed 1.7 billion euros of total investments made by our joint ventures together with the third parties involved. Moving now on our global generation business for some details on the generation business. You see, and I'm now on page number six, that the total renewable capacity stands now at around 51 gigawatts, approaching 60% of our total installed base, up by three percentage points versus previous year. The green repositioning of our generation portfolio is clearly shown by the share of emission-free production that is now at 63%. Renewable capacity built over the last nine months is equal to 2.3 gigawatts, despite the difficult condition imposed by COVID. Over the next quarter, we will scale up the magnitude of new renewable capacity addition, and we expect to commission 3,000 megawatts in the last quarter of the year. As of today, 100% of these projects are in an execution phase, of which more than 700 are already built and ready to start production, offering high visibility on their contribution by year-end. Such a remarkable acceleration and future growth prospects are made possible thanks to our pipeline. I'm now on page number seven. As you can see, as of today, pipeline has reached around 350 gigawatts, broadening projects optionality and securing both flexibility of capital allocation and protection on returns. Mature Pipeline worth around 83 gigawatts, out of which 18 are earmarked for the 21-23 period and 55 are already covering projects for the 2024-2025 period. Over the last 12 months, our Mature Pipeline grew by more than 30 gigawatts and 7 gigawatts entered in the execution phase. The mature and early-stage pipeline dynamics position us optimally for our growth prospects, and you will appreciate during our Capital Market Day presentation in the upcoming weeks. With respect of the 19.5 gigawatts targeted addition for 2021-2023, we stand at over 70% of the target addressed. with around 2.3 gigawatts built here today and around 12 gigawatts currently in execution. The residual target is covered 3.3 times by the related portion of Metri pipeline, which translates in negligible delivery risk and high confidence of achieving even more than this. We can leverage on this extensive and well-diversified pipeline also to further push the implementation of the stewardship business model in renewables, thanks to our origination capabilities and crystallizing over time the value that sits into this large pipeline portfolio. Moving now to the operating achievement on global infrastructure and network. I am now on page number eight. You see that as of September 2021, volumes of electricity distributed stood at more than 380 terawatt hours, up by 6%, showing a recovery from the dynamics observed in 2020 related to the lockdown. This acceleration has been observed across all geographies, which now stand at the level of electricity distributed in line with the pre-COVID conditions. Focusing on LATAM, volumes increased 5% year-on-year on average, or 5 terawatt-hour, driven by Brazil, which increased by almost three. Digitalization of network remained at the center of our capital deployment, with a number of total smart meters installed that reached roughly 45 million of smart meters, resulting in approximately 60% of our 75 million end users. digitalized now let's take a close look on customers on slide number nine our positioning on customer strengthened in the last 12 months both via our retail traditional operation as well as on services and platform offered by nlx Around 1.2 million of new customers have been added in the free market, mainly Romania, due to the end of the regulated tariff, and Italy, which added 400,000 customers in the period. Energy sold in the free market is up by 9%, with volumes increasing in both B2B and B2C segments, driven by the economic recovery. Looking at NLX... The division performed extremely well, with double-digit increase recorded in all product lines. More than 100,000 charging points have been added, reaching 245,000. Lighting points reached 2.8 million, up by 4%. Battery storage increased by almost 60 megawatts, and 7.7 gigawatts of demand response capacity was offered globally. In fiber... Almost 13 million households have been passed, up 34% year on year. The industrial development goes together with the continued improvement in the active portfolio management activities on slide number 10. You already know that in April 21, we completed the merger and the public tender offer in Latin America, and now we own 82.3% of the company. That way, Central America has aligned its corporate structure with the other subsidiaries of the group, unlocking synergies and reducing operational and financial risk. This will translate into an earnings appreciation for the group, which we estimate in the tune of 13 percent at regime. Furthermore, in July, we reached an agreement in Colombia to create a single corporate vehicle that will support growth in the country. And finally, in August 2021, we signed an agreement with ERG to acquire 527 megawatts of hydro assets for an enterprise value of 1 billion euros. Following completion of the transaction, the group will reach around 13 gigawatts of hydro capacity in Italy, progressing further in the