Enel Spa Unsp/Adr

Good day and thank you for standing by. Welcome to NL9 Month 2022 Resorts Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Monica Joadi. Please go ahead.

Good evening, ladies and gentlemen. Welcome to our nine-month 2022 results presentation, which will be hosted by our CFO, Alberto De Paoli. In the presentation, Alberto will provide you some highlights of the period, and we 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 Alberto.

Thank you, Monica. Good evening, everybody. Let's start with the highlight of the period. I'm on page number one. During these first nine months, the operating evolution of the business grew strongly. Renewable development continued to be robust. Volumes in the free market segment have grown significantly and investments in networks increased by 15% year on year. The challenging market context created by the energy crisis in Europe prolonged and amplified its magnitude along quarters. This, coupled with the measures implemented by the governments, which weighted increasingly in our working capital. Notwithstanding all of this, our strong liquidity was a solid support to our business and allowed us to face the market disruptions observed in the last few months. Disposal progressed as planned. aiming at simplifying, crystallizing value and improving the risk return profile of our asset base. Given the year-to-date performance of Latam and Iberia, we have good visibility on EBITDA trajectory for the full year and we can confirm our EBITDA target ranging between 19 and 9.6 billion euros. On the bottom line, The combination of higher contribution of our subsidiaries vis-à-vis the domestic market and a higher bed debt driven by a two times turnover increase will result in a moderating earnings growth compared to our original expectations. Additionally, we see a mounting risk associated with windfall taxes in Spain that we prudently want to reflect in our guidance. The business evolution and all the managerial actions that we will activate in the last quarter supports our confidence in the net debt target for full year, which we see landing between 58 and 62 billion euros. Worth to highlight that changes in guidance do not impact the fixed DPS of 40 cents for 2022. Now in the next slide, I drive into some business development indicators for the nine months and i'm on page number two in renewable we built 2.1 gigawatts here to date resulting in an increase of 4.8 gigawatts compared to september 2021 in customers Electricity sold in the free market grew by 14% versus previous year as a result of a larger customer base and a higher unitary consumption, as I will detail later in the presentation. On networks, investments reached almost 4 billion euros, 40% of the group's total capital. We continue investing to consolidate further progress in the quality of the service delivered to our clients in infrastructure that are protected by regulatory frameworks that recognize automatically an adjustment for CPI and reflect rising rates. The evolution of our business, considered with an unprecedented energy crisis, which triggered government's intervention waging on our financials as represented now on slide number three. As you can see from the chart, in Europe, governments intervened on tariffs and fiscal matters over the past months, adopting measures which were detrimental to our financials. All these measures had a limited impact on profit and loss, but have affected progressively our net debts in 2021 and 2022, accruing, as of September, a total of around 8 billion euros in items that are pending to be collected from governments or public entities in Italy, in Spain and in Romania. These items have grown 5 billion euros since December last year. Over the third quarter, existing measures have been extended and new ones introduced for additional 3 billion euros, deteriorating the group's working capital, as you will see later in the presentation. Government's intervention overlapped with extreme energy trends, and I am now on page number 4. Looking at Italy, strong operating dynamics bode extremely well for our future as we added 1.5 million customers year-to-date. Volume sold increased more than 41% on a combination of higher unitary consumption and lower level of churn. However, extreme trends this year affected our short-term results, in particular the unprecedented low level of hydro production, which remained below the historical average in each quarter, higher energy volumes absorbed by our customers, and low hydro created an unexpected open position, which accounted for a total of nine terawatt hour in the nine months. The average pool prices increased almost three times versus last year, resulting into materially higher costs to cover the open position. Under the normal conditions, the growth of retail fundamentals would have returned 1.7 billion euros on EBITDA and 1.2 billion euros on net income. Then, on slide number five, we talk about the strong liquidity position that helped us in navigating these turbulent weathers As you can see, this 25 billion euros of liquidity, of which almost 7 billion in cash and the remaining 18 billion in readily available committed credit lines. Notwithstanding the extremely volatile commodities environment, we have been able to manage the situation. 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 risks that might impact the solidity of our balance sheet. We have progress in streamlining our asset base. On slide number six, you see summarized what we have been done so far. We have, as of today, executed and are in the process of completing several deals. The disposal of our stake in Enervasha had an impact in the nine-month net debt of around €500 million due to the deconsolidation of Russian debt, while the equity value of around €140 million has been cashed in in early October. In July, we announced the sale of the transmission activities in Chile, which is expected to be closed by the end of the year and will generate a cash of around 1.3 billion dollars. In September, we signed a deal for the sale of Goiais, a rural network in Brazil, which was no more fitting with our strategy. to grow in highly urbanized areas and fully seize the opportunity arising from the group's integrated footprint in the context of the energy transition. The total consideration will amount at around $1.4 billion. The closing is expected by year-end. We dispose thereafter of thermal plants in Brazil for around $100 million. And the disposal plan announced so far in total will impact positively 2022 net debt for around 3.5 billion euros, out of which only 500 are visible in the third quarter of the year. In the next months, we will continue to focus on the creation of a much skimper group, exiting from non-core business and geographies and improving the risk-return profile of our portfolio of assets. And now, before diving into economic and financial results, let's have a look at the last transaction on the stewardship business model. I'm on page number seven. A couple of weeks ago, we have announced the sale of a 50% stake of grid expertise. Our new company focused on the acceleration of the digital transformation of power grids through advanced network technologies and solutions offered to DSOs worldwide. The agreement valorized the company at 625 million euros for the 100% enterprise value, a value that could reach up to 1 billion based on potential deferred payments included in the agreement. CVC will pay a total consideration of approximately 300 million euros for the 50% stake. And the