Enel Spa Unsp/Adr

Good evening, ladies and gentlemen. Welcome to our first quarter 2022 results presentation, which will be hosted by our CFO, Alberto De Paoli. In the presentation, Alberto will provide highlights of the period, and we 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 nr.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, and good evening, everybody. Let's start with the highlights of the period. I'm on page number one. During the first quarter of 2022, the group delivered strong financial results. EBITDA grew by 7% and net income increased almost 20% year on year. The positive performance has been achieved thanks to our integrated position along the value chain, which supported our delivery in spite of an extreme energy scenario such as the one we are living these days. The integrated management of our generation fleet and commercial offerings stabilized the overall margin as I will detail later in the presentation. This, coupled with a sound growth in renewables, where we continue to mark significant progresses with 5.6 gigawatts of new capacity built over the last 12 months and more than 13 gigawatts in execution. We believe the growth experienced in the quarter bodes well for full year targets. Now, before analyzing the operating and financial performance, let me summarize a set of peculiar dynamics we observed in Q1. And I'm on page number two. The retail business experienced a sound growth in the free market customer base with a huge number of customers moving to the free market segment, offering from the first time a cheaper tariff than the regulated tariff. On the generation side, in Europe, we lost three terawatt hours of hydro production due to a severe growth. This coupled with a spike in commodities and power prices, which caused an increase in our sourcing cost. Governments introduced measures to soften the impact for customers of increasing commodities on energy bills. In particular, the measures introduced in Italy and Spain related to windfall profit for the energy companies had a negligible impact so far on our numbers as we had already sold forward before the energy to our customer at the reasonable price with no extra profits generated. On the other end, In Romania, the measures implemented are affecting severely our results, but discussions are ongoing to find an acceptable solution for all the parties involved. While governments' interventions in Spain and Italy had limited impact on our profits and lots, they affected remarkably our net debt evolution, which at the end of March accounts for more than $2.2 billion associated with these items. Additionally, our working capital in the quarter is affected by temporary dynamics associated with the energy crisis and related to the higher sourcing payments, which are expected to be reabsorbed within the year, as I will explain later. To face this volatility, Worth to mention, the group can leverage on more than 25 billion euros of liquidity available, out of which 6.4 in cash and the rest readily committed credit lines. Despite a strong volatility in our EBITDA, our EBITDA increased remarkably, as you can see in slide number three. As said, EBITDA is up 7%, showing a strong resiliency of our integrated business model against the current market's context. First of all, it's worth to highlight that the EBITDA evolution has been negatively impacted by the non-recurring items booked in 2021 for around 250 million euros. On top of this, in Q1, the group growth was driven by new capacity in renewables for around 100 million euros, increasing prices and conventional generation volumes, adding around 500 million euros. Worth to highlight that the last prices were highly depressed. during the COVID-19 pandemic, and the new pricings are normal level of price we had also in previous years. Around 170 million euros of regulatory improvements associated with the non-mainland generation in Spain and the tariffs indexation in LATAM, which more than offset the WAC cut in Italy, since the beginning of this year. And then NLX ex-stewardship has doubled its contribution versus last year. And then we add roughly 150 million euros of efficiencies in the operating business. This for the positive side on growth and efficiency. On the negative side, the negative dynamics in the chart, we accounted for three terawatt hours of less hydro production in Italy and Spain, and it was around 200 million euros. Around 250 million euros is the net effect between higher sourcing cost, both on generation and retail, and commodity portfolio optimization. And finally, we had 260 million euros negative impact from the measures implemented in Romania. These measures, as said, implemented to ease the cost of electricity to final customers, are remarkably affecting the economics of our retail and distribution asset, introducing a tariff cap and an internalization of extra energy costs. We don't think these measures are sustainable and we are discussing with the government to find a solution that can be considered acceptable by all the parties involved. The stewardship business model contributed for 240 million euros mainly through EUFINET disposal. Finally, in this quarter, we experienced