Enel Spa Unsp/Adr

Good evening to all the people connected. Welcome to the full year 2024 result presentation, which will be hosted by an CEO, Flavio Cattaneo and the 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 now, let me hand over to the CEO.

Thank you, Omar. Welcome to everybody. We're starting with our focus on rebuilding and constructive dialogue with institutions that is already showing positive and visible outcome. The resulting improvement of regulatory frameworks will support our industrial plan delivery and confirm the value creation of our capital allocation. Group delivery in 024 was visible and based on a solid performance and allowed us to meet all the targets. The result was achieved due to the higher contribution of Iberia, U.S. and Latam at integrated margin level. I will stay for now with detail later on in the presentation. The leverage has been successfully executed and its completion improves our balance sheet flexibility for a more profitable growth. Lastly, in light of the result achieved, we'll propose to the next AGM a dividend per share equal to 47 cents for 2024. implying around 70% payout and 7% dividend yield at the current price. Water and mine floor is confirmed at 46 cents per share over the planned period. As additional shareholder remuneration, the Board of Directors has approved the renewable of the share-by-back program for a maximum 500 million shares and amount up to 3.5 billion. The program will be proposed to the next AGM and the shares acquired will be consequently cancelled. Now, we'll have a look at O24 delivery rates. The next slide, you see last year the group recorded an outstanding financial performance and growth across all businesses. EBITDA reached $22.8 billion, landing at the top of the guidance range, on the back of a less volatile environment, restoring the full growth potential. Net income came in at $7.1 billion, increasing by 10% versus previous year. EBITDA and net income are the outcome of our managerial action implemented in the no domestic market, where the new capital allocation approach is increasing asset base profitability. Net debt-to-BDA ratio lowered to 2.4 versus 2.7 times of last year, on the back of an improved performance and the delivered completion. Now we move and we see the progress of our advocacy action in the next slide. Supported regulatory frameworks are the main driver to attract investment for the energy transition. Therefore, we reinforced our advocacy action and over the past month we started to record notable achievements. In Italy, for example, the first and most relevant outcome was the renewal of the distribution concession. Also, on the renewable side, the new supporting measures have been introduced in the FRICS Decree. In Spain, we are working to ensure the regulatory framework will be supportive of investment into energy transition. On LATAM, discussions have been positive so far, and the renewal of the concession in Brazil is expected by the end of this year. Now I will dive into capital allocation on the next slide. Our capital allocation has been designed to maximize return profile while reducing risk and consequently improve the performance of the group. Investments were deployed in line with our strategy with networks accounting for more than 50%, 5-0, 14-1-4, higher percent, higher than previous year. As a consequence, operating KPIs improved. RAP reached more than 45 billion. Renewable production on total increased by 8% year-on-year, while the share of emission-free stood at 83%. Therefore, our customer side, renewable coverage on fixed sales reached 82% from 65% in 2023. Now we'll see the progress in M&A activities. As announced during the Capital Market Day, we'll leverage different models in order to create value and reach the level of desired returns. In the recent months, we catch two battlefield opportunities. The first one is it has been 600 megawatts of hydro assets in Spain, and the second one over one gig of renewable assets in Australia to our joint ventures in the region, and exploiting the stewardship business model in this case. These two deals prove we are moving to less risky technologies and countries, delivering on what announced. Now it's time to the second pillar of our strategy. Let's talk about our efficiency program in the next slide. So far, we reached around 800 million savings compared to 022, and we're more than halfway through the improved plan target of 1.5 billion. And I remember you, we updated it last November. Actually, this achievement is a clear evidence of our persistent focus on optimization of processes and activities, without compromising our operations, which continue to deliver a strong performance. Now it's time of financial and environmental sustainability. In all 24, our financial performance continues to be solid, and the net debt on ABDA reached 2.4 times what below the peers' average. This level of leverage gave us over $10 billion additional financial flexibility on top of the $43 billion investment announced in CMD, including the buyback, which I will comment in detail later on, to capture all of these, the future and profitable growth opportunities, and to maximize the value for our shareholders. on environmental sustainability, absolute emissions continue to decrease in line with all 30 goals. Finally, travel the remuneration on flight nine. The resiliency of our business model and the efforts of our advocacy actions, as well as the positive operating performance, allowed us to achieve solid economic and financial results. As I mentioned before, we'll propose to the next AGM a dividend per share of 47 cents for all 24, implying a payout of around 70%. And the new share-by-back program aimed at improving shareholder remuneration. A further option on top of the organic and inorganic opportunities and part of the 10 billion additional flexibility mentioned before. This option could be evaluated also at subsidiaries level. I leave the floor to Stefano now for the financial performance details.