overall transaction is expected to generate a positive impact in the EBITDA group, in the end, the group's EBITDA of approximately 500 million euros and the positive effect on the group's consolidated net debt of around 300 million euros. The closing of the sale is expected by the end of 2022. And now we move to the economic results on slide number nine. starting with the EBITDA evolution. Despite a strong volatility, our operating deployments upset the challenging environment and ordinary EBITDA came in 1% up versus 2021 if we exclude around 200 million of non-recording items recorded last year. In the first nine months, the main dynamics observed can be summarized as follows. Networks came in almost flat year on year, as tariff indexation in LATAM and efficiencies offset the work reset in Italy and the government's measures implemented in Romania, which we expect to recover by the year end in light of the agreement reached a few days ago with the regulator in Romania. The management of the integrated margin was negative for around 200 million euros with generation contributing positively for around 900 million euros, customer segment dropping around 2 billion euros on the back of the dynamics already anticipated in Italy and that I will detail later on and portfolio optimization activities contributed positively for 1 billion euros, almost entirely absorbing the negative effect recorded on customer segment. Finally, the stewardship model added 330 million euros, mainly through EUFINET and MONI disposal. I will now dive into the EBITDA evolution for networks on slide number 10. Ordinary EBITDA stood at 5.3 billion, decreasing by 3% versus previous year. Going in detail by country, Italy decreased around 80 million euros due to the negative effect associated with the last year regulatory review, partially offset by efficiencies recorded in the period. decreased by around 100 million euros on lower tariff and increase in fixed cost. The weak performance in Romania is related to the delay in the recognition of the higher cost due to price spike incurred to cover network losses. A few days ago, at Sente, we reached an agreement with the regulator And starting from the next quarter, we can fully book the differences between the realized cost and the recognized cost for 2022. Latin American countries, net of Argentina performed extremely well, contributing for around 350 million euros, mainly thanks to tariff indexation for 280, almost entirely in Brazil. Currency devaluation contributing for around 160 and efficiencies for other 80. These positives have been only partially offset by impact of CPI increase and lower margin associated with the IFRS 12 and development OPEX in Brazil. Argentina continues to show no sign of improvement, recording a negative year-on-year results of more than 60 million euros once again lacking the overview recognition of the investments in tariff. And finally, EBITDA evolution has been negatively impacted by a negative non-recurring for around 180 million in Iberia. Moving into the EBITDA evolution of global power generation and an elite global retail, we are now on slide number 11, where you can see that in nine months, Ordinary EBITDA lands at 7.2 billion euros flat year on year, excluding 200 million of non-recurring recorded in 2021. I will now dive into the dynamics observed in each geographies. As you can see from the chart, Italy suffered the most from energy tensions, with EBITDA decreasing more than 1.3 billion euros on the back of a contraction of the integrated margin for around 1.7 billion, originated by a widening of imposition covered by expensive sources. And I will detail later on in the next chart. And rest of Europe down of 120 million due to the impact associated with the retail price cap introduced in Romania. In Iberia, integrated margin management contributed positively for 740 million euros, as the net effect of increasing generation margin and lower marginality on the retail business, impacted by increasing sourcing costs, has been positive for around 250 million euros. Additionally, portfolio optimization added around 470 million euros. In North Africa, In Latin America, the development of renewables added more than 300 million, of which 150 in the US, and FX contributed positively for around 180. To conclude, the non-recurring items recorded in 2022 amount to 150 million euros. Now, let's have a focus on the operating dynamics that affected our margins in Italy during the third quarter. I'm on page number 12. In the third quarter, we expected to sell around 10 terawatt hours to clients contracted on fixed price. Our expectations were based on a normalized temperature and a churn rate almost in line with the semester. The summer and September proved to be much hotter than expected, and clients' churn rates went further down, taking advantage of our favorable commercial offerings. All this created around 2 TWh of unexpected open position that pushed down our margins in retail versus the expectation that we had for the quarter. I am now on slide number 13. where you can see that Q3 was expected to generate around 400 million positive contribution to EBITDA, thanks to sales to customers with fixed price contrast of the already said 10 terawatt hours, repricing activities, driving revenues up by 20% versus H1, and a full hedging of expected cost for the 10 terawatt hour set. We secured the repricing in line with expectations, but the other dynamics of the quarter yielded instead a negative impact of 700 million euros on margin due to the open position of only two terawatt hours that we had to hedge at a price almost of 450 euros in the quarter. Eventually, such deviation resulted in around 300 million of EBITDA reduction during the last three months. Let's now see how the evolution EBITDA will play out in the last quarter of the year. As you can see from the chart, we are going to confirm the guidance for the EBITDA 2022 built the way you see. We started from the ordinary EBITDA of the nine months, the 12.7. In the last quarter of the year, we expect network to contribute for around 2.5 billion euros, thanks to the positive regulatory adjustment in Romania and an additional benefit from LATAM countries. Generation and trading to range between 2.8 and 3.1 billion supported by around 300 million renewables growth, a ranging contribution of our conventional generation and trading activities, depending on the volatile evolution of the commodities market and between 300 and 500 million negative impact from further contraction in hydro production vis-à-vis last year. Global customers is said to contribute 500 to 800 million euros on the back of the growth in Enel X, the expected reduction of sourcing costs in Romania, partially compensated from the lower EBITDA contribution in Italy. The range shown in the slide is linked to the evolution of consumption in the last quarter. Finally, our stewardship business model will contribute for around 500 million euros, thanks to the already said Grisberg-Pease deal announced in October. All these elements allow us to confirm our ordinary EBITDA guidance for 2022, despite the extremely volatile environment we are operating in. Let's now continue the analysis of the results of the nine months. I'm now on slide number 15, where we show the evolution of earnings. Ordinary group net income came in at 3 billion euros. On the back of the dynamics commented the EBITDA level and higher DNA recorded in the period, only partially offset by lower taxes. DNA are up year-on-year by 600 million euros as a consequence of 400 million amortization on higher investments deployed and effects impact. 