a positive FX effect for around 50 million euros compared to 2021. And now I will dive into earnings evolution on slide number four. 20%, around 20%, is the growth of our bottom line in the quarter. This result was supported by a stronger EBITDA contribution a reduction in minorities, which more than offset the higher amount of DNA. DNA are up to 200 million year on year due to the higher level of investments deployed and higher bed debt accruals in Italy and Brazil. Net financial charges benefited for the refinancing strategy carried out last year and that resulted into 30 basis point decline in the average cost of debt. Income taxes are in line versus previous year. Minorities, as said, decreased by 31%, reflecting the increase in Enel America's stake and the higher contribution of Italian companies. Moving now to the cash flow on slide number five. Groups' cash flow in the quarter was affected by a working capital swing of €4.7 billion last year. which is in a vast proportion temporary. 3.6 billion of Delta working capital is recoverable by year end. In particular, we have 1.7 billion negative impact from last year CapEx curve, which was skewed towards the last quarter. Normal impact every first quarter that will be reabsorbed along the year. 1.4 billion euros associated with the sudden change to the energy market environment, which unbalanced the equilibrium between vendors' payments and clients' bill collection. And also this will be reabsorbed along the year. 500 million additional measures implemented by governments to soften the increase in prices for final customers. which together with ERN figures sums up 2.2 billion euros of debt originated by state intervention that are, as said, temporary intervention in all the countries in which they occur. By taking out these effects, FFO stands at around 3 billion euros. We will maintain our focus on working capital optimization. And we will continue to closely monitoring and managing the dynamics that are arising from the current energy distressed context. And finally, income taxes and financial charges paid for a total of 500 million euros are in line with our structural trend. Let's now take a look at net debt on slide number six. The net debt amounted to 59.1 billion at the end of the quarter. Main moving parts. described in the chart are the following, as said, FFO negative 600 million euros, investment deployed for 2.5 billion, increasing 19% versus last year, dividends paid for 2.1 billion euros, active portfolio management activities mainly related to the consolidation of ERG renewable asset, and around 700 million euros from currencies revaluation and 100 million euros from new leasings. I want to stress here that our debt at the end of March is far from reflecting the financial situation of the company, as it's currently affected by 2.2 billion related to temporary measures implemented by governments, around 3.1 billion euros associated with temporary working capital dynamics already commented, and 1 billion euros related to the accounting difference between net debt at effects, hedges, and the reported one. That of these effects, the debt would have landed below 53, including 3 billion euros associated with the accounting principle on leasing. Gross debt stands at 76 billion, increasing 6% versus December 2021 as a consequence of the already mentioned dynamics on the net debt. Before diving into the business line results, I would like to highlight the soundness of our liquidity profile. I'm now on page number seven, where you can see that our total liquidity at the end of March stood at 25 billion euros, of which more than six in cash on end and the remaining 19 in readily available committed credit lines, reducing refinancing risk. Level of liquidity covers 1.5 times the debt maturing throughout the 2022-2024 plan period, amounting to 17 billion euros, net of short-term debt that is routinely ruled over. We consider the Group's liquidity position as more than satisfactory to face the turbulence we are living, and we don't see any short-term risks that might impact the solidity of our balance sheet. Let's now dive into our business lines results, starting with our global power generation division on slide number nine. Thanks to our green and repositioning, renewables production accounts for around 50% of our 62 terawatt hours total production for the quarter. Notwithstanding the 21% reduction in hydro volumes, and emission-free production stays close to 60%. The severe hydro output reduction has been compensated by an higher production of solar and wind and by thermal generation to be considered exceptional as driven by this contingent situation. Wind and solar assets rolled out in the last 12 months contributed for around 30% of the total production, increasing more than 2 TWh of plus 17% versus the same period of the last year. Total renewable capacity represented 60% of our total installed base, reaching 54.4 GW. Over the last 12 months, we built 5.6 gigawatts renewables and added 500 megawatts throughout the acquisition of ERG assets. We made further progress on coal closures by shutting down 1.1 gigawatts in Iberia and almost 900 megawatts in Italy for a total of 2 