Thank you, Flavio, and welcome to everybody. The pragmatic back-to-basic and financially disciplined approach we adopted in the last two years drove to a consistent positive delivery in the core in-cast KPIs and financial performance across all businesses. Emission-free generation is growing, with financial results boosted by a remote energy management already fully enforced in Italy. In our domestic market, the supply business normalized after the chance storm we fall upon in 2023, thanks to a mandatory broad review of our retail customers' offer portfolio. Last but not least, a pragmatic and factual advocacy supported a constructive regulatory framework that allows to increase investments and, in parallel, the value generated in the network business. As a result, 2024 ordinary EBITDA reached 22.8 billion, increasing more than 2 billion versus previous year on a like-for-like basis. This like-for-like comparison is not to give a different and positive perspective to the 2024 report in the BTDAE that was higher compared to the ordinary result, reaching 24.1 billion on the positive returns of the executed disposal plan, generating significant cash capital gains, but recurring long-term growth leverages on the organic performance of the core business. From a geographical perspective, this portfolio rationalization is visible, with EBITDA coming from Europe and US accounting for almost 80% of the total. Finally, in 2024, net debt on EBITDA landed at 2.4 times a sector benchmark, providing ample balance sheet flexibility moving forward. After this broad overview of the 2024 results, I will speak about focusing just on the main topics of the business, starting from the networks. As we commented in the presentation, this EBITDA reached almost 8 billion, halved by 8% year-on-year on a like-for-like basis, confirming the positive growth pathway observed along 2024. On top of the positive and consistent trend in Europe, it is worth mentioning that the Latam EBITDA stabilization was achieved in a tough macroeconomic and political environment where the positive contribution from investments, tariff indexation and energy volumes distributed to our customers has been offset by the local currencies devaluation offset in the period and this account for 0.2 billion euro. And now we move to the evolution of our integrated business and I am on slide 13 Integrated business EBITDA increased by 1.9 billion year-on-year net of perimeter, driven by the normalization of relevant business dynamics that restore a segment performance that is coherent with our asset portfolio mix in terms of value generation also looking forward. As a consequence, renewables recorded a strong performance across both regions, recovering around 2.7 euro billion versus last year. Flexible generation, I would say, are moving to normal. As a fact, minus 21 terawatt hour reduction in coal and gas was mostly driven by the end of mandatory requirements. Finally, Retailer BTDA reflected the mentioned downward price campaign in Italy. Starting from 2025, we expect a more linear evolution of the performance with prices dynamics fully embedded in Group's plan assumptions. I will now provide an update on our energy management and hedging strategy in the domestic market, meaning Italy. Slide 14 describes how the new integrated sourcing sales management model supports ample visibility and resiliency on future evolution of the earnings. Compared to the past, we move from an approach focused on the forefront financial edging of the industrial open position on generation and gas contracts to an end-to-end integrated and flexible approach focused on the value potential of our large and resilient residential and small-medium business customer base. Thanks for this new approach. Renewable generation is said to be naturally matched with retail sales and more resilient customer base, with financial pre-edge as a lever to add incremental value to optionality. This allows us to maintain a predictable fair profitability whilst guaranteeing to our customers a sustainable price despite a persistent volatility on power price scenario. As you can see from the chart, 2025 is Osmo fully edged and for 2026 we already covered 85% of the expected generation. The contracted price of these volumes are in line or above the capital market day market scenario. More in details. For 2025, we forecasted 114 euro megawatt hour, and we edged at 117 euro. While for 2026, the average price as of today of the edged volumes is 114 euro, compared with the scenario at 111. And now we move on slide 15. talking about the earnings evolution. Ordinary Group Debt Income came in at €7.1 billion above the guidance provided on the back of the positive results of our operation and additional contribution also from the assets disposed in 2024, mostly excluded from the guidance provided to the market. Financial expenses reduced by 100 million at profit and loss level, but this is worth highlighting that cash financial expenses declined by around 500 million as no cash effects impacted and other non-monetary items generated a relevant and volatile impact both on P&L and net debt on an accounting measure. While the reduction in charges on debt is mainly driven by the 4 billion reduction in gross debt, I would like to highlight also a higher contribution from associates, mainly due to the positive performance of Grovesche Elettranet, whose stakes will be deconsolidated by 2025 after the exercise of the coal option by EPH at the end of 2024. Finally, reported net income stood at 7 billion, almost in line with the ordinary net income and doubling versus the average results achieved in 2021-2023. Let's now move to the slide related to the FFO. In 2024, we confirmed the strong results achieved in 2023 in terms of cash EBITDA with an FFO once normalized for cash out not organically related to the 2024 operational performance standing at 14.6 euro billion, exceeding 25% of the group's net debt and reflecting a solid monetization of two-thirds of our EBITDA. As highlights, I want to mention, first of all, the Qatar arbitration that was mostly related to 2021-2022 operation was moved in 2023, but financially impacted 2024 working capital change. That wouldn't be neutral, excluding just these items. Another important highlight is the provision where we include 300 million non-cash items related to the 2021-2024 additional regional hydro fees in Italy, which, as you could remind from the Capital Market Day, we have already eventually included in the plan assumption. On this matter, we maintain our solid position that these amounts are not due before concession expiry meaning after 2029. Final remarkable points are the following. The tax payment was impacted by the 2023 tax balance paid in Q3 2024 due to the significant difference between 2022 taxable income versus 2023. Financial expenses, as said before, benefited from debt reduction as cash do not follow the accounting principle. Let's now move to the debt evolution of slide 17. Cash flow generated by the operation was dedicated to fund 11 billion of capex, including 1.1%. billion of grants already cashed in. Additionally, our partnership model contributed for 2 billion with cash inflows from the best project in Italy and solar projects in Spain. Finally, dividends paid stood at 5.4 billion euro. Thanks to the strong focus on cash generation and the completion of the 2022 disposal plan, we have been able to reduce net debt by more than 4 billion versus last year, reaching a remarkable balance sheet solidity with net debt on a BTDA ratio at around 2.4 times. Now, having already started the new fiscal year, before our CEO closing remarks, I share the year-on-year perimeter reconciliation. And this is the last time having completed, as I already said, the disposal plan set in 2022 on page 18. In order to compare organically Fourier results with the 2025 guidance shown at November Capital Market, we provide the rebased BTDA and that income for 2024, like for like BTDA 2024, is €22.4 billion, adjusted for Peru and Lombardy asset disposal. This year, as you may see, the differences are not the same as in the past, let's say that are minimal. Net income baseline is 6.6 euro billion, where on top of the Peru and Lombardy assets, we adjusted 20-24 net income for the contribution of Slovesk Elettrarnet that amounts 0.3 euro billion positive. On this last item, Slovesk, it's worth to remind that on that side, we recorded the repayment of more than 1 billion intercompany loans at the end of January. This will have a positive impact on rating agencies' adjusted net debt. As a result of the normalization I've mentioned, in 2025, we expect a 3% growth versus the 90% BTDA secured in the last planned scenario presented last November in the Capital Market Day. On top of this, I want to highlight that there is a clear potential upside to be considered on the back of the balance sheet flexibility we have achieved. But on this topic, I hand over to the CEO for his closing remarks.

