Enel Spa Unsp/Adr

Good evening, ladies and gentlemen. A warm welcome to our full year 2021 results presentation, which will be hosted by our CEO, Francesco Staraccio, and our CFO, Alberto De Paoli. In this presentation, Francesco will provide some highlights of the period and will sum up milestones achieved, while Alberto 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 at 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. We are in the chart called Key Highlights of the Year, chart number two. Let's start with the highlights. of the period. The operating dynamics of 2021 showed a significant recovery of all industrial KPIs with a growth curve which is now landing at a level back to pre-COVID-19. The recovery of the operating business performance and the contribution of the stewardship business model translated into strong financial results with both EBITDA and net ordinary income at the top of the range, up by seven and 8% respectively year-on-year. We have achieved a new record of additional renewable capacity, which picked up to 5,100 megawatts new build in 2021, 2,000 megawatts more than 2020. In light of the results achieved and of our remarkable operating and financial delivery, we will propose to the next AGM, a guaranteed DPS of 0.38 euro per share for 2021, which is a 6% increase versus the 2020 number, and implies a 7% dividend yield at current price. Let's now move to our positioning across the various businesses. We are now on chart number three. On generation, we have further strengthened our position in renewables with a greener installed base accounting for 53.4 gigawatts of renewable capacity. This huge renewable asset base generated 118 terawatt-hour output over the year, allowing us to reach 62% of emission-free production in 2021. Our continued investment in grid digitalization resulted in 45 million smart meters installed with the efficient management of our networks through a platform operating business model that allowed us to increase the level service quality with a salary down by 6% versus 2020. The increase in the rate of electrification of our client base has fueled the electricity sold and has driven in parallel growing needs of flexibility and value-added services. Focusing on the progress we've made in renewables, we now move to and green power. This is slide number four. As we said, total renewable capacity represented 60% of our total installed base, exceeding the 53,000 megawatt benchmark. We added 5,100 megawatt renewables this year, marking a step up in our delivery track record. And this year, impacted in particular by tough logistic dynamics within the sector. We made further progress on cold closure, We shut down 1,100 megawatts in Iberia and almost 900 megawatts in Italy for a total of 2 gigawatts, bringing the coal-installed capacity now below 7 gigawatts. Thanks to a continued effort on decarbonization, renewable production accounts for more than 50% of our 230 terawatt-hour total production, overtaking once again the conventional generation notwithstanding the severe drought we faced in 2021 in many geographies. CO2-specific emissions reached 227 grams per CO2 per kilowatt hour, almost in line with last year, due to the lack of hydro resources and a 23% lower than the end of 2018. This acceleration is made possible thanks to our pipeline, which is depicted on chart number 5. As of today, the pipeline has reached more than 370 gigawatts. This has broadened the project's optionality and has secured both flexibility of capital allocation and protection on returns. Mature pipeline is now worth around 100 gigawatts, out of which around 46 are earmarked for the 2022-2024 period. 50 are already covering projects for the 2025-2026 period. Over the last 12 months, our mature pipeline grew by around 40 gigawatts. The mature and early stage pipeline dynamics positions us optimally for our growth prospects. With respect to the 23 gigawatts that are targeted additions for the period 22-24, we now stand at over 50% of that target addressed with around 12,000 megawatts currently in execution. The residual target is covered 4.8 times by the related portion of mature pipelines. This translates into negligible delivery risk and high confidence of achieving even more than this. Moving now to the operating achievements from global infrastructure and networks, you see in chart number 6 that in 2021, volumes of electricity distributed increased by 5%, fully recovering the pandemic dynamics across all geographies of operation. This now stands at a level of electricity distributed in line with pre-COVID levels. Our efforts to reach quality and efficient targets resulted to remarkable progress with Saidi. This is down across all grids by around 6%. Activities on networks remain centered on the digitalization of the networks, with installation of 700,000 smart meters in 2021. At the end of last year, around 60% of our 75 million end users are digitized. Let's now take a closer look at customers on slide number seven. Our position on customers has strengthened in the last 12 months, both via our retail traditional operations, as well as on services and platforms offered by Enel X. Around 1.7 million new customers have been added in the free market, mainly in Europe. Energy sold in the free market is up to 9%, with volume increasing by 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 130,000 charging points have been added, reaching now the number of 319,000. Storage behind the meter has increased by more than 10 megawatts. 7.7 gigawatts of demand response capacity was offered globally. Electric buses reached now more than 3,000 units in 2021. Then we can move to schedule the remuneration of slide number 8. The resiliency of the business model, the high standards of operating performance, and the managerial actions we have put in place allowed us to deliver sound operating and financial results. Therefore, we will propose a dividend per share of €0.38 per share. up by 6% versus previous year, which implies, as I said, a 7% dividend yield at the current share price. For 2022, we confirm the simple and predictable dividend policy presented in November 2021 with a guaranteed fixed dividend per share of €0.4 per share. Now I hand over to Alberto. He will go through the details of the 2021 financial performance. Thank you, Alberto.