gigawatts, bringing the coal installed capacity below 7 gigawatts. Our renewable growth came together with a remarkable step up in the positioning of our customer division, as you can appreciate in the next slide. And I'm on page 10. As said, customer base in the free market increased remarkably, adding 1.8 million customers in the last 12 months, mainly in Italy and Spain, driven mainly by the switch of customers from the regulated segment. The customer base expansion fueled the increase in the energy sold in the free market, which is up by 9% year on year, with volumes increasing in both B2B and B2C segments, particularly in Italy, where the switch factor played out strongly. worthwhile light that the growth in volumes of energy sold was so remarkable and sudden that opened unexpected needs of electricity sourcing, which we promptly managed. Our commercial offering on electricity prices focuses on pairing fixed-cost technologies with fixed-price contracts, offering visible prices to our customers while the remaining volumes are sold with index prices according to customers' preference. Looking at the Enel X, we recorded a remarkable growth across all the product lines. Through the new Enel X-Way business line, we have added 130,000 charging points, reaching around 350,000s. Storage behind the meter increased by around 15 megawatts. 6.6 gigawatts of demand response capacity was offered globally, and electric buses reached more than 3,000 units. Moving now into the EBITDA evolution of global power generation and customers, we are on slide 11. During our capital market day in November, we have been pretty vocal about how important is the management of a margin that integrates generation, trading, and retail. This quarter, we present the financial moving parts of the global power generation and customers all together as we believe it is the best way to represent how this work protecting marginality and delivering growth. In Q1, Ordinary EBITDA for the global power generation and customers reached 2.8 billion euros, up 13% year-on-year, in spite of the energy crisis with the following positive dynamics. On renewables, the new capacity installed and acquired, as well as the price scenario, impacted positively for 200 million euros. Conventional generation is up 550 million euros, driven by higher volumes and prices, and the regulated assets in Spain, and efficiencies. Customer overall contributed for around 300 million euros, of which two-thirds are associated with EUFINET transaction, and the rest with Beyond Commodity Services offer and efficiencies. Dispositive items have been partially offset by Lover Hydro, as said, for 200 million euros. Increasing sourcing cost net optimization had a year-on-year burden of 250 million euros. Here, sourcing cost increase accounted for almost 1 billion euros, and portfolio optimization offset for around 800 million euros. Finally, the price cap introduced in Romania impacted negatively for 160 million euros. Let's now take a look at our operating achievement on infrastructure and networks on slide 12. In the first quarter, volumes of electricity distributed are flat year on year, with a stabilization post-pandemic. Number of end-users connected to our grids increased by almost one million, mainly in La Tamma. Our efforts to quality and efficiency resulted into a remarkable progress with SAIDI down across all grids by 6%. Activities on network remain centered on the digitization of the networks with the installation of 700,000 smart meters in the last 12 months, resulting in 60% of our end users digitalized. Jumping on EBITDA evolution for networks, ordinary EBITDA stood at 1.7 billion euros, mainly in line versus previous year. Performance was positively impacted by around 100 million euros associated with the tariff indexation in LATAM, mainly in Brazil, around 70 million euros associated with the efficiencies recorded, and FX, which in the first quarter has been positive. On the negative side, we had 70 million negative impact associated with the WAC change in Italy, 100 million negative impact coming from the measures implemented in Romania to mitigate the impact from high power price on customers, and short of 100 million from the Delta, non-recurring and other items. And now, let me conclude with some closing remarks on page 15. 2022 kicked off strong. All the operating dynamics we observed, the pace of our investments and of our growth, are all paving the way to reaching our strategic ambition in the short, the medium and the long term. Our business integration across the value chain and deep diversification proved once again to be a key driver of performance, minimizing risks from extreme conditions while crystallizing opportunities. In light of the first quarter performance and leveraging on our business mix, we confirm our EBITDA and net income guidance to be fully achievable. Growth in net income will come together with an appealing and sustainable dividend policy. On May 19, our shareholders are called to approve a DPS of 38 euro cents corresponding to a dividend-healed policy. of more than 6% at today's prices. We can now open the Q&A session. Monica, the floor is yours. The virtual floor.