Thank you, Stefano. The economic and financial results are clear evidence of our delivery abilities. The increased focus on advocacy actions across all countries provide full visibility on the implementation of our capital allocation strategy. The continued effort of improving groups' profitability allow us to confirm all 25 full-year guidance. Through our action, we have been able to restore growth financial solidity to capture future and more profitable growth opportunity and guarantee an attractive shareholders remuneration via current dividend policy and the new Shepard Act program. I take the opportunity to announce we'll move our CMD to the beginning of 2026. It will be more efficient and aligned with standard market practice. Finally, we'll continue to focus on growth, profitability, to lock in marginality and guarantee a safe harbor to our shareholders. Thank you for your attention and now let's now move to the Q&A.

Thanks to our CEO. Let's now open the Q&A session. We received a lot of questions for the call. We have summarized them by topics. Let's start with the most strategic question that will be answered by our CEO. The first one, distribution concession renewal. How will concession fee be calculated? Any indication of the potential amount?

Well, all the technicalities are still under discussion and the amount of the fee is subject to the final decision of the government and the authorities. In terms of amount, it will not be negligible, in my opinion, and will be included for sure, and I won't point out this element in our wrap.

Thank you. Is there any news on the renewal of the hydro concession in Italy?

First of all, let me say our concessions are set to expire in 2019. So, we expect the process will take a longer time to start and it will involve both regional and national authorities. In any case, this is one of our priorities and our intention is to implement a focus in this sense But we aren't in a hurry, and it is not the right time to speed up the process. Let me say, trust in us.

Final question on concession. When do you expect the situation in South America will be solved?

You know, we have already in the presentation said about our expectation in South America, especially in Brazil, even because the plan for improved network resilience is well on track. Our expectation, the renewal is by the end of the year. Moreover, While we expect the update to go to a framework in Argentina, where we are in the discussion even there, we are having a positive discussion in all the countries in South America.