200 million euros, bad debt accruals, mainly in Italy, up on higher turnover in the period. Net financial charges marked an overall net income improvement of around 100 million euros, thanks to the accelerated debt refinancing carried out during the last 12 months, which brought down cost of debt by 20 basis points versus September 2021. Income taxes decreased by around 400 million euros, mainly driven by the lower economic results and the adjustments recorded in previous year on the fair taxes that more than offset the negative one-off accounted in Italy for the legislative decree on energy bills rise that worth 70 million euros. Higher minorities' interest due to the higher contribution from our subsidiaries versus the result of Italian entities resulted in a lower net income for around 100 million euros. Well, despite an EBITDA that we see still in line with group here and targets, its composition is profoundly different from expectations and triggers an adjustment to the bottom line guidance as showed in slide 16. The dynamics explained at EBITDA level lead to a different geographical mix in our earnings with a different contribution to the bottom line. DNA are expected to be around $200 million higher than in the plan on the back of the higher debt driven by higher revenues on an unchanged unpaid rate. Worth to highlight that we took a prudent approach in our revised estimates for the full year as we added also an hypothesis of the possible new taxation in Spain on which discussions are ongoing and there is no clarity if it is approved and on the final outcome. We consider this proposed taxation to be illegitimate and contrary to the provisions of the European Community Regulation and we are monitoring the ongoing parliamentary process with the aim to assess litigation actions if and when the regulation is approved. Considering these moving parts and in light of our cautionary approach, we set a new range for our ordinary net income between 5 and 5.3 billion euros. Let's now move to the cash flow on slide 18. Group FFO stood at 1.1 billion euros. Similarly to what happened in the first part of the year, the group's cash production was affected by a severe swing in the working capital for 8.6 billion euros associated with government measures and the current energy market context. Deep diving into the working capital, the dynamics are as follows. 5 billion euros of government and regulatory measures accounting for about 8 billion euros in total on our debt figure as analyzed on slide number three. Compared to first semester, this item increased 2.8 billion euros as it includes also the mandatory coal and gas stocks, the cap on gas prices in Iberia and the recognition of the tariff equalization mechanism in Italy. 3.7 billion impact from the energy market context, which is up by 2.3 billion versus first half due to the increase in the total turnover due to a combination of higher volumes sold and the price dynamics observed during summer. Then 1.1 billion of capex seasonality flat versus the first half that will be fully reabsorbed by year-end in line with historical trend. The remaining positive 1.2 billion euros impact is driven by the managerial actions implemented in the third quarter to tackle all the previously mentioned negative dynamics. Worth to highlight that net of government intervention and electricity prices dynamic, the evolution of our working capital would have been completely in line with what can be considered a normalized and recurrent business trend. To year end, we will maintain our focus on the implementation of all the managerial actions that allow us to optimize the working capital movements and we will continue to closely monitoring the external context in order to manage these dynamics as effectively as we can. Finally, income taxes and financial charges paid accounted for 3.2 billion, decreasing year on year, mainly thanks to the liability management program executed in 2021. Let's now take a look at net debt on slide number 19. Actual net debt stood at 69.7 billion euros. The main operating moving parts described in the chart are the following. The positive 1.1 billion FFO already commented. Investment for 9.4 billion euros up 17% year on year. Dividend paid for 4.8 billion euros. 0.7 associated with our disposal program. mainly disposal and acquisition program, mainly related to the consolidation of the ERG renewable assets and the debt deconsolidation of Leonard Russia, and around 4.1 billion euros linked to currencies revaluation and new leasing. I would like to remind you that our net debt figure must be adjusted for around 3 billion euros of accounting effects related to FX hedging. And additionally, it does not include the 3 billion euros positive impact associated with the disposal transaction in Chile and Brazil that we have already announced and that will be cashed in by the year end. Net of currencies and disposal operating net debt would have been equal to 64 billion euros and out of the impact of the working capital would be by far less than 60. In the next slide, I will guide you through the evolution of net debt at the end of the year. Now I'm on page number 20. Starting from the net debt figure at September, we expect the following moving parts. positive FFO contribution expected in the 8-10 range, driven by the dynamics on EBITDA already commented and working capital evolution. In particular, on the net working capital, we expect to recover between 5.5 and 7.5 billion euros, mainly thanks to the managerial actions we will continue to implement and the absorption of the 9 months negative dynamics associated with the business seasonality. This allows us to improve the EBITDA conversion into FFO in the last quarter of the year. We will count for additional capitals of around 5 billion euros and we are projecting further active portfolio management up to 2 billion euros, reaching around 5 billion euros, including the transaction in Chile and in Brazil already said. I want to stress here that we will also work to neutralize the impact on our net debt of currencies movements to tackle the volatility induced by the pure accounting of currencies evaluation and strengthening At the end of the year, therefore, we see a range of net debt between 58 and 62 billion euros, depending on the group cash flow generation and the timing of the cash-in associated with the disposal still to be announced. And now, some closing remarks before the Q&A. The operating underlying of our business were extremely strong. and their evolution bodes well to the achievement of medium and long-term objectives. The focus for the last quarter of the year will be on cash generation and balance sheet strengthening, as we will implement all the managerial action needed in order to reinforce and restore the recurring EBITDA conversions into FFO and bring the level of net debt in line with the target set. We will continue to progress in creating a much simpler group, focusing on activities only in countries and businesses that fit with our strategy. This will allow us to unlock additional resources, enhance the profitability. Despite the revision of the net income target for the full year, our transparent and simple dividend policy remains unchanged. Therefore, we confirm the fixed DPS of 40 cents for 2022. On November 22, we will present our 2023-2025 strategic plan. We look forward to seeing you there. I think we can now open the Q&A session. Monica.