The virtual floor. Thank you. We received an incredible amount of questions, so just allow me two or three minutes of silence to pack them all in order to be efficient in managing. Just a couple of minutes and we will be right back. Okay, we are back. I hope we packed everything. I start with the the most popular one, which is on guidance 2022. Alberto, can you confirm 2022 guidance?

Okay. So we confirm, as said in the presentation, our guidance on EBITDA and net income because we have confidence that is based on the first quarter and the result that we have seen in the first quarter, the underlying operating trends that we see on our different businesses and different countries and on the base on the visibility that we have as of today around the evolution of the energy scenario. On the financial side, we also confirm our intention to keep a solid financial position and with a net debt EBITDA ratio around three times. Here, also, we see a predictable evolution of cash flows and also the temporary effect we had in the first quarter that we have already discussed. And also looking at the reabsorption of all or part of the government measures that today are set to be temporary within mid of this year.

Okay, guidance confirmed. Can you just share with us what the different moving parts that are bridging your last year results, clean of everything and the full year guidance on EBITDA, of course.

Okay, so what we have already said during the full year presentation, so we are keeping that line without major changes because the first quarter is confirming this trend. So I recap for the benefit of you all what we said. Starting from net open fiber results of 2021 of 16.8, what we see is roughly 800 million euros of rebound of negative impacts we suffered in 2021. An overall renewable impact, renewable growth, for about 1.4 billion euros. This is the result of the 5.6 gigawatts installed in 2021, the 500 megawatts acquired from ERG, and the more than 60 gigawatts that we are going to install this year. Then we have on networks more than 500 million euros. mainly related with growth in volumes, RAB and tariff indexation mainly. Global customers that will increase by 400 million euros and this is mainly based on the increasing customer base as commented and volumes and also the good success of the Beyond Commodity services. Stewardship A model will contribute for around 500 million euros, 400 million euros capital gains and 100 million euros of services sold to joint ventures that will increase further in the next years, overcoming in terms of percentage the level of capital gains. And finally, currencies that are strengthening And this dynamic might add up another 200 million euros to the list. So to summarize, first quarter moved better than expected. But we know that in such a volatile context, headwinds can prove to be real intense in the current energy context. So the underlying offers us a quite big buffer. to offset extreme negative scenarios.

Another set of popular questions around government intervention. The first pack of questions relates to the quantification of the impact of the existing measures in Italy and Spain as of now and what might be projected as an impact for year-end.

Well, in Italy, different measures have been implemented. One is the progressive cancellation of system suspension of system charges that impacted In this quarter, our cash flow for around 700 million euros and the overall, because this is an additional measure with the previous adopted in the past year, the overall impact is up to 2 billion euros on our debt. Then, on Monday, the Italian government mentioned the introduction of an additional 15% levy to be applied to energy companies. This is in addition to the 10% already approved in January and that weighted around 40 million euros on our bottom line in the first three months. So we have already accounted in the first quarter result these 40 million euros from the previous levy on 10%. Now the additional 15%, we don't have any other information around the different, other differences in the decrease, so only applying the increase from 10% to 15%, we are going to add 60 million euros, bringing the overall impact on around 100 million euros. In Iberia, we expect no further impact from the other measures currently in place. while we are still waiting to better understand how the gas price cap proposal is implemented before sharing potential impact.

Following the implementation of the gas price cap in Iberia, what do you expect it might happen in other European countries?

As you can remember, we have always advocated for decisions to be taken at European level and mainly related to a price cap on gas wholesale prices. Several governments have shown to be backing this concept, but we are still waiting for a decision to be taken.