Thank you, Francesco. Good evening, everybody. And I'm now on page 10 for financial results of the year. EBITDA stood at 19.2 billion euros, up 7%, and group net ordinary income came in at 5.6 billion, increasing by 8% versus previous year, both at the top of the guidance range. I will detail later some non-recurring items into the net income that are waiting on the performance. For now, let me just highlight that excluding the negative impact of liability management and operating and fiscal non-recurring items, net income would have been up by 23%. Episode reached 11.8 billion euros, up 3% versus 2020, despite the impact of some temporary regulatory items adopted to soften the energy crisis that affected the cash flow dynamics for around 1.7 billion euros. Moving now to an analysis of the period, I will kick off with the EBITDA evolution, and I am on page 11. As said, ordinary EBITDA up 7%. worth to open the performance in blocks of analysis to make a clear comparison vis-a-vis last year. Starting with the operating growth, in 2021 we experienced the full recovery of the operating performance across all the businesses which worth 1.3 billion euros. In particular, the lion's share of the operating growth is associated with global power generation where amongst other effects that I will detail later, the development of new capacity contributed for around 300 million euros. Then the progressive recovery in the level of electricity distributed in LATAM coupled with the quality and digitalization of networks in Europe contributed around 500 million euros. The uptake of commodity service particularly in Italy for 150 million euros, and then a higher level of efficiencies in networks and renewables for 340 million euros. All these items relate to the 1.3 billion euros of operating growth. Then we got on a stewardship business model, the 1.8 billion euros related to the open fiber state disposal. And all this solid operating performance has been affected by 300 million euros of Cardinus' devaluation and negative dynamics for around 1.4 billion euros, out of which 1 billion were related to temporary headwinds. This 1 billion in particular is related to roughly 450 million euros for the severe growth in Chile, and the gas shortage that consequently affected the price in Chile. And around 500 million euros linked to the exceptional energy crisis we are living since 2020. In particular, 250 million euros are related to lower prices set in 2020 during the COVID-19 pandemic. And the remaining portion is associated with a sudden increase in electricity prices cost during the last quarter of 2021 that increased the cost of supply, though reducing the margin in retail business. The other negative dynamics that are not temporary include some settlement on gas contracts and mainly the tariff adjustments in Europe, in Italy and Spain for around 300 million euros. Moving into a deeper analysis, we are now on slide 12 on global power generation, where the global power generation ordinary EBITDA stood at around 6.5 billion euros, down 6% year-on-year. Operating growth accounted for 370 million euros as a strong contribution of renewable new store capacity for around 500 million euros. that then has been partially offset by a different profile of development of the U.S. generation, and around 100 million euros efficiency, mainly in European countries. Delta low-recurring items impacted positively for 370 million euros, so the negative dynamics are related to the weak hydrology in Chile, as already said before, The lower prices in Italy and Spain due to energy contracts signed during the pandemic crisis has already outlined. And the effect related to the settlement of previous years' price adjustment on gas funds. So the vast majority of the negative temporary dynamics, the negative dynamics are temporary because they are related to things that are now in the phase to be sold or purchased. So now fixed to a different level. Then we can discuss a little bit this point. Then moving on page 13 and talking about infrastructure and network. Ordinary bid for network to the 7.7 billion euros. And we have an operating growth here of roughly 750 million euros. mainly attributable to around 300 million with the investment deployed for digitalization of our grids and to improve the quality of services in Europe, mainly in Italy, which contributed to our regulated asset base. Around 200 million euros linked to the higher electricity distributed across all the Latin American countries, coupled with the effect of the assets revaluation, particularly in Brazil, and around 250 million euros of efficiencies. These positive items were offset by a year-on-year on 450 million euros of non-recurring items, occurred last year, so the positive non-recurring. Around 300 million euros associated with tariff adjustments in Spain and Italy for the new regulatory parameters and lower previous year's regularization, and then the current speed evaluation in LATAM for 140 million euros. Worst highlight, that net of delta not recurring and effects evaluation, EBITDA would have increased by around 6%. Now we move on retail, on page 14. EBITDA for the retail business came in at around 3.1 billion euros, while the slight decrease attributable to the evolution of the regulated markets. The group expanded its free market customer base by adding 1.7 million new clients over the last 12 months, on the back of the end of regulated tariff in Romania, and increasing customer base both in Italy and Spain. Looking more closely at the EBITDA of the free and regulated market, free market EBITDA is flat year on year, thanks to a better performance in Italy and Spain, which compensated the negative EBITDA evolution in Romania. In Italy, EBITDA increased by 3% year-on-year, driven by a 9% increase in volumes in both B2C and B2B segments, which are now back to pre-COVID-19 levels. In Iberia, EBITDA is up 5% versus previous year, mainly driven by a 24% increase in unitary margins in the B2B segment as a consequence of the economic recovery post-pandemic. In Romania, retail EBITDA decreased by more than 100 million euros, mainly due to the higher cost of sourcing as a consequence of the energy crisis we experienced. Regulated marketed EBITDA is down around 100 million euros on the back of the elimination of regulated tariffs in Romania and the decrease of the regulated customer base. Worth to highlight that NLX EBITDA increased by almost two times versus 2020, reaching 300 million euros driven by energy efficiency programs and customer needs of energy flexibility services. In the next slide, we will show in detail the earning evolution during the period. We are now on page 15. Ordinary group net income came in at $5.6 billion, up 8% on higher EBITDA and reduction in minorities, which more than offset the higher DNA, financial expenses, and the normalization of the tax rate at 30% versus 28% in the previous year. Net of the non-recurring items such as tax reform and the liability management program net income would have increased by 23%. For the single items, we recorded a negative impact on DNA of around 320 million euros due to the higher level of investments deployed during the year, which more than offset the reduction in bad debt accruals related to the COVID-19 impact recorded in 2020. Net financial charges increased by 24% versus previous year due to liability management program executed this year. Net of these no recording items, net financial charges decreased by 6% versus last year. Worth to highlight that financial expenses on debt remained stable versus previous year thanks to our refinancing strategy that reduced by 20 basis points the cost of debt, leveraging on cheaper, sustainable instruments and hybrids. Taxes were up by around 290 million euros as a consequence of the increase in the nominal tax rate due to the government's tax reform in Argentina and Colombia and the adjustment on the deferred taxes in Iberia. Minorities decreased by 27%, mainly reflecting the increase in Enel America's take and the higher contribution of Italian companies. Now, moving to the cash flow of slide 16, it said FFO stood at 11.8 billion euros, strongly affected by measures implemented by local governments to smoothen the impact of increasing prices in customer bills. The impact is around 1.7 billion euros. Excluding these effects, FFO would have reached 13.5 billion euros, increasing around 2 billion euros versus previous year, with a cash conversion at around 70% compared to 64% in 2020. The dynamics underlying the FFO evolution can be summarized as follows. Higher bidda after provision, networking capital minus 3%, 0.8 billion euros, as said, impacted by around 1.7 billion of regulated items of measures implemented in Italy and Spain. Net of these effects, working capital would have been positive, driven by the recovery of the negative movements recorded in 2020 due to COVID dynamics, and in line with the capital curve of the last quarter of the year. Higher taxes paid mainly due to advanced settlement tax payment at the end of last year and higher financial charges paid related, as said, to the liability management program performed. Let's now take a look at the capital allocation evolution of slide number 17, where you can see that we invested more than 13 million euros in the period, an increase of 27% versus previous year. In the ownership business model, investments were almost entirely allocated to renewables and networks. They totaled around 5.8 and 5.3, respectively, with the remaining portion deployed on conventional generation and customers. From a geographical perspective, around 70% was spent across Europe and U.S., of which 6.7 in Europe and the remaining 2.3 in North America. 3.7 were spent in Latam. We have invested around 400 million euros through the stewardship business model, focused primarily on the renewable capacity managed through our joint ventures and NLX. Words to highlight that the full contribution of the new renewable capacity installed in 2021 will be visible in 2022 and we will generate around 500 million of EBITDA. I will now move on that evolution on slide number 18. Net debt is equal to €52 billion, that is below the 53-54 range announced back in November, thanks to an higher than expected FFO and a better cash conversion. Net of the pure accounted effects of FX and leases, which accounted for around €0.7 and €2 billion, the net debt would have landed €49.3. with the following operating dynamics. Negative average flow for 1.3 billion, as already commented. Dividends paid for 5 billion euros. Active portfolio management activity, mainly related to Enel America's PTO, for 0.8 billion euros. In the period, we accounted as equity about 3.2 billion of hybrids. out of which 970 related to the change in the accounting treatment following the consensus solicitation process and around 2.2 billion of new hybrid issued in 2021. Growth debt stands at 72 billion, increasing by 22% versus December as a consequence of the already mentioned increase in the net debt, Then the increase in financial receivables associated with credits related to cash collateral payment following the commodity prices scenario and a higher level of cash to finance 2022 activities performed at the end of the year. So we issued more at the end of the year and so we add the cash of decisions at the end of the year in cash. Before the closing remarks, I would like to highlight the soundness of our liquidity profile and limited exposure to fluctuation in interest rates. Our total liquidity at the end of December stood at around 24 billion euros, of which roughly 9 billion euros in cash on end and the remaining 15 in readily available committed credit lines, reducing refinancing risk. This level of liquidity covers 1.4 times the debt measuring throughout the 2022-2024 plan period, amounting to 17 billion euros net of short-term debt that is routinely rolled over. Finally, worth mentioning that more than 84% of the 2021 long-term debt has been swapped into fixed rate, limiting the exposure to interest rate fluctuations. We consider the group liquidity position as more than satisfactory to face the turbulence we are living, and we don't see any short-term grief that might impact the solidity of our balance sheet. Now I hand over to Francesco for some closing remarks. Francesco.