Okay, thank you, Alberto. Just allow me a couple of minutes to pack lots of questions that came through, and I'll be back in literally 30 seconds. Okay, I'm back. Thank you so much. Thanks for your patience, and thanks to all of the analysts that sent the questions through. I start with a number of, well, a few questions around our integrated margin management. The first one is on the Q3 dynamics, which generated further negative unexpected impact on margins, and how can we be confident in the fourth quarter dynamics?

Well, what happened in the third quarter is, as said in the presentation, is simple to explain. This is a year in which keeping the prices unchanged, there was a very little increase on one side, and with seasonality that are... has been strange because we had a very very strange level of temperatures in summer and this long summer because last also in September together with the fact that having the better price in the market so we are having, we are experiencing a very low churn rate This also in the third quarter moved to have two terawatt hour of open position. And we matched these needs to cover with the highest price seen along the year, so with around 500 euros per megawatt hour. This was the unexpected impact on the third quarter. On the repricing activities and the EBITDA expected out of this 2 terawatt hour, everything was in line on what expected. Now, and was, as said in the presentation, around 400 million euros of EBITDA. Now, we have completed the repricing effort because the overall repricing is in the range of 40% increase versus the previous prices. So the 20% of the third quarter is out of the full repricing that now we have completed. And I want to stress the fact that all this repricing happened at the end of the previous contracts and not so in the period of validity of them. And for the last quarter, without any increase in the not cover energy, we foresee the number that we gave to you because it's more or less in the range of 600, 700 million euros. The range is related mainly on the consumption that may be higher than expected and on the other side on the level of prices versus the prices expected. What I have to say to you is that October was completely in line in terms of consumption on what expected. It just seems that this quarter is now coming in line with what has been expected before. Also because the increasing prices are driving a reduction in the overall consumption of customers.