Somehow linked with the regulatory changes, analysts are asking about what is going on in Romania. If you can clarify which are the regulatory decisions that are impacting our operations and what do we expect being the impact for year-end?

Okay, here we have two different impacts. One on the distribution business and the second on the supply business. On distribution business, The point is that the tariff for 2022 are not reflecting the cost we are incurring in acquiring energy needs to fulfill network losses of our distribution grids. This differential is generating a potential negative impact of 200 million euros. this impact is going to be recovered in the next five years starting from next year april on supply business the government introduced the price cap which will likely impact our ebitda for around 100 million euros the overall financial impact will reach around 500 million euros, so it's higher than the economical impact, because the price cap mechanism creates temporal differences between what is to be the customers and the regulated price. So difference between the price cap and the sourcing cost will be recovered from the state budget but with a delay that is in the range of 60-90 days. Now we are still intensively discussing with the government, aiming at minimizing both the economical and the financial impact of the year. So we are actively discussing to try to find a way to soften these two impacts.

A follow-up on this, or maybe a change into the approach to Romania. Does this change your investment strategy, and does this affect the probability of exiting the country?

Well, as always said, our capital allocation is flexible because we are not invested for money. long time or committed for a long time in any country in which we work. And through this way, we constantly fine-tuned our investment plans according to the environment and, most importantly, the applicable regulatory framework that in our business is of paramount importance. So it goes without saying that there is little sense to invest in unaccessibly punitive environments.

We change a little bit topic. We go back to sourcing costs, so financials for the quarter and trends over the year. Sourcing costs went up on higher power prices and low hydrology. How do you expect this trend to evolve over 2022?

Well, it depends on the price curve. If EU lacks of implementing a proper action plan, we expect the dynamics observed in the first quarter to remain broadly unchanged. On the other side, we foresee low hydrology, and so this will still drive greater contribution from thermoelectric assets. What we see is that at the group level, integrated management of the portfolio will continue to balance out the economic margins and to constantly optimize results, managing generation assets and sourcing of energy in sync with retail activities.

Another hot topic, Alberto. Is there any update on the Russian assets?

Well, no specific update at the moment. First of all, as you may remember, Russian operations are a very limited portion of our financial and activities are self-contained within the country. We are not going to deploy more GRU investments, and we are working to identify an actionable And meanwhile, we are adopting all the corporate and legal measures within the legislative framework in place. So we will communicate it as soon as we will have defined a sound way forward that we will communicate to the market.

Another one on development, which is quite hot. Are you on track? with your target on renewable development for 2022?

The answer is yes. We have already under construction all the assets related to our 2022 target that are foreseen to be reached within the year. So we will stay around 6,000 megawatts at the end of 2022.

Moving to stewardship, the stewardship business model yielded 200 million in the quarter due to capital gain on the EUFINET transaction. What's the expected total of capital gain for 2022? I think you mentioned before, but maybe Annalise wants you to repeat.

Yes, it's useful to repeat because I think it's better to stress what is the target we have in the three years' plan. So we have a stewardship business model set to create more than €1.2 billion EBITDA in the three-year plan. 50% will come from capital gains and 50% will come from services sold to joint ventures. This year, we expect around €400 million in capital gain out of the €600 million for the planned period. And this 400 million euros includes the 200 million euros already secured with the EUFINET deal. And this year, we expect roughly 100 million euros coming from service sold. In the next year, so as you may easily understand, EBITDA mix will be more skewed towards contract service than assets valorization.

I'll stay one second on capital gain, because I'm just receiving an inbound, and I think it's linked with the stewardship. So an analyst is asking if you can confirm that your guidance is comprising the capital gain that you just mentioned, or any additional, and if it's clean of any non-recovering.

Yes, I do confirm. So we did the guidance. take for stewardship this 400 million euros capital gain and roughly 100 million euros of services that we count within the customer results.