Thank you, Alberto. Thank you. As you've seen, 2021 was a year in which both pandemic recovery forces coexisted with exogenous headwinds that have affected the business. We were, however, able to successfully navigate these turbulent waters, confirming strong capabilities in delivery and a very strong financial solidity. Our business model already demonstrated in the past has a very high level of resiliency in tough environments. We believe we'll continue to perform leveraging on our set of assets, people, and expertise. It is now clear to everybody how the role of utilities is to manage abrupt changes in the energy sector. Our strategy is built on that. It is built on maximizing the value creation from decarbonization and electrification. by tapping all opportunities across all segments of the value chain with a very short time to a bid-die investment cycle. We reiterate our commitment in paying a dividend based on a visible and simple policy, which will implicitly return a double-digit TSR to all our shareholders. So thank you for your attention. Let's now open to Q&A. Please, Monica. Thank you.

Okay, thank you, Francesco. Thank you, Alberto. We received an exceptionally high number of questions, so thank you to all of the analysts that sent them through. We tried to pack them a little bit, otherwise we will never stop answering. So I'll start from the most popular, and then we'll go into the numbers of the full year. So a number of analysts are asking, in this context, the European Union has worked on a toolbox to tackle energy issues and announce the Repower EU plan. Can you share your views around this and what is, in your view, the implication in the short and in the long term? I think Francesco is for you.

Thank you. All in all, we think that the Repower EU is quite a good strategy. It makes a lot of sense and by the way it is totally in continuity with the previous direction in which the European Union was going. If you want this crisis proves how right it was from the beginning to really try and decarbonize the economy of Europe considering the fragility of its exposure to gas and other commodities. So we think this package is good. There are basically five lines. One is the one to diversify the gas supply, increasing the number of suppliers and the optionality from the sourcing of gas standpoint. So more pipes, but also more energy terminals and acceleration in domestic production and also production of biomethane. We think the second point, which is also quite important, is the increase in the share of renewables where gas is dominant, accelerating the development of solar rooftops and in general of renewable plants that were already there. So I think that is definitely an acceleration that we're looking at in the package. Another good part of the package is the effort on the energy saving and electrification of heating, in particular, and insulation of homes. That will cut further demand on gas by substituting it with decarbonized electricity. We think there is a trend to permitting and authorization of these investments, mainly renewables, with fast tracks trying to be defined and the use of sandboxes to take the best examples and spread them around. I think there is a good effort also on what concerns the lack of potential interconnections in critical links and the synchronization of grids. I just note here the synchronization of the Ukrainian grid that happened yesterday actually. So in short, I think this is a good package. In addition to that, I think it's to be noted that there is a discourse that started with this package on setting some caps on gas prices that are at the root of the present crisis that are largely unjustified if you look at the dynamics of the importation contracts that gas have. And I think that is a very encouraging approach bold thinking from the side of the commissioner and of the commission to really try and bring some clarity on the turbulence that today is basically affecting the energy sector.