Okay, saying into the retail segment, what is the impact of the extension in Italy of the decree which is cutting the price to the retail segment? Does it play out for 2022 or 2023 only?

Well, we have, so no, this decree is not expected to generate negative impacts in 2022. For 2023, we need to run an in-depth analysis on the methodology to be applied. And so we are going to present in two weeks the new plan and we can show what our expectations are during the presentation of the plan.

Okay, bad debt. How the trend is going of the bad debt and the unpaid? When do you expect the bad debt to peak?

Well, so let me split into these answers. The first is, in Spain, unpaid levels remain unchanged. And so we don't see major changes in terms of unpaid level. So when we talk about bad debt and unpaid, you have to split the answer in two. One is the bad debt increase. That is related to the fact that having an increase in turnover and having a certain unpaid historical level, if the turnover goes up, the bid depth is technically linked to the turnover that goes up. The second is the increase in the AMP page. So we are not experiencing an increase in the AMP page, only in some segments with a very limited impact. This is because the vast majority of our customer base is not paying any increase in price until the repricing that we are having now. So what we experienced along the first nine months is a stable level of unpaid or in some segments a sort of decrease of the unpaid versus the historical level. If we now look at what can happen and when the unpaid can peak, Without government intervention to reduce the impact of the price increase of the last part of the year, we may think that looking also that prices now are a little going down, that the peak may be in correspondence of the bills that are coming in the last trimester of the month, so November and December. So we can look at it at the very first months of the next years.

There is a clarification around the repricing, I think, Alberto, because an analyst is asking if we can share the average increase in price that we are applying to customers and if it's in line with what we have guided back in June.

Well, we are applying an average increase in prices versus the previous ones. that was set during the COVID crisis, that was set at the very low level of that time, at around 40% increase. That is by far lower than the increase that we are experiencing on the market prices. When we said that the overall impact on EBITDA was 20% in the third quarter is because we have not completed the repricing because repricing happens along the quarter and so it has been completed versus the end of the quarter in September. So now it will give the full impact in the last quarter of the year.

Okay, we move on the guidance. Lots of questions on guidance for 2022 and beyond. So the first one is on the expected contribution of the stewardship business model to our numbers. If you can just dig into that.

As I said in the presentation, we have already a contribution of 300 million euros in the nine months results. that are related with the Euphine deal and the Monet deal. And we have now just closed sign, so we are going to close in the last quarter the Grisberg deal. And the Greens Party deal worth around 500 million euros of EBITDA contribution. This will bring all the effect to 800 million euros that is on the upside. of the range we gave for the stewardship impact. This comes from the fact that we got a very, very high valuation for the retrospective deal that was assumed on a lower level than our first expectations.

Can you quantify the non-recurring items included in the full year guidance?

They are not meaningful. They are around zero. Because we have on one side, so the Iberia is full of setting on itself because we got the Bono Social of roughly 150 million euros, and we got the distribution tariff adjustment negative in Spanish network for overall 180. So overall it's minus 20, so near to zero.

Net income guidance. This question came before the presentation, but just to be clear, does this guidance include the projected impact of new taxation in Spain? How much?

Well, yes, it includes this potential impact. And so we are assuming, and as I said, it's only to be careful on the judgment, but we have already expressed our thoughts around this issue. this taxation, we are assuming in our guidance an impact of around 300 million euros, zero to 300 million euros at the net income level.

Okay, net debt and working capital, really popular ones. Do you feel the current level of yearly capex are sustainable with this level of net debt?

Well, for this and other questions like this, I think it's better to suspend the answer and to discuss the overall figures for the next years and also the financial and debt level that we foresee for the next few years during the strategic plan presentation in two weeks from now.

I will ask you anyway. I cannot stop asking inbounding questions. Second question around the net debt figure and the financial expenses associated. Recent debt issuance appears quite expensive. Can you comment on the rationale?

Well, first of all, so we tap the U.S. market because U.S. market offers a long-term tenure. And we catch a window of opportunity that may not materialize in the following months. And now we have a buffer of additional liquidity to face any potential further collateral requirement. And this, together with the fact that having done this accelerated liability management last year, almost at zero cost, this can is helping us to be absorbed with the higher current financing rates and so we will discuss around what will be the the cost of that the future cost of that of this company during the the strategic plan presentation um for the cost level let me split so i think we have to split the cost into the three main components one is the race the second is the credit spreads and then the new issue premium. If we look at these trends, comparing the period from September 2021 and October the 6th, where we issued the latest sustainable in bond, these are the trends observed. The US Treasuries have increased 200-300 basis points. And credit stress have increased around 190 basis points, depending on the channel. But this widening is broadly in line with what experienced by the other peers that have had H1s at the same time. And the new H1 premium was around 45 basis points, which is high compared to the historical level. comparable also this to the one paid by comparable companies.