Perfect. We jump a little bit of topic to another. We are talking now about the funds linked with the recovery plan of the European Union. How the getting funds is progressing in Italy and Spain? What we can mention in terms of new projects and investments that can start soon?

Well, things are now clearly moving. We have just started submitting several projects, proposals, both in Italy and Spain mainly, that are currently under evaluation. In March, we signed the grant agreement from the Innovation Fund for the Gigafactory to be built in Sicily. This grant was worth around €120 million. In addition, we expect and so they are just to be issued the decree to improve the resiliency and quality of Italian networks to be published soon and associated tenders to happen in the forthcoming weeks.

Okay, Latam M&A, any update on the transmission asset sale in Chile? What's the rationale for the sale of Selgi in Brazil?

So, We have now no update on the sale of the transmission asset in Chile, and as said, there is no sale process on Selgi. At this time, we are seeing interest from investors on LATAM, and we can take advantage of this window of opportunity with potential disposal of assets that are not core, like Chilean transmission, as said. or less relevant to our strategy in the area which is predicated on renewables development and the operation of networks in the megacities.

Somehow linked to that, can you share any indication on when we expect the wave of disposals in LATAM to kick off?

Well, right now we are looking to focus on our operations in LATAM around the core countries with bigger growth potential. And so we will update you as soon as we will have material information to be shared on the topic.

Before moving the division a little better, just getting a couple of confirmations the market is asking for. on a couple of things that are linked with the guidance. So I will just stay here on the guidance again. And an analyst is asking if the 100 million hit to the bottom line from the windfall tax in Italy is for a full year impact and not just in the first quarter.

Well, yes. So in the first quarter, we got 40 million euros. That was the impact recorded because the decree in force was a decree taking 10 percent levy. And now this has been increased of 25 percent. We don't have the the decree so this is only an estimation if the only change is the increase from 10 to 25 percent we will add 60 million euros getting 100 million euros for the whole year another clarification on the on the stewardship model albert an analyst is asking if you can confirm that the 1.2 billion euro bb that you mentioned over the plan is cumulative Yes, it is cumulative.

Okay. I think we can now move to the divisional question. On global power generation, have you recorded any change to your forward sales strategy given the impacts recorded in the first quarter?

Well, so first of all, let me stress one aspect relevant here. strategy remains centered around offering contract at fixed price to customer base. And now we are entering a long-term contract, so starting to sell energy for five years instead of one or two like in the past. This is going to ensure highest level of visibility on energy costs for our customers and on the level of our sales. In terms of coverage, we stand 100% both in Italy and Spain in 2022. Italy with an average price of 61 euros and Spain an average price of 65. In 2023, Italy is at 51%. And coverage in Spain is almost fully sold forward at 82%. These are percentage that refer to price-driven production. Prices are those locked at the generation level. So do not refer to the price we lock in with our integrated portfolio, so also with our customer base.

Hydroavailability, can you provide us a breakdown by country of hydroavailability and outlook for the year?

So, as said, we are experiencing extremely dry conditions across Europe. Hydraulicity ratio in Italy is 0.64, so one is the normal level. Spain is 0.58, so first quarters is a very, very dry quarter. Latin America, we have different situations. Chile is still not a normal level, and while Colombia has a very good level of resources, Brazil, so resource availability is slightly below, but as you know, this is subverted by the regulatory mechanism that is equalized. all the production in the country.

U.S., we move to U.S. Regarding the U.S. Department of Commerce decision to investigate alleged anti-dumping and countervailing duties by four Asian countries, can you remind us how much U.S. solar capacity you currently plan to commission in 2022 and 2023, and how edged are you in terms of module procurement?

Right now, we have supply agreements in place that covers all of our 2022 projects and a portion of 2023. The decision of the U.S. Department of Commerce to initiate this investigation is creating some disruptions in supply and manufacturing operations. We believe it's too early to say if these disruptions may have an important impact on the construction schedules. Department will unveil preliminary decision not earlier than August this year. In the meantime, our construction activity has not stopped at our solar sites. And we are also working with our suppliers' portfolio to secure modules outside the countries potentially under investigation. All in all, I would say, being us a large global clean energy company with strong financials and having one of the largest renewal project pipelines in the industry, This is giving us flexibility to better manage market disruption and mitigate the potential short-term impacts arising from one specific country.