Okay. Another one for you, Francesco. Do you see areas of upside, downside for now vis-a-vis the plan of function coming from this package?

Okay, so let me first talk about the downside, which is quite obviously a concern for most of the observers. The downside has to do with the potential windfall profit taxes that have been aired back and forth and or potential caps on energy prices. We have successfully demonstrated in both Italy and Spain that the policy, the commercial policy we have which basically is all about selling our energy forward maximum two years from one to two years in the past and now forward even more has basically prevented us from getting any win for profit from the huge jumps in marginal system prices on the pools of these two countries. We have nothing to fear on windfall taxes or windfall profit clawbacks, no matter what kind of methodology is used. We think it is not – it's going to be extremely easy to demonstrate that we have none. And, in fact, we have basically insulated all our customers from this huge price increases thanks to this policy. On the second part, which is the cap on prices for future pricing, I think that is definitely going to be an issue. But I think it has more upside than downside for us at this moment, provided that the real root cause of all this is tackled. And that's why we're encouraged to see the discourse moving clearly on the field of gas. That is the reason why there is this havoc on the electricity market. and in general the energy supply to the industry in Europe. And that is totally unjustified if you look at the dynamics of the industry and also the volatility that the TDF hub is today demonstrating. So we think that is an upside because if there would be a gas price set up, then our policy of long-term contracting and serving our customers with reasonable and sustainable profits would definitely be further strengthened. So that is the upside we see if this regulation, perhaps for a temporary moment, will be implemented in Europe.

Okay. Another popular one for you, Francesco. Do you think this set of measures will open to new phase of government intervention?

Yeah, I think they are going to be, well, they have already been there, government interventions of various nature. I mean, we've seen that in the early part of this, the late part of 2021 in both Spain and Italy. However, because these interventions did not tackle the real cause of all this turbulence, which was gas, they were not fully resolving the issue because they didn't really tackle the reason of all this. So I think there will be further intervention, this time finally addressing the real problem, which is the unreasonable volatility of gas prices and the fragility of the system that results from that. In that, yes, I think there will be some intervention, and I think in that case, fully integrated companies that will have had, like we, a wise policy of fully translating the advantages of this integrated position to their large customer bases will have an advantage going forward.

Okay. Another set of really popular questions, which I think are more for you, Alberto. The energy sector is in a special phase. And you have a degree of exposure to commodities dynamics. How a sudden increase of electricity prices might affect energy financial in the short and in the medium term?

Well, I would say, first of all, that for our hedging policies that we have followed since the beginning, so we have no major impact on prices because we are not benefiting of this rise in pricing. We do think that our integrated position will be for us good in the medium term because it will allow us to offer competitive price to customers while stabilizing our stream of revenues and so making us to have normal profit and pushing the electrification of consumption, so in this case increasing our overall gross margin through this way. In the short term, it's clear that now, as Francesco has said, we are trying now to participate because the needed intervention in the very short term markets would not end up in being a long-term distortion factor.

Okay, another one. What's your exposure to Russian gas? How a sudden increase in gas prices may affect NS Financial in the short and in the medium term?

Well, first of all, let me underline this point. We have zero supplies of gas from Russia. Our gas needs in Europe, second, the overall gas needs in Europe are covered more than 90%. from our long-term contracted supply costs. And the third point is that 50% of these needs are covered by LNG contract, and in particular, LNG from the U.S. That represents roughly 75% of our total LNG contracted volume. This, as you can see, provides ample flexibility and potential value creation over medium term.

Okay, another one on commodities like Alberto. How a revamp of coal production in Italy might affect Enes Financial in the short and medium term?

Well, first of all, also here to be clear that will be no revamping of closed coal facilities. So the only way to increase, if needed, coal production would be by the active coal plants that we have in Italy. And it will be mainly driven by request for the system operators looking for solution to potential short of gas. This clearly will have to be, in case of, so this increase will not, at economical level, will have to be compensated with compensation measures that will be discussed and defined along the time and the needs. So we don't see a major impact, economically impacting increase in production, but for sure we are not seeking any kind of loss because of this.

Okay, Francesco, one for you. What are you planning to do with your Russian assets?

Okay, so first of all, let's see what they are. First of all, this is an activity we have in Russia since quite some time. It is self-contained within the country. It is ring-fenced for what concerns the rest of our operations. It is a limited portion of our financial accounting for less than 1% of our EBITDA in 2021. And in the plan 2022-2024, we have about 240 million earmarked for investments in this part of the world compared with 42 billion of overall group investment. So it's not a real material position. However, we have decided that in these present circumstances we cannot deploy more growth in Russia. And we are also exploring various scenarios for what concerns the future of the existing assets that are basically three large combined cycle power plants with a total of 5,700 megawatts and two wind farms. The potential scenarios include all the possibilities that are now being analyzed under the legal system that has been established in Russia recently after the sanctions have been put in place. All our employees are safe. We have no crisis and no difficulties at the moment. But clearly, this is a situation that we would like to have a decision about in the few months.

