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?