Okay, next is on the working capital. If you can walk us through the actions that we expect to put in place in order to see a reabsorption of the negative impact of the working capital.

Well, as said, so we have some technical reabsorption that we foresee for the last quarter that are related with the CAPEX level and also related with some of the higher turnover that we have had because we don't see any increase in the turnover in the last quarter, so we are going to reabsorb some part of this increase in the third quarter. And then we foresee some regulatory measure that will come back because they are peaking, technically speaking, and not for any other kind of reasons, like, I don't know, the price cap, the gas price cap in Spain is that peaked in the third quarter because of the first implementation. And now that is technically ready, we'll start deploying also the reduction in the working capital. For the other managerial actions that we are implementing, clearly we are keeping the financial system as a backup to have to soften the impact. also using the banks to reduce the working capital credits that we are piling up because of the situation.

Okay. Question for 2022. Is there any risk? I would say probably it extends beyond that. If there is any risk on dividend?

No, there is no risk on dividend for 2022. You will see then the dividend policy for 2023-2025 period during our capital market day. I cannot give you the details now, but I can anticipate it will remain simple, visible, and will aim at granting stability and attractiveness to the share price.

A few questions around government intervention. What's our view on the priorities of the new government in Italy in terms of, of course, energy policies and if we expect any further intervention?

Well, right now, there is a limited disclosure. We are also working to offering our view and so the possibility of intervention clearly The first intervention will aim to reduce the impact of the price increase that is expected for the last month of the year. And it's clearly the most urgent intervention that the government will have to take. After this, I think that the government will stay stick on, so on one side, the definition of this price cap on gas. and the discussion around the decoupling of the price of gas and renewable, and also to draft a new proposal of extra profit. These all things are on the track of what the European Commission has said. There are also the things to be addressed to manage the energy crisis. As you can see, so we have always advocated with our government for the cap to gas price. And for what concerns the decoupling, we have been working by quite some time on a different price base for our generation. with renewables getting the price from our customer base and stressing the fact that being renewables not subject of volatility of commodity, They are ready also to have and to participate in a long-term market, not only a spot market, offering and giving long-term price signals that are the best way to have renewables developed in the foreseeable future. Loss on extra profit. has so far limited impact on our numbers, also because we have said always that having kept the price fixed along all this month of crisis and prices set last year, we were not making any kind of extra profit. But so... An overall framework on extra profit is not something that we see in a bad view because we think that a framework on extra profit may be put in for the company's that are companies or subjects that are really doing extra profit during this period. I think we must wait to see the final form or whatever measure will be designed and decided by our government and also in the talks that we are having, the government is having with Europe.

Okay, another one, changing country. Our view on the law... to claw back extra profits in Spain?

Well, we reiterate our disagreement with the proposed taxation, as it is not extraordinary profits that are being taxed, but gross income that in this period is impacted by higher energy prices that are not resulting in extraordinary margins, as the sourcing costs are increasing too. In Spain, like in Italy, we have sold our energy at a price below the threshold the government deemed reasonable, proving that the gas price cap is already limiting windfall profit. In addition, a strict reading of the proposal might hint to the possibility that even revenues generated by the regulated activities will be taxed, which makes absolutely no sense. We considered the proposed taxation to be contrary to the provision of the European Community Regulation. which grants autonomy to the state members on the solidarity tax, but it's also foresee exclusion of electricity utility as it only applies on oil and gas companies. Application on profits and not revenues. And the timeframe is 2022 and not 2022 and 2023. We trust the text to be altered during the Parliament process in line with the different amendments introduced by the political parties. We will keep monitoring the parliamentary process and analysing the vices of illegality of this tax in order to assess possible litigation actions once the regulation is approved.

Okay, another one, another country. Can you update us on the current status of the discussion with the regulator in Romania?