Thank you, Francesco. We move to CFO. Back again to you, Alberto. 2022 EBITDA guidance. Can you walk us through the moving parts that can get us to the 2022 EBITDA target range? considering the 1.7 billion from open fiber and the 600 million of non-recurring items that you booked in 2021.

Well, first of all, we have a composite growth in 2022, but taking account that as said, we suffered roughly 1 billion euros of negative headwind, temporary headwind in 2021. that we may consider that a relevant part of this admin may be recovered in 2022 and is the first step of growth that you can add from the math that says 16.8. Then we have the lion's share of related to the renewable growth. Because we have all the capacity deployed in 2021 that worth roughly 500 million euros that would be so a full growth in 2022. And then we have the growth related to the 2022 developments that is more or less in the same range. Then we have the asset from ERG acquired that worth roughly 150 million euros and this is the overall impact of generation. Then we have networks 200 million euros because of RAB increase. Roughly 400 million euros coming from customers, so a combination of retail and analytics activities. And we will have roughly 400 million euros related to our stewardship business model. This is what is giving us numbers of growth that we have in our targets. Clearly, we have now to monitor the situation where we see some positive and negative contribution that right now are combining themselves in a neutral impact, not giving at this time any major sign on the targets, so the feasibility of reaching the target announced.

Okay, CEO, back to plan assumptions. Are you still planning to leave your electric mobility business and the grid service company? Are you confident to be able to do this in this current environment?

Yeah, I think we will succeed. Actually, I think these are two businesses that are very special, extremely driven by the large evolution of the electrification business across the world. they see not that linked to the present crisis of gas prices, but actually quite the contrary, being pushed by the necessary measures that are behind getting out of this. So to make it short, we think we are going to do that. Whether then it's going to be a listing or a private placement, followed by a listing or a private placement as such, We will find out during the next month, but the preparation works and the activities that aim to this are according to schedule, and we don't see, at least for science, we don't see a lack of interest. We see a lot of interest in particular for the EV charging business, which is really hot at this point in time.

Okay, Francesco, stay on. Another one, group repositioning. Can current uncertainty at global level change the strategy or timing of Latin America's structure and possible acquisition in the U.S.? Analyst is also asking if we're still looking at India.

Okay. On the timing of the Latin American structure, we are proceeding. Actually, what happens in Russia and Ukraine clearly is affecting the world. but in a, I would say, minor way what's going on in South America. So our progress is according to our plans, and we think we will continue to strive to simplify the assets and make it more simple to understand what our intentions are in Latin America. On the U.S., the same. I think we have continued to scout the market. We think that some potential acquisition might be a good idea. clearly it's a question of time, it's a question of value. We don't want to rush it, we don't want to make mistakes, but we are determined. So I think there are no impacts from our side because of what's going on between Ukraine and Russia at this point. India is a good place for renewable energy investment at this point. We are, as you know, We have just connected two large plants this month, but nothing else to say. I mean, there's no new developments. There are no particular big news to tell. We just continue to grow organically our pipeline in that part of the world.

Okay, another one on regulation. Can you comment on the regulatory situation in Romania? What is the projected impact for your business? What mission and action are you putting in place? I think CEO is for you.

I think the case of Romania is still open. I mean, the government really is struggling to, let's say, contain the price hikes that are resulting from the gas situation. Clearly, this is having an impact, by the way, because of the system that the government has chosen to act upon, which is work on the price levels at free market level, which is really difficult to understand. On the distribution side, due to the particular situation on the regulatory side, the increase of energy prices and the tariff gap of a maximum 7% increase year-on-year are affecting all the distributors, mostly on financial terms. We proposed several measures, including the elimination of the tariff cap, and being able to acquire energy from existing producers via bilateral contracts at a recognized set price, which is, by the way, quite high, 90 euros per megawatt hour. and a state budget compensation and capitalization of remaining losses for a period of five years with a state guarantee. We think that the new ordinance that will be issued by the government in March will indicate how some of these measures can be accepted. We are quite encouraged. On the windfall tax side, it's applied only on revenues without price with a sales price that exceeds 90 euro per megawatt hour. This was introduced by November 21. We have, of course, a record. We think there is an encouraging sign that the government might change the law applying corrections that will minimize the impact for the sector. Overall, we think this is what we have to say. I think the appraisal of the impacts largely depend on the next week. So I think we will have to wait until we have a real settled situation before throwing out figures that can be widely different from the truth that will emerge after a few weeks.

Okay. Sio, another one for you. You have a fixed dividend of 40 euro cents per share for 2022. Is there any risk to the dividend payment?

You know, The dividends we project are basically underpinned by the results we have in the year and the results in 2022 are quite I mean not predictable but they are quite in our control so we don't see even in this present turbulence we don't see the reason why we should not be able to pay these dividends. Now if we had an increased turbulence or a prolonged crisis way past the next week, something that can go on for months, we would still have the capability to pay the dividend. Don't forget that we also have a flexibility in capital allocation that is quite unmatched in the industry that gives us the confidence that if the worst, worst, worst scenarios happen, we can still sustain the dividend policy at the expense of capital allocation during the year. We don't think this will happen, but it's still something we can do. So at this point, we don't see any reason to change this policy given the even turbulent situation we're facing.

Okay. We move to another set of questions that pertain to the business. So, Francesco, another one for you. Additional build capacity came in at a record level. Target for 2022 is in excess of 6,000 megawatts. Can we expect an upgrade for 2022 delivery? Is there any risk from current geopolitical environment or any opportunity?

Let's see that when we defined the 2022 targets, we already knew the delivery of 5,100 megawatts was there because that was basically November. So we have that number quite clearly in front of us. I don't think you can say that we can be short of 6,000. This would be an increase of about 1,000 megawatts. Don't forget this year we increased by 2,000 megawatts. So I think this is a reasonably realistic target given the situation. Even considering, let's say, the extension of the logistic that we experienced in 2021. For the same reason, I think it is quite unlike that we will be exceeding that number by large. Okay, this can be short or long, maybe 100 or 200 megawatts, but I think that number is rock solid at this point, one on the upside and on the downside, too.