Customer block, I would say. Customer in the power market went up significantly. Can you provide more granularity? How does this increase compare with plan expectations?

Well, as I said, the increase... is almost equally split between Italy and Iberia. Italy added 1.1 million customers and Iberia roughly 800,000. This is a clear indication of our competitive commercial offers and quality of service. And this has attracted customers now looking to flee from Iberia the superior expensive regularity tariff to lower and higher quality offered by the liberalized market. This increase clearly represents an acceleration compared to the planned expectation.

Contracts to customer. Are new contracts loss-making as you have already sold forward all your production? When this negative can be reabsorbed?

No, the new contracts are not loss-making because they have to be considered within the broader hedging strategy that we are putting forward. The negative impact associated with the sourcing cost that we saw in the first quarter should not be considered as structural, but temporary, because our commercial strategy and the following of acquisitions are going to reabsorb progressively this sourcing impact.

I think the last block, and then we will start with a few follow-ups, is on financials. Can you detail the items underlying the 4.7 billion euro negative working capital impact, which are the temporary items and when they will be reabsorbed?

As said in the presentation, the peculiarity of this quarter amounted Roughly 3.6 billion euros of impact that is going to be reabsorbed along the year. First is the seasonal capital curve is something that occurs every first quarter. The only difference that is higher than the previous year because we invested hugely higher last year in the last quarter. So this is the normal impact, a little bit increased in the first quarter, but it is going to be reabsorbed completely along the other quarters. The second is the fact that we have this huge amount of energy to be both at this incredible high prices because of the mechanism of paying the energy and then billing the energy to customers. This is a time difference that is impacting for around 1.4 billion euros the working capital, but at the moment in which this energy will be billed to customers, so we will bring this impact to zero. And then these new and other measures implemented by governments for around 500 million euros that now are adding these 500 million euros to the previously 1.7 billion euros impact, bringing the overall impact at 2.2 billion euros. And as of today, so we are talking about temporary measures, and in this case, so if the measures will be Temporary, within June, we will reabsorb completely the impact within the year.

Staying on working capital, what's the level of working capital you expect for full year?

Well, like in previous years, we hit for a neutral working capital impact every year. Clearly, so in a year like this, it will be possible if together with the items that for sure will be reabsorbed, also the temporary impact coming from the government measures will be reabsorbed within the year. In this case, we can... and take also for this year neutral impact from working capital from the 4.7 impact that we have in the first quarter.

Given the dynamic on FFO, do you feel the investment plan is sustainable from a credit metric point of view?

Well, investment plan... is tailored to deliver and support our strategic target and so to maintain a solid financial position. So finally, the answer is yes, we can deploy our investments and paying our dividend. And don't forget that the ratio net debt EBITDA we target in the plan around three times is still one of the lowest across the industry.

Could you please confirm the portion of hybrid bonds accounted as equity amounting to 5.5 billion euro?

Yes, we confirm.

Okay, another one on debt. Last year you mentioned a negative for the net debt performance coming from the evolution of FX. This year looked like the same despite FX moving in the opposite direction. Could you please explain?

Well, so I said FX effect on a debt is an accounting effect. And it derives from revaluation or devaluation of the currencies against euros and refers to the change of FX rate versus the beginning of the year. In both cases, 2022 and 2021, we had a negative impact mainly coming from conversion of debt dominated in dollars. Now, this is the accounting effect. But because we have our debt is fully hedged against FX fluctuation, now we have a level of debt that is not the level that we have the strike price. If we take the strike price of the swap, our debt is lower around 1 billion euros versus what is expressed in the accounting that I said. So if you take our debt at the first quarter, when we will close the bonds associated, we will repay 1 billion less than what is expressed.