Thank you. The delivery's completion resulted in higher balance sheet flexibility, more appetite for M&A,

I repeat it again. On M&A, we only look at the accretive deal. And when we talk about accretive and without synergy or other things at the beginning, you know, it's important to understand this. And we intend to buy assets, especially in developed countries with a stable environment and profitable returns. I said many times, I want to point out again, we are not interested in the large M&A deals. Now, we have room in our balance sheet, but we don't want to buy at any price until we look at the right opportunity. Otherwise, we prefer to buy our shares also at the subsidiaries level, as I said in the presentation. so um shareholder remuneration upside you increase dps to 0.47 euro per share it's trying to think about this is the new floor no as i said before the current dividend policy is clear and foresees 0.46 euro as a floor and we have already changed the floor we can change every year with the possibility for DPS to increase up to the 70% payout. Indeed, this year it has been $0.57. Obviously, the share-by-back program is a further option to improve shareholder remuneration and DPS growth naturally. In this case, I think we cover all the expectations of our shareholders, including me.

Right. Recently, there have been news around government measures to reduce the price of electricity for final consumers. What's your view?

But today there is a strong discussion in Italy. We have a constant dialogue with authorities and all the parties involved in this discussion. Measures like the price cap applied in the past in Spain have demonstrated to be not effective and it has been abandoned in this country. We have already the real proof. Proof is not concrete, concrete ways. One of the most effective instead measures has been already included by the government in the FRIX decree. where there is a possibility to sell electricity for 20 years with PPAs at a fixed price, this could be a benefit both for customers and operators. And this reduces, naturally, the price of energy. I suggest, let me say also, not following only the energy price evolution for define the result of our company. Because for integrated players, the profitability is not strictly linked to the price of electricity. And I'll give you some example. The first one is the good performance in all 24, driven by contribution of non-domestic countries, like Iberia, for example. which had a lower power price, but higher integrated margins compared to Italy. The second example is Italy. In 2022, results were power prices were at their highest, but the economic performance was the worst ever recorded. This is the reality. This is not only general discussion.

Last one for the CEO. What's the impact on your development strategy in the U.S. after the executive orders from Trump administration?

Now there are no impacts expected. In the U.S., we don't target to add new capacity in the short term from drink. This is for sure. And all the production, the existing production in the country is made by long-term to do with a very rated company, big corporate, American big company. And our potential new investment for the company will be evaluated only if the conditions are supportive. Furthermore, in this area, we believe brand-free renewable assets are more convenient and potentially more profitable than grain-free ones. Thank you.

Thanks. Let's move to CFO questions. Stefano. Could you please share with us a bit of technicalities on distribution, concession, renewal, any upside on CAPEX versus the plan presented in November?

But as of now, it's too early to go in depth on all the moving parts as the process is at an early stage and most of the technicalities will be discussed in the next months. Technically speaking, let's say that there are three main items. The first is the size of the extraordinary investment plan and its definition. Second, the amount of the lump sum payment by the current concessionary and recognized as REB. And third, the incentives in terms of regulatory remuneration. For the extraordinary plan and the premium for the additional investment, we don't expect any significant change, considering that Enel Distribuzione has anticipated this approach and the existing plan about resiliency, for example, represents a benchmark. So we have already a regulation for this. Worth to remind that we already increased from 12 billion to 16 billion the cap is allocated to Italian grids over the prime period. And the additional investment, as I said, are already included in some projects for the networks upgrade. Moving to the one-off grant payment, it is... already established in the budget law but it will be defined according to a wider framework taking into account also the sustainability of the network charges in the build on the energy system by the way we remind you that the capital marketing investment plan already includes a portion of this item that was based on our expectation a portion of this thank you stefano

geothermal concession. They have been renewed on 3 billion capex to be spent on those assets. Are investments additional compared to plan? Yeah, no, yes, no.

The 3 billion capex has spread over, let's say, decades, decades. So the next 2025, 2027, plan already included these investments because the discussion with the Tuscany region was already in place. The GAPES plan provides also for additional capacity, but this is also in the medium and long term. So don't expect like the other topic, let me say, a spike in the GAPES. This is more something that is in continuity compared to the rest. Thank you.

Guidance. So ABDA and net income guidance for 2025 have been confirmed despite strong 2024 results. Could you please detail the building block for 2025 guidance for both ABDA and net income?