Okay. Alberto, one small question around the new renewable capacity that has been most in one country. If you can provide more call around the countries.

Well, development plan 2022, we have roughly 2.5 gigawatts in North America, United States. 1.9 in Latin America, mainly Chile and Brazil are the main countries of development. 900 gigawatts in Spain and then remaining 15% between Italy and some tier two countries like India and Morocco.

Okay. Another one for you, Alberto. Do you see any impact on projects under development from procurement dynamics?

Well, if it means the cost of projects, so for 2022 we have almost hedged all the capacity we are developing, so we are seeing very minimal cost variance because of the situation. Related to some delays that may occur on the overall development, as Francesco has said, so we have, we see a range, but it is very very little range in the target we have. So some projects may be delayed, but not more than two, three months, and not in a very big size.

Francesco, a quite popular one for you. Potential issues on gas supplies prompt a different stance on coal-fired generation. Any change in your strategy? What is the expected level of coal capacity to be decommissioned in 2022? Any impact on the de-coal trajectory for 2023 and beyond?

No, we don't have a change in our strategy at all. In fact, we think we will be decommissioning another 1.7 gigawatts of capacity in 2022, basically both in Chile and Spain. I think what we can maybe find is if this crisis of gas gets worse, no particular push to keep coal functioning in Spain because they will not be short of gas. They have no connection with Russia at all. Probably maybe a little bit of a conservative assumption that could be pushed by the Chilean government if they would be concerned about their energy supply from LNG. But other than that, no, we don't have any plan or see any difficulties in continuing this trend. Obviously, if a government doesn't allow you to take a power plant off, it doesn't actually mean that the power plant produces. It can be just in standby waiting for the government to decide whether it's worth the risk or not. As far as production is concerned, if you want the major potential increase of coal consumption could be from Italy if the Russian gas supply would be interrupted for some reason, and therefore an increase in the production of the existing power plants. The one that's at the commission, there's no way that they can be started up again. But the existing power plants could maybe have marginally an increase in the coal production. But we're talking really about marginal figures at this point.

Okay, Alberto. I think there are a couple for you. One is on the deal on hydro. You have announced the purchase of an hydro plant from ERG and over CCGT. Can you share what's the rationale of the transaction? What's the expected normalized contribution? And if we can assume the EBITDA contribution is an upside versus the plan.

Well, we completed the... The deal with ERG, there was a package of the two plants, the hydro and the CCGT ones. And then so the execution of the deal followed two different paths, but at the end also it was only one transaction. Rational for the hydro is clear, so it's hydro, so we are in Italy, we are short of energy, so everything that is related to renewable energy that can be managed for us is relevant. CCGT is because it was, and it is, so linked and packaged with hydro. Worth to say that while for the hydro plant we got all the approvals, all the R&D trust approvals, The CCGT plant will need to have a full, clean authorization from antitrust to be completed. All in all, the contribution for the hydro plant is around 110 million euros, and this is already in the 2022 targets. And for the gas plant, now it's just very difficult to say what will be the final impact, but this is not meaningful, and this is not today in the budget numbers, in the target numbers.

Okay, Alberto. Another one, send in Italy, you were recently awarded 12.9 gigawatts in the capacity option. What is the expected contribution and when will we see this in the P&L? Was that included in your plan targets?

Okay, let me put under the spotlight this trend, this tender, because it's important to underline the So first of all, the tender has been launched for two things. One is the yearly capacity, existing capacity for capacity market, and the second is for the new capacity. On the existing capacity, we have been awarded 10.4 gigawatts of capacity plus 1 gigawatts of foreign capacity. More important is the 1.5 gigawatts of new capacity that we have been awarded. And let me underline that it's relevant because 1 gigawatt of this capacity are best, so are related to storage. And we won a capacity contract for 15 years for this 1 gigawatt of storage capacity. spread over WACC of this new capacity is ranging around 250 basis points over WACC. And the nominal contribution is for 2024 is roughly 500 million euros between the existing capacity and the new one. And The new one is roughly 200 million euros, and this is valid for 15 years. So this 200 million euros was not included in the previous business plan, while the 300 million euros of existing capacity, yes.

Okay, Alberto, we still stay with you. Resources availability. Can you give us an update on hydro levels for Europe and Latam?

But Europe, so now we have looking to the first two months, and it's particularly low in Europe. Resources are down around 30%, Italy and Spain, compared with an average historical values. In Latin America, Chile and Argentina, are recovering, not fully recovering, but are recovering from the extreme situation of the last year. Colombia is experiencing high resource levels, plus 11% versus the historical level. In Brazil, it's more a patchwork, so you have some zone with a higher level of rainfall, other not. But I remember you that Brazil has a regulation that will balance all the different zones, and this balancing is netting every kind of shortage of production because of rains.

Okay, Alberto, a few questions on networks. Okay. Are there any major regulatory events in 2022? Do you see any risk across your network operations coming from changes in regulation?

We don't have any relevant regulatory changes expected in 2022. In Europe, everything related to WAC happened last year in Spain and also in Italy. So it's something that now is only... in the application phase. I think the most important aspect that we are waiting for in 2022 are all the P&R tenders that now are starting in Italy to happen and also in Spain and other countries. And mainly we will apply for the next tenders in Italy. I remember you that also a form of premiality for the investments that we will deploy under the P&L scheme will be now set, because there are investments that will not flow into RAB. So a sort of premium of the investment that we will deliver is now something that is already defined and will be applied to these investments. In South America, we don't have relevant regulatory events in 2022, out of which we still are waiting for accepting of the missed tariff indexation in Argentina 2020. Now it's now three years that we're waiting for. So every time is good to define and set this problem. And other little action and adoption of some little regulations that are happening here and there. We have from Brazil some positive news in terms of financial aid to distributors and also some recognition of path losses and other regulatory items.

