Enel Spa Unsp/Adr

Good evening, ladies and gentlemen. Welcome to our first half 2022 results presentation, which will be hosted by our CEO, Francesco Staracci, and our CFO, Alberto De Paoli. In the presentation, Francesco will provide some highlights of the period, 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 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 over to our CEO, Francesco.

Thank you, Monica, and good evening, everybody. Let's start with the highlights of this period. During the first half of 2022, the extreme scenarios in which we performed our activities did not stop the operating underlying evolution of the business. Our renewable development continued to be robust, performing in line with expectations and moving towards the full-year target. Our growing capex were largely deployed in inflation-protected activities. Our successful commercial season accelerates the medium- to long-term strategic targets of the Groups. Our business in Latin America proved not only resilient, but benefited from adequate and protective regulatory frameworks, particularly in Brazil. The energy crisis that has hit Europe created a challenging market context, translating into a short-term and temporary squeeze in our integrated margin offset, only partially by portfolio optimization activities. our strong liquidity position built in the past years and limited refinancing needs thanks to the active debt management that we have carried out in 2021 position us optimally to navigate the current financial markets in addition The temporary working capital items are on the way to reabsorption as we have anticipated in the first quarter results call. We kicked off the final streamlining of our group structure announcing the exit from Russia, the sales of Fortaleza and the Chilean transmission assets. In quarters to come we will accelerate further on this strategic target. We have now excellent visibility on the second part of the year. On the back of the evolution of operating dynamics, we confirm our full year guidance. In the next slide, I show you how the renewable development machine performed during this past semester. renewable capacity reached 60 percent of the total generating capacity that we have installed thanks to more than 5 000 megawatts developed in the last 12 months out of which 1.3 gigawatts in the period in line with forecasts we target to reach more than 60 000 megawatts of renewable energy capacity by year end developing around 6 000 megawatts in 2022 more than 60 percent of the plan objective is at this point already addressed our future ambitions are backed by a pipeline that is today in excess of 400 000 megawatts whose mature part ensures a coverage of the residual targets of more than four times Our development effort combines with a capex spent protected from inflationary dynamics. We are in slide number four. Our investment in the semester totaled 5.9 billions. 85% of this amount has been allocated to networks and renewables, two businesses that are greatly geared into inflation. Our networks, we spent more than 2.5 billions, an increase of 9% year on year. in almost all the region where we are this capex is remunerated by regulatory frameworks that recognize an automatic adjustment for cpi within the next within the following 12 months on renewables we have allocated more than 2.5 billions an increase of 33% year-on-year. On the capacity current in execution, we secured already more than 60% of our equipment at prices that do not impact the capex per megawatt ratio. Additionally, PPA prices reflects inflation and energy dynamics, creating a natural hedge. In our global retail operation, we launched commercial campaigns that proved to be extremely successful and accelerated our strategic positioning, as we can see in slide number five. In the last 12 months, we have added 2.5 million customers to our free customer base. Customer acquisition ran well above what was in our plans and pushed sales in the liberalized market up 10% versus previous year. Worth to mention that this dynamic was particularly evident in Italy, where the churn rate declined sharply to 10% versus 13% that was expected, and where the regulated tariffs were set for the first time at higher prices than the ones offered in the liberalized market. These dynamics result into an acceleration of our strategic targets well visible in the future years. our new future projection will take full advantage of this commercial success even if as i will explain later it created a short-term impact in this first half I end this part of business performance with Latin America, where results are showing the quality that we have in our assets. The performance of our Latin America operation has been robust. This is thanks to a recovery of business dynamics post-COVID-19, positive regulatory adjustment and currencies re-evaluation against the euro. Worth to highlight the 37% increase in Latin American network EBITDA, which is mainly driven by Brazilian operations, which are up 47%, where remuneration schemes are supportive and continue to be adequate and predictable. In particular, regulatory adjustment resulted in a 25% tariff adjustment in Seara since at the end of April and we will also benefit starting from July from a 12% increase