Enel Spa Unsp/Adr

I would now like to hand the conference over to our speaker today, Monica Girardi, Head of Group Open Vector Relations. Please go ahead. Thank you, and good evening to all of the people connected. Welcome to the nine-month 2023 results presentation, which will be hosted by NLCF for Stefano De Angelis. 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 Stefano.

Thank you, Monica, and good evening to everyone. Let's start with the highlights of the period. During the nine months of 2023, the group recorded a strong and consistent operating and financial performance across all businesses. EBITDA is up a double digit compared to last year and reached $16.4 billion on the back of a less volatile environment that restored the full industrial growth potential of the group. FFO grew €5 billion in the third quarter, landing at €10.6 billion, nine times higher than one year ago, thanks to the EBITDA growth and recovery of the dynamics that affected the working capital evolution last year. On the back of a strong underlying operating performance, we revised upwards ordinary EBITDA and net income targets. Finally, we confirmed our financial leverage ambition with a performance net debt on EBITDA ratio to range between 2.4 and 2.5. Operating delivery came in quite strong as well. I'm now on page 2 with the main business KPIs. All our operating performance metrics continue to improve year on year. Production from the renewable is up by 12 TWh, driven by recovery in hydroavailability and 4 GW of new capacity added over the last 12 months. This brings emissions-free production at the end of September at 73% of the total, up by 12 percentage points year-on-year, confirming the strong growth already witnessed in the first half. Energy sold to B2C in the Italian and Spanish liberalized market grew by 5%, confirming the appeal of our commercial offering. Finally, REB per grid customers reached around €650 per client, up by 6% versus previous year. The investments that food our asset base are analyzed in the next slide. The investments stood at €9.4 billion and were allocated as follows. €5.4 billion supported our integrated strategy, with renewables accounting for more than €4 billion and customers' development for the rest. It is worth to highlight that capex in generation includes around 800 million of investments in best capacity in Italy, for which the remuneration is covered by the capacity market regulated mechanism. 3.9 billion was spent in grids to expand and upgrade our networks, increasing the regulated asset base. From a geographical perspective, more than 60% was invested in Europe, with a lion's share spent in Italy, mainly in Greece, followed by Spain, Latam, and then the United States. Their location is pointed to a strong focus on core geographies, where margins and cash generation are supported by visible regulatory frameworks, a less volatile environment, and continuing operation. Let's now move on page four with the main drivers of the EBITDA. Ordinary EBITDA market the sound 29% growth year-on-year, net of more than 600 million perimeter effect, mainly associated with the disposal of asset close over the last 12 months. This result was driven by The integrated business, which increased by 3.3 billion versus 2022, on the back of a normalizing environment, as I will detail in the next slide. Networks that were up by around 800 million year-on-year, thanks to regulatory updates in countries where frameworks allow the pass-through of recent macro volatility. Finally, the stewardship business model contributed for around 100 million euros as we sold in September our Enel Green Power 50% share in Australia. It is worth to highlight that on a year-on-year basis, the stewardship model weighted negatively for around 200 million due to the gains associated with Ufinet and Mooney transaction that was accrued in 2022. From a geographical perspective, it's worth highlighting that European countries were 70% of the total EBITDA of the period. I will now move to the results analysis by business starting from the integrated one on page five. The integrated business is up 46% versus 2022, or more than 3 billion year over year. Italy represents the bulk of this growth with more than 3.3 billion increase year on year, driven by a more balanced position between sales to B2C customers and generation, which benefited from renewable production and power price normalization. Iberia is negative for around 200 million year-on-year as the normalization of the retail business was offset by the negative evolution of the margin in the gas segment when compared to last year. The evolution of the integrated business in other countries was positive for around 100 million thanks to the strong performance in Latin America on the back of higher renewable production compared to last year, mainly in Chile, and the contribution of new install capacity both in the U.S. and in the Latin America. The stewardship business model regarded a negative change year-on-year of around 200 million, as I explained also commenting the previous slide. Let's now move on page 6, talking about the grid ABTDA performance that stood at 6.1 euro billion ABTDA, up by 15% versus previous year. In Europe, this EBITDA reached around 4.4 billion euro. In detail, in Italy, the performance was supported by higher tariff mainly associated with RAP growth and indexation to the CPI. In Spain, EBITDA grew by €200 million thanks to the update of distribution remuneration for the 2017-2019 period, which generated a negative impact in 2022. Finally, as part of this growth, we accounted for the recognition of the higher costs recorded last year in Romania to cover network losses. Excluding this item, Romania's grids proved almost flat year on year. Talking about Latin America, the contribution of the growth was around 100 million, backed by the positive impact from tariff adjustment in Rio, Ceara, and Sao Paulo, and higher volumes distributed that more than compensated the negative perimeter effect. On a life-for-life basis, the growth of the BDA in La Dama would have been around 370 euro million. Let's now move on to slide 8, where we have the analysis of the results related to