Well, on retail, there were positive developments in the discussion with the government regarding the return to a regulated market with a fixed selling price and a regulated profit. as well as the introduction of bilateral contracts negotiated among producers, suppliers, distributors, with a maximum price of 550 RON MWh. We have addressed also the topic of removal of the cap for the reimbursement of sourcing price, and we think there are good chances to happen. On networks, the new ordinance solved the economical impact of 2022, was said in the presentation, for losses for price difference. The financial recovery from regulatory point of view will come in a period of five years. starting with April 2023, by setting up a separate and additional component in the RAB in the DX tariff, not subject to the 7% cap in the RAB increase defined for the normal RAB. We expect a change in legislation in order to conclude this bilateral contract at 550 RON MWh. So, all in all, uh positive stance in romania after long discussions in all the items that are impacting in nine months our economical and financial results pack of question on mna um first one is if we can provide more color on disposals and timing of the repositioning repositioning in latin well as you can can I've seen from the presentation, so we are accelerating a lot in terms of portfolio rotation because we are taking advantage on a window of opportunity that are putting the level and the value of our assets up because of the situation we are living in Europe. And you see that we have already sold and we are going to cash in the next month the transmission line in Chile and the Goyage distribution in Brazil and other single assets in the generation field. This trend will continue in 2022 and will extend further to 2023. where we aim to achieve other major steps in simplifying our presence in LATAM. I ask you for all the other items that we said before to bear with us as the upcoming Capital Market Day will answer all of your questions on these topics.

Still looking to acquire grids in North America?

Scouting never stopped. Clearly, the Inflationary Act is under observation to understand what trend the U.S. will take with this act and also all the transformation that it will induce. So it remains a very promising market with a very promising future. path towards the energy transition. Clearly, the current scenario is suggesting to look carefully at the changes and the improvement in the United States, but not to move in a very quick time, but to take a position to make this possible step further in the future, but not in the very near future.

Great for this deal. Can you detail what generates a contribution of 500 million of EBITDA with a consideration of 300 million?

Well, the enterprise value of the company is set at 625 million euros. That is the enterprise value. And CVC is offering 300 million euros for almost 50% of the company. So this 300 million euros, the cash in we will do. In terms of upside, we are getting the upside related to the 50% we sold, but also the revaluation at the same fair value for the quota that we will retain, the 50% we will retain. So the both of them are trickling the capital gain that we are accounting for.

Can you provide some indication of multiple of the grid strategies there?

Well, the price value EBITDA 2022 is around 37 times, and it is around 11 times EBITDA 2023. That is the most near with a fair evaluation.

What are the mechanisms that can bring the enterprise value to 1 billion?

Well, there is the first consideration that is related with if, so starting from 2026, Greece will achieve certain operational and economical results.

Okay, we move into the global business line. A question on the target for renewables in 2022. Are you on track with your 6.1 gigawatt development target?

Well, we have achieved roughly 1.8 gigawatts of developments in the nine months as of September. Right now we are working, we have achieved 2.2 gigawatts of capacity and our target of 6.1 gigawatts. So there are some targets are facing some delays and may shift in the first quarter of 2023. mainly related with the U.S. solar panel that are today stuck, so not possible today to be installed because of the problem related with the civil rights in terms of labor rights for the Chinese panel. And so we think that, given that the solution is not already given, it's possible that the time is not enough now to have them installed at the end of the year. So it's possible they will shift in the first part of the 2023. We are talking about 800 megawatts. that are in this situation and may affect the final numbers that we are going to install in this year. But the delay could be in the range of three to six months next year, maximum.

Hydroavailability, what's the level of resources that you consider in your full year 2022 guidance?

Well, so the guidance is related to the overall print that we have in the world. So we are having good hydraulicity in Chile, different from the last five years in which we had a very, very poor production, and good production also in the other part of Latin America. Italy and Spain, we are having lower production. What we are assuming for Italy, as said, is this kind of production is going to remain at the level of the previous year with a little increase because we are entering in a winter time, and Spain as well. All in all, what we are getting for the forecast is a 0% 0.89, the normal value is 1, with Italy's base, with European level, that is working around 0.7, 0.75.

I try, but I guess I know the answer. What's the assumption you're using for next year?

You have to wait 15 days to have everything answered during the capital market day.

Okay, we move to customers. Are you projecting continued growth of your customer base and volume sold? Is the onboarding of new customers still ongoing?

Well, I said in the presentation, in the first nine months, we have reached the free market net growth of approximately 3 million customers, roughly 2 million in Italy and one in Iberia. and this due to activations and reduction of the churn rates in the fourth quarter we expect net growth of approximately 300 000 new cast clients and with a slowdown in the acquisition campaign i say that in this period we have also diversified our sales strategy so we are now offering also index products for all segments and then we have defined a selective growth strategy on different customer segments.

Do you expect the normalization of the churn rate?

Yes, so we think that share rates could gradually rise to normal market standards. The very point depends on how the price set to our customer base will remain below the line of the market price offered from the other competitors for new acquisitions. this is the very point that makes the change. So we think that if prices will go down like they are doing in the last weeks, this will tend to have a normalization also on the churn rate levels.

In light of the evolution of demand, competition and prices, are you afraid of a potential risk of over-contracting in your customer operations?