in the tariffs that are applicable to the Sao Paulo distribution. This good evolution of our business globally came together with an unprecedented energy crisis in Europe, which hit our economics in the period, in particular our integrated margin. I will explain why in the next set of slides, starting from a well-known market context. This is page number seven. Commodity prices have increased remarkably and suddenly in the first semester of the year. gas prices reached an all-time highs, increasing four times versus 2021. We are talking about Europe. This growth has been driven by the uncertainties that are associated with flows from Russia, the biggest supplier of the European Union, and coupled with an exceptionally low level of gas storage in the old continent. CO2 prices doubled on the back of various reforms on the carbon allowances market currently under discussions. Tensions on commodities transferred on electricity market in Europe, driving electricity prices to unprecedented levels. The combination of all these efforts' effects resulted into a temporary squeeze into our integrated margins, particularly in Italy. And we are now on slide number eight. The group EBITDA was affected by around one billion of integrated margin contraction, partially compensated by trading opportunities that unprecedented energy market dynamics have opened up and that will continue to be deployed over the next few months. The country that suffered from energy tensions and contributed the most to this impact on integrated margin was Italy, as you can see from the slide. The heat in this country is related to the different velocities with which the pricing dynamics on wholesale and retail prices have developed over the semester, combined with poor hydro conditions over the same six-month time. If we look at slide number nine, you see the impact of these factors. Contracts we signed before the energy tensions have protected our clients throughout the turbulence that ensued. Our pricing mechanism is based, as said before, according to fully hedged sourcing costs to lock in a stable margin at the expected level of churn rate. The appeal of our offering resulted in a significantly lower than expected churn rate. And as a consequence, the volumes delivered at fixed prices were three terawatt hours higher than what forecasted. In addition, Dynamics moved also the sourcing cost, as you can see in page number 10. Hydro production declined significantly year on year, coming in four terawatt hours lower. So together with higher sales, this created an open position of more than seven terawatt hours vis-a-vis what was planned. We closed this open position with a combination of additional thermal production and purchases from the market uncovered, And this resulted into a one billion higher costs, which caused the drop in the Italian integrated margins. The volatility of this semester and its evolution has, however, allowed our integrated position along the value chain to function, rebalancing this abrupt transient as the following chart shows. In the first six months, more than half of the integrated margin hit was reabsorbed by trading on portfolio optimization activities, thanks to the extreme volatility of the same energy markets. We see this mitigation effect to continue. We project our guidance according to the following visible and highly predictable business dynamics. we have completed the repricing of customer contracts maintaining highly affordable prices while restoring a normalized level of profitability of our portfolio taking into account the higher volumes we assume a level of hydro sources which are to remain still below the historical second half standard production, and we have edged forward the additional terawatt hours we will have to cover, locking also sourcing costs at this point. We are enjoying an acceleration of renewable energy growth worth around 800 millions, based on full contribution of the capacity added in the last 10 months and the development of the US in the second half of the year. In summary, The actions that we have already undertaken are supporting our confidence in the evolution of the group financials. In this extreme scenario, the one we are navigating, our integrated positions prove to be the right stabilization mechanism as it allows our results to absorb extremely rapid transients as the one we have seen and react promptly within the same 12 months budget year. i want also to add that the exogenous factors which proved to be a headwind in the past will also prove a massive tailwind in the year to come the future positive evolution of the integrated margin will come together with an acceleration of our strategic target of simplifying refocusing and streamlining the group This is page number 12. I kick off with what we have announced so far. The sale of our stake in Russia for a total equity value of around 140 million euros, which will impact positively our net debt for around 600 million euros. Pending the final approval of the Russian Special Commission, we expect the closing in the third quarter of this year. We disposed of a thermal generating power plant in Brazil for around 100 million euros. And today we also made public the sale of the transmission activities in Chile as part of an ongoing