Okay, why the Italian retail EBIT is materially negative?

Well, as I said, EBIT in Italy is in reduction versus previous year, but materially still positive because, as I said, in the first quarter we are having this temporary sourcing effect that is reducing EBITDA. The other items below EBITDA are quite normal, so no bigger change, but the reduction in EBITDA is driving down also the habits. As said, these are all temporary effects, while the underlying of the retail business is an increased level of customers and an increased level of volumes. And on the other side, the prices that are going up because of some repricing coming from the increasing in the sourcing costs that we are having.

A follow-up on the first quarter. So why minorities have declined so much year on year?

Well, it follows the restructuring of the last year. where we reached 82.5% of NL Americas, and through this way we had the first impact. The second is that the overall impact between the different results at the different minorities' holdings in different countries is affecting the results. the result is more skewed towards business in which we have less minority holdings than in the previous year.

We go to guidance again. Comparison to full-year budget guidance assumptions, what has gone better, worse, over first quarter? What was the regulatory intervention in Romania and higher sourcing costs already expected?

Well, as said, I would say, so better results, we are seeing better results coming from Latin America in operative and also on FX impacts. And this is something that is going better than so expected. On the other side, as I said, so the underlying operation of retail are doing by far better than expected in terms of volumes and customers. Clearly, we are working on thermal generation that is a positive, temporary positive, and also has sent NLX activities out of demand. the stewardship model is doing better, so it's working around plus 100% versus last year. On the negative side, as already commented, we have the hydrolysis in Italy and Spain that is exacerbated by the fact that it's not only a reduction in production, but also that we had to buy energy because we have already sold the hydro production before, so we had to buy energy. and to resell at the price contracts. That is the main headwind that we had. On the other side, Romania, for sure. There is these two impacts that we have already commented. And then this net situation between the highest sourcing cost on one side and the optimization made by trading that is not so fully implemented netting the two positions, leaving roughly 200 million euros of higher cost of sourcing. Going forward, so the underlining are stronger, the level of prices is unpredictable, so it's clearly the very effect that we have to monitor to understand better what will be the final outcome.

Recovery of working capital barrier end. What happens if we assume a decline in commodity prices? Do you still expect to recover it if commodity prices stay where they are today?

Well, I think it's not depending on a reduction of commodity prices. Clearly, normalization of environment will help. everything in recovering. Also, we may give space for governments to start in normalizing also the measures adopted. And so if we will start progressively to normalize this measure, we will recap progressively the debt impact that we are showing in the first quarter.

Confirmation about your gas sourcing strategy if we are dependent to Russian gas or not?

As already stressed before, we don't buy any gas from Russia. So our sourcing strategy of gas is based on contract with other supplier, not Russian. and also with LNG coming mainly from the United States. And so the overall is backing our needs without any Russian gas.

Are you worried about bad debt in Italian and Spanish retail? It was not an issue during COVID, but governments were providing heavy stimulus then. This time the stimulus is being withdrawn and at the same time energy bills rising sharply.

Well, it's something that we have to assess and so we are constantly monitoring the situation because in every crisis it's something that may impact. Right now we don't see major impact. Also, because remember that our customer base is benefiting from fixed cost, fixed tariff, and not changing a lot versus prices that they were paying years before, so the last year. So it's not related right now on an impact of increasing bills. clearly, so if the situation will translate in an overall problem, suffering on the productivity and on the business side, something can be, so the debt can rise a little bit in the second half. So we will still monitoring and so we have plenty of measures to soften this impact.

The last one is just an analyst is asking to repeat what we said about the debt for Fulia.

So we confirm that we will keep a solid financial position. And so to underpin a net debt on EBITDA, that will be at around three times at the end of the year.

I think this was the last question. In case I missed anything, it was totally my fault. I do apologize in advance, but I'm available with my team to receive your calls as you wish. Thank you so much and see you for the first half.