Well, I think looking at everything that is something that we are assessing, there is a risk that we are looking closely not to have a U-turn of the impact on our profit and loss. But right now, I would say that it's not to be considered a material risk, particularly in the short term.

Are you afraid or do you have any signal that our customers are not paying us?

As I said, it's not something that we are experiencing right now because of the strange situation our customers are living where most of them are paying less than what they used to pay in the past years. because of a combination of fixed price offered by us and an impact of the regulatory intervention and so we are not experiencing an increase in the unpaid though we are experiencing a decrease in in so relevant segments of our customer base in the unpaid clearly We are now carefully looking at the trend of the unpaid after having completed the reprise of our customer base to see if this reprise will trigger an increase in the unpaid in the next months.

Okay, I have a few questions on financials, Alberto. The first one is on margin call. What's the current level of margin calls and what is the projected level at year-end? And if you can, to share with the market the remain, if it's still an issue for 2023.

Well, so today, thanks to the level of gas prices that we are experiencing in these days, Our margin calls are ranging around, for commodity, are ranging around 9 billion euros. We got the higher level of this impact during August. This is, technically speaking, this is going to decrease month by month if prices will stay the level they are today. we foresee this exposition to be almost 7.5 in December, so reducing 1.5 billion euros and tending to zero along the next year because of the expiration of the contract that we have done. For the contracts and the coverage of the hedging we are doing now, right now, for 2023 and onwards, We are doing them at the prices that we foresee, that we see today and also in the last months of the market. So we think that the risk, the prices will go up and picking also this kind of hedging is less probable than to have, than what happened for the hedging that we have observed in these months.

Okay. A few random questions. The first one is on the capital allocation between capex and dividends. In light of a profound change in rate scenario, is a more aggressive asset rotation strategy likely to be part of the equation?

Well, the equation, financially speaking, everything that we do financially speaking is part of the equation. So our aim is to have... a balanced mix between dividends, investments, EBITDA growth, and results. So, clearly, the asset rotation has ever been part of this equation. It will be also in the future. Clearly, the asset rotation is not related to making cash to fulfill the equation. but it mainly tends to have a strategic direction in which we want to simplify the group and to streamline the group. And clearly, so then all the financial flows will be used in a better way to offer to our shareholders the best mix for this company.

Okay, talking about us at the rotation, there was a question around... Romania and press reports that we are close to sign a deal to sell the asset, if you can confirm or not.

We can confirm. So as everything happened when we are assessing a new strategic plan now, We clearly look at every option available, as I said, looking at our strategic direction and the possible asset rotation. And clearly some news can appear on we are doing something or something else. I may say that we are looking and assessing like every time all our asset base is and that also for this in 15 days we may be more clear on what are our direction during the capital market day.

Okay, I skip then all of the questions around the future. One on the managerial action that we intend to onboard again as a follow-up to the one that you just answered to reduce networking capital in the fourth quarter. and how much of the working capital is expected to reduce in the last part of the year?

Well, as I said before, so we are working on the working capital on several aspects. First of all, so there are technical reabsorptions, so we only are looking that they are going to happen. Others that are related with, so this technical way to implement the government measures, that will have to work. So in this case, we are working with governments and regulators to have, mechanically speaking, that financially speaking, this new regulation will work properly, and this will trigger a reduction in the working capital. We are acting also to see if something will not go the way we foresee. Also, the bank system may come in and helping us in driving and bridging some part of this exposition to bring down the debt. What we see is that we are looking at And so to managing this working capital exposition of 8.6 billion euros we had in September and to reduce it of around 5 billion euros with the actions that we are aiming at. And the way I said, so trying to have them reduced because of the technical things that is going to happen with the possible some helps for banks that we also try to avoid, but so we will keep as a backup to reach these targets.

Okay, sorry, I'm trying to take just the short-term part of the questions. Lots of questions around the cost of debt. Most of them are actually beyond 2022. Maybe this one, cost of debt has decreased 20 basis points in the nine months after the bond, the four billion bond at 6%, and the trend upwards in rates. What do you expect for the following month, I presume, for the full year?

It's not future. It's only the next two months. Exactly. Well, we don't expect nothing that is going to increase our cost of debt for the next months. While the overall financial cost, the financial strategy, the cost of debt, and so we are going to consider to drive our cost of debt in the next three years. It's related with our financial strategy. We will be very clear during the capital market day also related with the debt level we are going to expect or drive for the next three years. So please keep these two weeks further to have this question answered.

Okay, I think we cover all the themes. Thank you for staying with us, and as always, the investor relations team is open for you, and just be in contact or send us an email, and we will be super happy to answer. Thank you so much, and we'll see you in a couple of weeks.

Thank you. Bye-bye.

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.