decarbonization of the generation portfolio. Worth to mention that these assets are expected to generate 100 million euros EBITDA before seeing the closing at the beginning of 2022 once all of the regulatory approvals have been obtained. And now let's open the section on financial results and I'm now on page number 12. EBITDA stood at 12.6 billion euros, decreasing 4 percent year on year, and net income came at 3.3, decreasing by 8 percent versus previous year. As already explained, the performance of both has been affected by temporary operating headwinds, effects, and one-off items, which overshadowed a strong underlying performance. Similarly to EBITDA and net income, the FFO over the nine months has been suffering from temporary headwinds, but also from 2.1 billion working capital burden coming from the regulatory measures implemented in Italy and Spain to smoothen the impact for customers of the spike in power prices and from other economic headwinds in Chile and Brazil that I will detail later on. Net of this impact, FFO would have increased by more than 20%. Moving now into a deeper analysis, we are on slide number 13 on global power generation. Global power generation ordinary EBITDA stood at around 4.8 billion euros, down by around 300 million or 6%. Results have been supported by the positive contribution of new renewable capacity installed, coupled with an increase in renewable volumes for around 300 million euros. Positive contributions have been more than offset by some negative items, detailed as follows. Around 290 million due to the persisting growth and gas shortage in Chile, €200 million associated with the price dynamics affected by lower hedging prices, mainly in Italy and Spain, and the normalization of ancillary services, mainly in Italy, and around €150 million from currencies devaluation, mainly in Latam. Worth to highlight that the negative price effect will revert next year As of today, we have hedged forward 97% of 2022 production at prices that are higher on average, six euros per megawatt hour than the ones of 2021. The negative impact from the growth and gas shortage in Chile can be considered a temporary headwind, and now we are experiencing some better conditions in Chile going forward. And considering all of these and the increased contribution from new renewable capacity installed, we see the growth trajectory of the renewable part of the generation business to come back supporting future targets. Let's now take a look on our infrastructure and network on slide number 14. Ordinary EBITDA for networks stood at 5.4. down 7% versus last year, net of the non-recording items accrued in 2020, the performance year-on-year is broadly flat. Focusing on the activities in Latin America, the performance is up by 3% year-on-year as a result of almost 60 million associated with the higher electricity distributed across all the Latin American countries, with Brazil contributing for around 45%, and €140 million related to tariff indexation, mainly in Brazil. Dispositive items were offset by €30 million associated with the higher maintenance costs, mainly in Brazil due to better weather conditions, and €120 million negative impact from current system evaluation in LATAM. In Europe, EBITDA stood at 4.2%, decreasing 9% versus last year. or 400 million euros. This is mainly due to 100 million plus associated with investments. 100 million negative associated with regulatory adjustments in both Italy and Spain. And 450 million euros negative impact of non-recurring items that is the provision reversal we accrued in 2020 together with the resolution number five in Italy. And then on page number 15, we move on retail. where you can see that EBITDA reached 2.4 billion euros with a full recovery from the extreme conditions experienced in 2020 associated with the COVID-19. The group expanded its free market customers of 1.2 million customers, as said, and as i said on the back of the the the end of the regulatory in romania and a good increase of customers in italy looking closely at the bida free market in bida is up by 10 percent driven by better performance in italy mainly attributable to a nine percent increase in volumes in the free market in italy EBITDA increased 15% year-on-year on around €200 million, driven by a pick-up of volumes in both B2C and B2B segments, and a better marginality with unitary margins up 4% versus last year. In Iberia, net of non-recurring items, EBITDA is almost flat versus last year on the back of stable volumes and margins. In Romania, retail EBITDA increased around 20% due to the end of the said regulated tariff. Regulated market EBITDA is down around 130 million euros on the back of the decrease of the regulated customer base, both in Italy and Romania. OPEX per customers proved flat, while NLX EBITDA increased three times versus 2020, reaching more around 200 million euros. driven by energy efficiency programs and customer needs of energy flexibility services. In the next slide, we will show in detail the earnings evolution during the period. I'm now on page number 16. We have already detailed most of the moving parts resulting into the performance of the bottom line. I will therefore just comment what is left in this chart. So DNA