Okay. Alberto, can you provide us the total RAB level for full year 2021 and the breakdown between countries? What is the growth in RAB expected for 2022 in Europe and in LATAM?

RAB 2021 is equal to 43 billion euros. With Europe... 32 billion euros, and LATAM, 12. Now, we expect for this year, RAB to reach 44.5 billion euros, so increasing 1.1 billion euros. In Europe, the main increase will be in Italy and also in Romania. And while in Latin America, we will have the big increase coming from, it's almost a bit split between Brazil, Chile, and Colombia.

Okay. One question on customer. Customer in the power free market in Italy went up significantly. Can you provide more color on this trend? Sorry, not in Italy, in Europe.

Well, yes, the customer business is doing very well. Also in the last part of last year and also in this first quarter is very strong the take of customers, the increase in consumption. And last year we increased 1.7 million customers on our free markets. And across all countries, Romania, because of the end of regulated market, Italy and Iberia. So the main of this increase has been observed in the last quarter. and of last year. And that means that our commercial offer and our stability is something that is now appreciated by the customers. And that's why we are getting so a big share of the new acquisition of the market.

Okay. On financials, Regulatory measures in Italy and Spain impacted the cash flow in 2021. What is your expectation for 2022? How much will you be able to recover? And is there an additional impact that will flow into the cash flow for this year?

So we closed the year with an impact on the overall measure of cash 1.72 billion euros last year. And clearly, the expectation is that a normalization of the situation, mainly in the second half of this year, may at the end restore this impact. And having shown this improvement in the working capital. It is something that for sure will not happen in the first quarter, because we know that for the deepening of the crisis, other measures are added, but also that a stable solution that will reduce inflation the gas prices and through this way will reduce the energy prices is now also under discussion and we think so we will await some resolution coming in the next days. If this will work and so if it will be so starting from the gas prices we think that it will, we can think that a normalized situation could be the situation that we may have in the second half of the year. And through this way, we think that everything, maybe not everything, but the vast majority of this program can be solved within the year. In this case, we see a clear positive impact on our working capital.

Okay, Alberto, net debt evolution, twofold here. Net debt went up by almost 10 billion, considering both relations and conversion of IVs. And now you are around three times net debt on EBITDA. What's your expectation on net debt for 2022?

Well, let me say that we, out of what I have just said on the situation, we were and we are in line with our financial plan, taking account of roughly 2 billion euros out of this 10 billion euros are accounting impacts. So the fluctuation of debt on FX are accounting impacts because our debt, as we say, is fully fixed. So it's only the way in which we accounted it. But at strike price, so we have fixed that. Having said that, we have invested a lot, as said, because the investments in the space are needed to position the company along the energy transition. But we are plenty of way if situation will not come back to normal or will worsen. We have plenty of strengths to manage the situation. First of all, I said we are working with 20 billion euros of liquidity available. And second, as we said, our development program is made in a way that we are not committed for more than 18 months. So every time we may change, we may increase or reduce the speed of development to comply with our financial strategy. And that is to stay at the level we ever said, not to increase our debt and our ratio for more than three times. So right now we are looking at the situation, but we are ready to manage all our aspects, to manage also the financial situation.

Okay, another one on debt. Why the impact of effects on net debt is negative despite the general depreciation of currencies against euros?

As I said, and I will stress it, it's only an accounting effect. So having said that, I think it's clear that there is not a financial effect. It relates to the fact that it's the local currency debt against the euro compared to the dollar, so the year driven by the dollars. So the relative movements of the currencies to the dollar and the dollar to the euro is impacting the way in which we account the debt.

Okay. Any risks that the cost of that will not be in line with plan assumptions?

Well, I think you know that we ran last year an 8 billion euros liability program refinancing this debt with the years before the natural expiring date. And also, we have also issued at the very beginning of this year, in a different situation, a big tranche of the refinancing needed in the year. So, we don't have almost very, very residual refinancing need for this year. The debt is fixed. So, I would say that we don't have any kind of impact from the current situation on the overall cost of our debts.

Financial receivables. Can you give us more color on the evolution of financial receivables that are up by 3.5 billion euros over the period?

Well, financial receivables are related on the edge accounting. So, you know, that's a problem of the marginal cost. At the time in which you have to put cash collateral for your margin calls, you have on one side to put cash and on the other side you have some financial credits related to this cash. So this is a temporary situation and this is variable because every day it is changing because of the changes in the gas prices and energy prices. And on the other side, the situation will be reabsorbed completely at the time in which the edges will come to maturity and so will disappear from credits and cash will come back.

Alberto, how do you consider your liquidity position at the moment?

Strong.

Okay, quick, really quick answer. Okay, I'm actually now going through a number of follow-ups that I received during this first part, which are a little bit a mixed box of things. So I'll try to go in order. Okay. Francesco, I think there are a number of follow-up on the EU repower and what might come with that. So given the high portion of gas-fired power production in Italy, what can the Italian government do to keep power prices under control?

I think the easiest way to do that is to keep under control the gas prices because that is actually what drives very simply the prices of electricity in Italy. Without that, this will be impossible. And I think the government has clearly understood that and is trying to find a clever way of doing that, which in Italy is, by the way, not that difficult because we don't have a high level, a high volume of gas indexed to TTF in the import side. And TTF is used internally to benchmark the gas that is traded within different players. but it is not a driver of cash prices in Italy and many poor sites.

