Enel Spa Unsp/Adr

Good day and thank you for standing by. Welcome to the NL first quarter 2024 results conference call. At this time all participants are in listen only mode. And now I would like to hand the conference over to our first speaker today, Monica Girardi. Please go ahead.

Thank you. Good evening to all of the people connected. Welcome to our first quarter 2024 results presentation, which will be hosted by NL CFO, 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 let me now hand over to the CFO.

Thank you, Monica, and good evening, everybody. Let's start with the highlights of the period. The year kicked off with a strong performance, with ABTDA half double-digit compared to last year, and reaching $6.1 billion, while net income increased by a sound 45%. These remarkable results were driven by a solid delivery across all businesses and geographies, as I will detail later in my presentation. FFO is robust and accounts for 4.4 billion, with an EBITDA conversion at around 70%, supporting the positive evolution of credit metrics already observed in the second half of last year. The execution of our efficiency program is well on track, thanks to the no-freeze approach we set, preserving the value of the distinctive assets of the group, while firmly addressing initiatives not in line with our core business and priorities. At the end of March, we reduced the addressable cost baseline by $300 million compared to the 2022 baseline. The solid operating performance, the strong FFO conversion, and the progress made on efficiency provide ample visibility on the evolution of the year and support on the 2024 targets. Let's now dive into the operating delivery. I'm now on page three with the main business KPIs. Let me just highlight some of the most remarkable KPIs achieved. The continued effort on grid extension and performances is visible, with REB per customer increasing by around €30. Renewables production is up by almost 4 TWh, thanks to the improved hydrology in Italy and Chile, and the continued path towards energy transition with renewable capacity increasing four gigawatts compared to the first quarter of last year. As a consequence, emissions-free production accounted for more than 80% of the total, remarkably up versus the 70% of 2023, while renewables production on total increased by 12 percentage points. This progression on industrial performance resulted also in a positive impact on our customer segment as in 2024 we have been able to cover an increasing share of sales to B2C customers with the opportunity to improve our competitive position through the offer of an affordable cost of electricity to our customer and a more effective use of our industrial resources. The operating delivery translated into a strong growth in EBITDA. And I'm now moving to page four. Ordinary EBITDA is up by 12% or more than 20% versus previous year, excluding the impact of the asset we disposed last year. The operating growth resulted from a positive performance on the grids on the back of constructive regulatory updates and the strong results of the integrated business, thanks to the dynamics that I will comment later. I want to highlight that, from a geographical perspective, European countries represented the bulk of the growth, with EBITDA in these regions up by 26% versus previous year. I will now move to the results analysis starting from the networks. Greece's EBITDA increased by a sound 11% net of assets disposed in 2023. Italy benefited from the mentioned constructive regulatory updates, both on inflation and work, and the projected increased CapEx allocation. Spain recorded a slight increase year on year led by the positive impact of previous year settlements associated with quality premium. In Latin America, the performance was mainly driven by the tariff adjustment in Argentina, only partially offset by the impact of inflation in the cost side. Worth to highlight that the 2.1% Euro billion of EBITDA for the period include also 60 million associated with the Peruvian grid under disposal. Let's now continue with the evolution of the integrated business, and I'm on page six. The integrated business is strongly up year on year, increasing around 900 million, excluding the perimeter effect of the asset disposed in 2023. Renewables contributed the most, thanks to the mentioned improved hydrology mainly in Italy and Latin America. The growth from new capacity added along 2023. The removal of the clawback measure in Italy and the positive impact compared to last year of hydro shore positioning. Finally, again in Italy, the progressive reduction in the mix of sales of the 2021 share. Another relevant topic is represented by the decrease of the thermal generation associated with the lower production from coal and gas plants as a consequence of the recovery of hydro and the end of the mandatory requirements on coal production in Italy. The customer segment increased by almost 400 million, thanks to an improved marginality of the free market segment in Europe, mostly concentrated in Italy, where it's worth to mention that the customer base repricing in 2023 only started to be effective from the second quarter of last year. I will now dive into the evolution of Globus Business Lite in the next quarters of the year. I'm on page seven. We had a strong start, but it's important to highlight that quarterly results included around 300 million, which cannot be considered, sorry, which have to be considered temporary, out of which 200 million, as I mentioned before, is associated with the contribution of Peru that was not included in our full year guidance when we presented the 2023 baseline. In the next months, we expect grids to have a linear evolution along the course, supported by the existing regulatory