that decreased versus last year, as a consequence of currency devaluation, and lower bed-debt accruals related to COVID-19 and Resolution 50 recorded in 2020, which more than offset the increase in the level of investments deployed during the period. Financial charges are almost flat year on year, despite the €400 million negative impact related to the liability management transaction executed in June and July, and which are part of the liability management program completed in October. The debt refinancing strategy carried out during the last 12 months reduced in this year by 10 basis points the cost of debt leveraging our cheaper sustainable finance instruments and hybrids. And so the vast majority of the cost reduction will be visible the next year. The contribution from equity investment increased by around 80 million euros. Taxes increased by around 170, mainly driven by the already commented adjustment on the deferred tax rate. in Argentina and Colombia, following the recent increase in the nominal tax rate. And minorities decreased by 22%, reflecting the increase in Central America's stake and the higher contribution of Italian companies. Let's now take a look on our sustainable finance strategy and liability management program. as already mentioned. You see in the chart that over the last months we put in place this big liability management plan with the aim to further accelerate our sustainable finance path while optimizing the financial structure of the group and further reducing the cost of gross debt. As a consequence, the share of sustainable finance sources increased to around 50 percent allowing us to reach two years in advance the target we had in 2023. Thanks to these transactions, we refinanced conventional expensive bonds with cheaper, sustainable instruments with an average cost of 0.5% and an average maturity of around nine years. This will generate savings on financial expenses of around 100 million euros per year from 2022, crystallizing the value of the current low rate environment. Finally, we remind you that this refinancing program has affected the financial expenses for around 400 million euros in the nine months, while the impact for year-end, following the completion of the whole program, is expected to be around 500 million euros. And now, moving on the cash flow on slide number 18. As you can see from the chart, FFO stood at 5.1 billion euros, strongly affected by economic headwinds as anticipated, and measures implemented by local governments to smoothen the impact of increasing prices in customer build. Extruding these effects, FFO would have account for 1.8 billion, increasing around 2 billion versus previous year with a cash conversion of 64% compared to 50% in 2020. The dynamics underlining the FFO evolution can be summarized as follows. Higher EBITDA after provision, mainly related to lower bed debt accruals year-on-year. Net working capital minus 3.1, impacted by around 2.1 of temporary items on the back of the measure implemented in Italy, Iberia, and Brazil last Net of these effects, the working capital is in line with the seasonality of our business and includes items to be reabsorbed in the last quarter considering also the profile of CapEx Perf. Higher taxes paid mainly due to advanced settlement tax payment at the end of the last year and higher financial charges paid related to the liability management program executed in June and July and that has been completed in October. Discussion on the reabsorption of the temporary measures are ongoing to mitigate the cash impact. And now take a look at net debt on slide number 19. The net debt of the period lands at 54.4 and includes two accounting adjustments that nothing has to do with the operating performance of the company, such as leasing contracts and effects. None of them The net debt would stand at 52.4 on the following operating dynamics. Positive 5.1 impact on FFO already commented. Investment deployed for 8 billion euros. Dividends paid for 4.8. And active portfolio management activities mainly related to Aden America's PTO. In the period, we accounted as equity about 2.2 billion of hybrids. Gross debts stand at 67.7, increasing by 15% versus December 2020 as a consequence of the already mentioned dynamics on net debt. And now some closing remarks. And I'm on page 20. We had a solid and visible recovery on the operating performance that has continued in the third quarter of the year, in line with expectations, and with the recovery post-COVID-19 fully on track to porting the delivery of our targets for full year 2021. The managerial action implemented on the minorities production in LATAM, coupled with the reorganization in Colombia, as well as the liability management program Refinanced debt at lower rates will unlock value in the near future. The growth trajectory of our investments is confirmed, and it is progressing at full speed, creating a visible path for future growth. In looking at foreseeable evolution of the business, we are happy to confirm our 2021 full-year target for both EBITDA and net income, reiterating our commitment in paying a DPS of 38 cents per share. Thank you for your attention. And let's now open the Q&A session. And Monica, the floor is yours.