Okay, another one, I think sort of related to that. Do you see a risk of intervention on your margin in supply or any decision that can claw back earnings from your supply business?

The margins we have in our supply business are not that high if you look at the cost of generating that we're facing at this moment. So we don't see that at all a risk. what we think today there is maybe an opportunity on the same tune to finally end the regulated tariff given the fact that today the regulated tariff for the first time since its inception is the most expensive price on the market because it is fully reflecting the volatility that gas prices are driving on the electricity pool so I think it's a great opportunity for this government to end the regulated tariff if they wish to do so this year as the law foresees, by the way.

Okay, another one which is still there in this kind of basket. So do you think there is a risk of an introduction of a cap to electricity price? And what is, in your opinion, the risk within the integrated chain of selling electricity at a fixed price?

No, as I said before, I see no risk. And I think, by the way, this is one of the measures that explicitly the toolbox at your level has ruled out because it has been proven over decades of experience that capping prices at retail level is the worst possible mistake a regulator can make. So I don't see that risk at all. I think it is, as I said, an opportunity to cap the regulated tariff increases provided that the gas price is capped and the regulated tariff is abolished. That means that, for example, for these people, we're talking about 12 million there would be a safe exit from a spiral of increasing tariff system with soft landing into a free market for the first time since the beginning of the regulated tariff.

Okay. A little bit outside this range, are you considering introducing green hydrogen in Europe or in Chile thanks to your additional renewable penetration?

In Chile, we are now already starting up a pilot plant with Siemens and Porsche based on wind farms feeding hydrolytic converter and therefore generating hydrogen from hydrolysis. And we have projects in Spain and in Italy to generate hydrogen through hydrolysis in an attempt to find an economic solution way to produce green hydrogen, which, as we know today, is still not competitive price-wise with the great carbon-intensive hydrogen that the industry is using. So I think in the next two, three years, we'll find out if this economic equilibrium is finally possible to reach or even reached. And from there on, we will be able to, let's say, speculate about the business case. Today, what we're trying to do is find the cost equilibrium, and based on that, then later develop a business case.

We have one, which is composed of two parts. So I just asked you the first part, and then we'll see if the second is needed. Will you consider directly investing in gas infrastructure in Italy?

in Italy gas infrastructure I think probably the question is referred to the discourse about the gasifier we have a project that we have developed a long time ago and it's fully permitted for a gasification facility of about exactly actually 8 billion cubic meters of gas a year we have fully permitted this facility but have not invested in we wouldn't probably be able to offer this permitted project to any investor that is interested in doing that. If necessary, we would even step in partially as an investor to facilitate the early phases of this investment, but certainly this is not our strategy and we will not be either consolidating or remaining full owners or long-term owners of these infrastructures. As we have done in Chile in the past, we will perhaps finish the construction and then sell the part of ownership we have, retaining some regressification capacity if we see that fitting our strategy in the next 10 years. But certainly not becoming an investor long-term in this structure. It's not our business case. It's not our business strategy.

Okay. There was a follow-up on the toolbox. An analyst is asking if we expect Italy and Spain might adopt additional windfall taxes. So they're asking again.

They have been saying that since a long time. We think probably making the calculation and finding that at the end of the day, the potential revenues they would gather from taxing this particular small renewable sector renewable power plant sector is not that high and does not probably justify the political price they would have to pay but that's something I cannot speculate about. Windfall taxes on renewable capacities that are not committed to long-term customers is relatively a small portion of the revenues of the system and I think for us it's a known point because we don't have any of that but I think overall in the systems it's The discourse is widely out of proportion with the actual revenues that such a thing would be able to corral, and the damages on the credibility of the financial investors in a moment in which investment in renewables is needed would be tremendous. So I am not particularly concerned about it, but I think it's kind of maybe more symbolic than real in terms of impact.

Okay, thank you, CEO. We move to Alberto. Shall we expect a revision in 2022 debt given currency strength? What's the impact on the current market of currencies on our debt, basically?

Well, the market today, our debt is... Today we have roughly 700 million euros of debt increase because of effects. That is not the level of debt that we have at strike price. That is right in line on what we have presented at the end of 2021.

Okay. Another one on financials 2021. Capitalized costs have moved from 2.4 to 3.1 billion euro. Can you elaborate on this? To which division they refer? Are you expecting similar numbers in the coming years?

The main of increasing of capitalized cost is related to the investments in distribution because here we have the vast majority of cost capitalization in terms of human cost. And it is related to the increase in the investment that we are experiencing in this business line. We think that after the rise, related to the same rise in the overall investments, we will stay at this level in the coming years.

Okay, Alberto, you actually gave us the impact on the depth of the currency's evolution, in particular in Latin American currencies, given the recovery against euro. Can you give us what's on the mark to market, the potential 2022 EBITDA, positive contribution?

Right now, market to market of currencies is positive in the range of 300-400 million euros.

Okay. I think the one that we basically left over is on usage of gas in Europe for both retail supply and use in gas power generation. How much this is committed to, firmly committed to customer, mass supply with no force majeure or gas power generation already sold forward?

We use roughly 12 billion cubic meters for our activities in Europe for 2022 and in the coming years. Roughly we use, say, 4, 5 billion cubic meters for our thermal production and 9 billion cubic meters for our retail activities. As I said before, we have an almost perfect balance between, as I said, we have 90% of these needs that are covered by our long-term contracts, as I already said before.

Okay, I think we went through all of the questions that were sent to our address. If anything was not answered, I do apologize. We will make sure to answer after the call promptly. So thank you to all of the people connected. Thank you, CFO, and see you next week on Roadshow. And with this call, the 5th of May for the first quarter.

Thank you. Bye, everybody. Bye. Thank you.