frameworks. In the integrated business, we will contribute for around $11 billion in the nine months, on the back of a growing asset base and improved marginality of the renewable generation compared to last year, on the back of an optimized and more integrated energy management system, Retail segment is set in line with planned assumptions that included a progressive and sustainable normalization in BTDA. And lastly, a reduced and expected BTDA contribution from the thermal generation. The expected trends I mentioned are completely in line with actuals and with our bridge ABTDA explanation presented last November in the Capital Market Day when we were targeting and explaining the 2026 ABTDA guidance. I will now provide an update on the cost reduction program that is on page 8. The effort on cost reduction is visible across the board and is rolling out better than expected. In just nine months, we were able to address around $300 million savings compared to 2022, covering 30% of the $1 billion target shown in November. Half of the cost reduction has been recorded at holding level, where we have rationalized the G&A expenses. The other half is associated with projects across businesses and geographies, such as, to give an example, in the U.S., where we have implemented a restructuring program aimed at optimizing running and external costs in the region not related to the renewable generation management. Moving now into the earnings evolution on slide 9. Ordinary group net income increased by almost 45% versus last year. DNA are almost in line versus last year. While financial expenses decreased by 200 million year-on-year, In terms of mix in the financial expenses, we have, comparing to last year's, the charges on gross debt are mostly in line also because we have reported basically the same level of net financial position in the last 12 months. In other financial expenses, we have booked A positive effect of edges that is a non-cash item, so we will see this later when we will address the FFO, that is expected to normalize over the quarter if we will move back to the scenario that we projected in our capital market day industrial plan. At the moment, the result is related to the present situation of the interest rate and FAX curve. Income taxes increased mainly on better economic results. And finally, minorities reduced compared to previous years thanks to the geographical mix that is more skewed towards Italy. Cash flow that I have anticipated is on the next slide. I already represent the 4.4 euro billion, a result that is up by around 800 million versus the first quarter of last year, confirming our focus on improving groups' cash generation. Also in this case, we will look at the moving part of the evolution in the first quarter. Working capital was 200 million negative, but improved half a billion when comparing to last year, on the back of the positive evolution of the underlying business, the reabsorption of the negative impact associated with government measures, and the positive capex seasonality. Cash out for taxes was 0.2 billion, broadly stable versus previous year, while financial charges were affected by the increased interest rate and sorry to make adjustments in the discussion, but last year the 0.5 interest expenses in terms of cash, it's not linear also because we had a one-off of 100 million related to the Brazilian M&A program. Worth to highlight that the results of 2024 was negatively impacted by the payment of the gas arbitration in Endesa that worth half a billion. Excluding this extraordinary cash outflow, FFO would have reached almost 5 billion. Let's now move on the net debt slide on page 11. Net debt came in at €60.7 billion, including €600 million of negative impact from currency movements which have a no-cash nature. As I said before, negative impact on debt, partially positive impact on the P&L in terms of financial expenses, both non-cash investments. Over the period, CapEx was fully funded by the FFO, recording a sound positive difference that was 1.7 billion. Active portfolio management was positive for 0.2 euro billion on the back of the closing of the U.S. solar and geothermal deal that we closed at the beginning, the early beginning of the year. No impact is observed. accounted in EBITDA and ordinary figures for this quarter related to this segment of opposition. Dividends cashed out amounted to 2.4 billion as we paid the interim dividend in January. I want to stress that we have already signed deals worth more than 6 billion that are still pending to be closed. On this, we are confident that the bulk of those deals will be cashed in by the end of this semester. Taking into account the contribution of these deals, the pro forma net debt would have stood at around €54 billion as already presented in the capital market day and in the occasion of the full year 2023 results. And now some closing remarks. The strong results that we achieved in Q1 are supported by a resilient business model across all the countries of presence. We are well on track to deliver on all of our business plan pillars as we will continue to be selective on our capital allocation, maximizing returns and minimizing risks. discipline on costs and focus on financial and environmental sustainability. Our disposal plan is progressing as planned and we will be able to cash in the most of what announced, I repeat again, by the first semester. Finally, we confirm once again that the underlying evolution of the business is strongly supporting our planned targets and this implies an upside potential to the shareholder remuneration in terms of dividend per share, totally in line with what was anticipated at the Capital Market Day by our CEO. Thank you for your attention and move to the Q&A session.