effort to optimize and concentrate our portfolio on assets that fit highly with our strategic positioning. The sale of this transmission asset, which is expected to be closed by the end of the year, will generate a cash-in of around 1.3 billion US dollars. This effort will continue and will accelerate in the next quarters, aiming at creating a much simpler group, exiting from some non-core countries and leveraging on the stewardship model in those Tier 2 countries that we are present. On the back of what we have observed and managed, let us turn a full year guidance on here at the end of the year. And here we are at slide number 13. The first half of the year, as you've seen, has been turbulent, but the very clear response of companies' dynamics allow us to confirm the targets we have for the full year. Alberto will detail that with some granularity, but let me say that the targets we are confirming today are based on, first, a high visibility of the evolution of the second half and their assumptions that are also quite conservative. And I am referring in particular at the rebalancing of the retail wholesale pricing and balance and the contribution of portfolio optimization that is actually taking place. Second, the evolution of the stewardship business in line with what we have already guided, that is a contribution to the EBITDA of around 500 million euros. We can also confirm that our fixed DPS payment is fully covered, not at risk, and we can reiterate our commitment to grant the simple, attractive, and visible dividend policy we announced last November when we had our capital market day. So, to make it clear, we confirm that EBITDA will land at the 19 to 19.6 billion range. Net income will land in the 5.6, 5.8 billion range, and the dividend per share will be at 0.4 euro per share. Alberto, I hand over now to you to walk us through the economic and financial performance of the group. Thanks.

Thank you, Francesco. Good evening, everybody. Let me quickly summarize how the main drivers of the period have translated into the economic and financial results. Renewable continue to prove a driver of growth, adding 450 million euros in the period, due to a combination of new capacity developed and higher prices. LATAM resilience is evident with EBITDA up by 500 million euros versus previous year, mainly driven by stable and reliable regulatory frameworks. Worth to highlight that our platform-based business management recorded efficiencies across all businesses and geographies for around 270 million in the period. As Francesco explained before, the turbulences in the energy sector, together with the growth in Europe, hit sourcing costs and temporarily impacted our integrated margins, as I will detail later in the presentation. Our strong financial position is visible and leverages on 26 billion euros of liquidity available and limited refinancing needs. Thanks to our active debt management, cost of debt continues to decline, reaching 3.4% in the first half, in line with planned expectation. On slide 16, now I show you the EBITDA evolution for the quarter. Despite a strong volatility, our business performance offset the energy crisis impact and ordinary EBITDA came in almost flat year on year. In the first semester of 2022, the main dynamics observed can be summarized as follows. Networks increased 100 million euros as LATAM benefited from tariff indexation and efficiencies that more than offset the WAC reset in Italy and the government's measures implemented in Romania. The Group's integrated margin dropped €1 billion on the back of the dynamics already anticipated by Francesco, and that I will detail more later, and which hide the growth coming from renewables. This negative hit was only partially compensated by a portfolio optimization contributing more than €500 million. Stewardship business model added €270 million, mainly through EUFINET disposal. And finally, it's worth to highlight that the EBITDA evolution has been negatively impacted by Delta non-recurring for around 100 million euros. Currency revaluation against Euro had a positive impact overall in the semester for more than 200 million. I will now drive into the EBITDA evolution for networks on slide number 17. Network EBITDA stood at 3.7 billion, increasing 3% versus previous year. Going in details by country, Italy decreased by around 70 million due to the negative effect associated with the last year regulatory review, partially offset by efficiencies recorded in the period. Iberia decreased by around 70 million mainly due to the negative effect deriving from previous year settlements. Romania weak performance is related to a delay into the recognition of the higher cost due to price spike and needed to cover network losses. Discussion on this point. are ongoing and remedy actions will be agreed by the end of the year. Latin America countries performed extremely well. contributing for around 300 million, mainly thanks to 190 tariff indexation, almost entirely in Brazil, and currency revaluation movement, contributing for around 100 million euros. Finally, we recorded 60 million of efficiencies. And now moving into the EBITDA evolution of global power generation and NLX global retail, we are on slide number 18. where we have already commented in