the earnings. The ordinary group net income came in at 5 billion euro, increasing more than 65% versus last year, driven by the strong EBITDA performance already commented. DNA are almost flat versus 2022 as a consequence of higher amortization and higher level of investment offset by lower level of bad debt provision due to better credit collection and also lower level of turnover. Net financial charges increased by around $600 million mainly due to the worsening of interest rates environment, which affected a 25% unedged portion of our debt. Income taxes increased due to the taxable income expansion, boosted by the operating result, while the tax rate proved to be almost stable. Finally, the minorities were driven by the rebalanced geographical mix. I move to the cash flow now on slide number nine. Funds from operations stood at 10.7 euro billion, showing a sound 9.5 euro billion increase versus September of last year, thanks to the improvement in working capital dynamics, which are now progressing towards a normalized trend. Cash flow produced in the period is more than doubling the average of the last four years and represents a regular high in absolute terms. Worth to highlight that working capital is in line with the historical evolution and recovered 7 billion euros versus previous years. In the fourth quarter, we expect this normalization trend to be confirmed. Looking at the moving parts in the third quarter, cash out for taxes was 0.3 billion. And as discussed in previous call, just keep in mind that in the first six months of 2023, there was the impact of the lump sum payment of the solidarity contribution tax in Italy for around 600 million euro. while financial charges paid in Q3 stood at €0.9 billion, also in line with the third quarter of last year. I'm now moving on to page 10 with the net debt evolution. The net debt at the end of September came in at €63.3 billion. Over the period, as discussed before, funds from operation contributed positively to the net debt evolution for €10.6 billion. Net capex amounted to around €9 billion that is split in €9.4 billion gross investment deployed reduced by the grant's contribution over the period. This resulted in a FFO after cap positive for €1.5 billion. Total dividends amounted to €5.1 billion, as in July INEL SPA paid the final dividend installment for this year. Active Portfolio Managed landed at €700 million, as the bulk of the deals announced so far have yet to be cashed in. I want to stress here that, taking into account the 2.6 billion already cashed in from the deals closing after September 2023, the cash generation for both organic and non-organic activities covers almost in full both capex and dividend. This is an equilibrium that we aim at maintaining structurally going forward. Adding the expended cash in from deals signed in their respective agreed financial terms, the pro forma net debt would have stood at around €57 billion, down around €3 billion versus the full year 2022. despite the negative impact of 1.2 billion deriving from non-cash items such as foreign exchange dynamics and leasing accounting effects. Let's now go more in deep on page 11 on the execution of the M&A plan. As of today, we have closed or announced deals impacting positively our net financial position for around €6.5 billion. Deals already closed account for €2.8 billion, while around €3.7 billion have been agreed and still to be cashed in pending final regulatory approvals. I again underline that the 2.8 billion is just partially reflected in the net financial position at 30 September 2023 because we cashed in 2.6 billion after the closing of the nine months results but before this conference call. So this is cash in our accounts. I'm referring to the 2.8 euro billion just to be clear. In the nine months the ABTDA contribution associated with the asset disposed or to be disposed totaled around 800 milio as you can see in the page 11. And now finally we move on page 13 where we have the update of our full year guidance. As shown in this slide, the new guidance range for ordinary ABTDA is set to be at €21.5-22.5 billion, while the net income target moved to €6.4-6.7 billion. These upgraded targets are a function of a stronger operating performance in Italy, where the retail margin improved significantly and an higher contribution of the network division. Having in mind our capital market data in two weeks, in slide 11, You could see the impact of the nine months' EBITDA of announced disposal, while in the annexes you can find all the building blocks to calculate a clean baseline for setting the group's life-or-life performance into 2024. On the back of this strong and improved operating performance, we can confirm a NAPDAT-BTDA ratio at 2.4-2.5, calculated on a pro forma basis, taking into account the deals closed that have still to be cashed in, the deals announced still to be closed, and the ones that are in well-advanced phase of negotiation. We will update you on the disposal plan and associated impacts in just two weeks, so please bear with us. Let's now share some conclusions. The strong set of results achieved in the first nine months of the year are a clear evidence of the focus in our management as on delivery, improvements and execution. A solid cash flow generation is to us a founding brick of a resilient company that aims at creating value for shareholders and more in general for all of its stakeholders. Ongoing progresses on disposal are set to simplify the group's asset base, supporting our goals of returns, maximization, reduction of risk, efficiency and accountability. Thank you for your attention and let's now move to the Q&A section.

Thank you, Stefano. I'll be your voice as always. Thank you for all of the questions submitted. In light of the upcoming Capital Market Day, we will be taking only questions on the content of the presentation we just shared with you. We received a number of regulatory and political questions that I do apologize but will be answered in a couple of weeks. So let's start with the set of questions that pertain to the guidance. 2023 upgrade guidance on EBITDA and net income. Can you walk us through the moving parts to reach full-year targets?