Yes, in the presentation we showed that there will be a perimeter effect, but this is unfortunately something that has happened in the last two years. So, starting from full year 2024 baseline of 22.4, the big block, let's say in this way, we see today are the following. For Greece, we see around 800 million EBITDA increase, where Italy is expected to progress at the 10% growth rate that we have already observed also in the 2024 results. And ESA invariant is mostly in line with the 2024 trend. That means, let me say, a very small growth expected still this year because, as you know, the final regulation is under definition. So the CAPEX plan, as we have already shared, will be revised according to the content of the new regulatory framework. Lastly, LATAM is coming back to growth in our projection thanks to a slightly better microenvironment and supportive regulatory updates on not only tariff indexation but the whole, let me say again, regulatory framework that will allow a first upward in capital expenditures. In the integrated margin, we expect a further consolidation of the renewable generation contribution to EBITDA that will leverage on additional capacity that is now focused on regulated market and BES, meaning storage. This positive trend will be mostly offset by the trading position and energy market normalization and the thermal generation that is progressively flat and is more and more dedicated to unsealed generation and regulated revenues. Finally, retail in India will be mostly in line with 2024 second-half performance, where economics already reflected the mentioned effort on customer portfolio normalization. Lastly, again in the supply market in Spain, we are observing a slight positive room for additional profitability. Below the BTDA, we expect a more linear evolution.

Thank you, Stefano. Hydro. 2024 has been strong in terms of hydro outputs. What's your expectation for 2025? What's the current level of reservoir in Italy?

In 2024, the hydro output has been strong across all regions, excluding, probably as you see in the bulletin, a tough second half 2024 in Colombia. For 2025, what we expect in Europe is like the drier year versus 2024, but in line with the historical average. While in LATAM, we are forecasting a normalized trend. What does it mean? That is, a higher production in Colombia, where the risk has been normalized across last month, and a slightly lower production in Chile. In any case, all these trends at the moment are in line with the planned assumption, because it's something that we have already discussed. assume that projection for the three years in the industrial plan.

Thank you. Let's move to retail. Churn was high double digit in 2024. How is it progressing after the implementation of the new commercial strategy?

But again, the situation is normalised, but I understand there is a very strong focus on this, but we have already told several times that the situation has already normalized because, at the end of the day, we have completely reshaped our commercial offering to the current market price curve, moving to a more sustainable price for the final customers compared to the 2022 and first half of 2023 offerings. The share, consequently, is naturally, let's say, reducing, But the retail market is in a new normal after the 2022-2023 spikes, with a higher competition, but on the other hand, also a wider market size after the full liberalization. So net-net, this is not... This is not a negative scenario because the market, the pie, has included the liberalization, so some additional competition was expected.

Thank you, Stefano. Retail margins. Looking at your number, it seems that the unitary margin for Italy is much higher than Spain. What's driving the higher marginality? It's sustainable in the long term.

But here we have to be very careful because, you know, there is also some political topics on this. But, again, you have to divide the margin between wholesale and retail ones. Average commercial margin, both Italy and Spain, are similar. The main difference between the two countries, even by the underlying wholesale dynamics, that are different there. We know exactly why this happened, because of the very heavy weight of gas generation in Italy when compared to Spain. The nuclear absence in Italy when compared to Spain is something that we perfectly know. The integrated strategy, by the way, allows us to ensure margin sustainability in the long term in this way, both in Spain and in Italy, meaning where we have a very strong and solid integrated position.

Thank you. Last one from the web. Working capital was 500 million negative in 2024. What's the expectation for this year? Anyone off to be considered? any impact expected from the elimination of system charges for non-residential customers?

Let's avoid any hypothesis on this last point because system charges that have been eliminated are just a small portion. Probably the market and the investors remember what happened some years ago. nothing comparable. Generally, working capital dynamics are impacted by several organic and non-organic items, including also, as you see, for example, the tax payment in Italy, the Qatar arbitration, numerous one-offs with sometimes also non-cash impact. As for 2024, you normally achieve a neutral organic working capital change because, as I said before, if you exclude the Qatar payment in early January 2024, the working capital was strongly negative along the quarters. And as I told in September and in July, don't worry because this will move to zero, let's say, to a more balanced result. This happened. At the same time, being aware of the aforementioned dynamics, we always include in plan assumption above exactly to absorb potential one-off that happens. This does not mean that we have potential one-offs in the plan, but we have, let's say, the coverage in terms of working capital for some potential one-off. Thank you.

Thanks to our CEO and CFO. There are no more questions. So Q&A session is over. We cover all the main topic. If something is missed, the IR team is available for follow-up after the call. Thanks, everybody.