Q&A results release, we present the financial moving part of global power generation and customers all together as we believe it is the best way to represent how this work protecting marginality. In first half, EBITDA for global power generation and customers lands to 4.7 billion, down 4% year on year. On the back of the dynamics already commented, I will now drive into the dynamics observed in each geography. As you can see from the chart, Italy suffered the most from energy tensions, with EBITDA decreasing year on year more than 750 million on the back of 1 billion integrated margin contraction partially offset by commodities portfolio optimization for 250 million. The 1 billion impact on the integrated margin is originated by the following dynamics. As Francesco said, in the first semester of the year we had to manage 7 TWh of unexpected open position, composed by 3 TWh additional volume sold at fixed price and 4 TWh of less hydro production. The drop into hydro production was covered by more expensive sources resulting in 600 million euros of higher cost and the additional volume sold to customers translated into 400 million euros negative margin impact, an impact that will be neutralized in forthcoming quarters as repricing comes through, volumes increases stabilize and sourcing costs are fully hedged. In Iberia, the integrated margin management contributed positively for 240 million. The net effect of increasing generation margin and lower marginality on the retail business impacted by increasing sourcing cost has been positive. at around €150 million overall, and then we had an additional short position management that added around €100 million. The rest of Europe contributed negatively for around €80 million, mainly associated with the price gap introduced in Romania. In North and Latin America, the development of renewables added around €160 million, of which 90 in the US and the rest in Brazil. This growth has been compensated by the dynamics related to tax partnership in the US this year, more skewed towards the second half of 2022. Finally, EUFINET deal under the stewardship business model contributed positively for 220 million euros to our results. I will now drive into earning evolution on slide number 19, but before, let me add that thanks on our efficiency effort, and I'm now on page 19. Thanks to a digitized and performance base, we continue to deliver efficiencies across all businesses. And over the period, we recorded savings for 300 million euros, which offset almost in full the impact of FX and CPI. Around 50% of efficiency have been recorded in infrastructure and network. almost 30% on customer activities while the rest coming from conventional generation and holding cost reduction. And now into earnings evolution on slide 20. Ordinary group net income came in at 2.1 billion on the back of dynamics commented at EBITDA level and higher DNA recorded in the period only partially offset by lower taxes. DNA are up 500 million year on year on higher investments deployed, FX impact and higher bed debt accruals. in Italy associated with the increased volumes built in the period. Net financial charges mark an overall improvement of around 9% year-on-year or around 100 million thanks to the accelerated debt refinancing carried out during the last 12 months of the last year and that brought down cost of debt of around 20 basis points. Income taxes decreased by around 300 million euros, driven by the lower economic results. The adjustment recorded last year on the Fed tax that more than offset the negative one-off accounted in Italy for the decree on the win-for-profit that worth roughly 50 million euros. Minorities are in line with previous year. We confirm our full year guidance on EBITDA, as Francesco said, now we are on page 21, building it starting from the first semester of the year. So we build our guidance starting from results of the first semester, net of the non-recording items recorded in the first six months. and this turned to be 8 billion euros, so reaching 16.3 billion euros as a basic initial level of EBITDA. On top of this, we see the following moving parts. Networks that will grow further 500 million euros thanks to further tariff adjustment in Brazil and the regulatory agreement we expect to reach soon with the regulator in Romania. On the integrated margin we expect 2.2 billion of additional EBITDA driven by the already said contracts repricing for 1.3 billion, renewable growth for 600 million and hydro recovery in Chile and Brazil for 200 million. Worth to mention we are not assuming any recovery in the hydro production in Europe nor a decline in power prices. The evolution of second half integrated margin is secured at 100% of contracts have been repriced already, 100% of sourcing costs hedged, 100% of renewable capacity contributing to growth already commissioned and under construction. Finally, Our stewardship business model will contribute for additional 200-300 million euros in line with the expected contribution of 500 million euros in 2022 indicated in the last November capital market day. All these elements are under our managerial control and highly visible at this time of the year. and allow us to confirm our guidance for 2022 despite the extremely volatile environment we are operating in. Now moving to the cash flow on page 22. Group FFO evolution in the first half came in 800 million positive, improving by 1.4 billion euros versus the first quarter Net working capital was equal to minus 5.2 billion with 0.9 of government measures that reached the peak level in the semester and accounted for 2.6 billion overall in our net debt figure. 1.4 billion impact from energy markets context that remained flat versus Q1 due to the still high level prices. 1.1 billion capex seasonality improving 600 million versus the first quarter. And the remaining 1.8 billion is in line with the historical evolution of the business throughout the quarters and versus previous year. In the second half we will maintain our focus on working capital optimization and in the following slides I will show you the expected evolution of all these dynamics by the end of the year. Finally, income taxes and financial charges accounted for 2.3 billion in line with our past trends. Let's now take a look at FFO expected for full year 2022. and I'm on page 23. As you can see, in the second part of the year, we expect FFO pre-working capital movements to reach €7.2 billion, embedding a 65% EBITDA conversion in line with the past and bringing our FFO pre-working capital management to around €8 billion. Going in detail on working capital movements compared to the 5.2 billion negative in first half, we expect the following dynamics. Seasonality associated with CapEx development will be fully reabsorbed by year-end in line with historical trend. The disequilibrium between vendor's payment and client bill collection will start to rebalance and reabsorb for around 400 million euros. 1.4 billion of working capital management improvement is associated with the standard path of business dynamic. We therefore see 3 billion euros delta working capital improvement in the second half of the year, which coupled with the 8 billion commented before, will bring our FFO to around 11 billion euros at the end of the year. Worth to highlight that in our assumption, government's measures are still considered as a negative item in our cash flow dynamics. Let's now take a look at net debt on slide 24. Net debt amounted at 62.2 billion at June. Main moving parts described in the chart are the following. Positive FFO for 800 million as already commented. Investment deployed for 5.9 billion increasing 22% versus last year. Dividends paid for 2.4 billion euros. 0.4 billion associated with active portfolio management activities mainly related to the consolidation of Ergo Renewables assets and depth the consolidation of Russia which will be closed within the third quarter with recognition of total consideration. Around 2.1 billion from currencies revaluation and 100 million of new leasing. I want to remind you that our net debt figure includes impacts related to the accounting difference between the net debt at FX hedges and net debt reported, as well as leasing. accounting items, our operating net debt would have been equal to 58 billion euros. Furthermore, it is worth to highlight that it includes already 2.6 billion euros of government measures to be collected in the next months or so in the next year. I'm guiding you on the figures related to the full year on the net debt guidance. And we see this moving part. The positive cash generation of 11 billion, with the dynamics already commented. CapEx will stay at around 15 billion euros, up 15% versus previous year. Dividends paid for 5 billion euros, out of which 4 to Enel and the others for other minorities. And then we foresee an acceleration of our active portfolio management, particularly on the disposal side, as our focus on simplification, streamlining and portfolio improvements continues, as you can already see. have seen by the presentation in the last announcement on the Chilean transmission. As of today, we are projecting more than 4 billion euros of disposal to be executed in the next six months, partially compensated by acquisition already done, minimal equity injections in our joint ventures. The strengthening of currencies against euro will continue to wait for more than 2 billion. I want to remind you this is purely accounting effect because we use hedges to offset FX volatility. Net debt is expected to land at around 61 billion for 2022, prudently assuming government measures will not be cashed back in line with what anticipated on the evolution of the FFO. Net of accounting effects and government measures, the full year adjusted net debt would stand at around 54 billion euros. Before the closing remarks, I would like to highlight the soundness of our liquidity profile, that as of the end of June stood at 26 billion euros, which almost 7 billion in cash on ends, and remaining 19 billion in readily available committed credit lines, reducing refinancing risk. This level of liquidity covers 1.6 times the debt maturing throughout the 2022-2024 plan period, amounting to €16 billion net of short-term debt that is routinely rolled over. We consider the group's liquidity position as more than satisfactory to face the turbulences we are living, and we don't see any short-term risk that might impact the solidity of our balance sheet. And now, some closing remarks. Francesco, and over to you.