Endesa, S.A. (ELE) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, and welcome to the first half 2022 results presentation, which will be hosted, as always, by our CEO, Jose Bogas; and the CFO, Luca Passa. Following the presentation, we will have the usual Q&A session open to those connected on the call and on the web. Thank you. And now, let me hand over to Jose Bogas.

Thank you, Mar, and good evening, everybody. Let's start with the highlights of the period. Today's result are steel marked by the persistent instability in the macro context and gas price volatility caused by geopolitical tensions worldwide. Additionally, inflation pressures have intensified, while the electricity prices are reaching new record highs in European Union countries and are expected to remain high in 2022. In this context, the European Union has elaborated a common framework with a series of acceptable intervention methods that member state can consider to curb energy costs and to mitigate the impact on most vulnerable customers. The European Commission has clearly advocated to accelerate investment, both in renewable energy and grid and interconnection reforms as a crucial factor to mitigate the risks of future energy crisis. Our business development strategy is fully aligned and the investment made during the period are aimed at these 2 fundamental energy transition topics. Against this backdrop, our like-for-like EBITDA increased by 4%, excluding the sale of Endesa X Way to Enel, which generated a positive impact of EUR 238 million. Net ordinary income in the same terms decreased by 12%. On the next slide, we will look more deeply into the dynamic of the market context. First half figures show a certain leveling off in demand. As a result, accumulated mainland power demand in the period decreased by 1.8% compared to the previous year. The war in Ukraine added to the growing risks of extra inflation is affecting economic activity, mainly industrial customer. Gross demand in Endesa's mainland distribution area decreased by 0.1% or 0.5% when adjusted by calendar and temperature effects. On the residential segment, the consumption fell by 4.6% in cumulative terms versus last year, mainly explained by lower remote working and cost-saving measures in the context of record energy prices. Likewise, the industrial segment, despite a slight recovery, is still affected by the economic slowdown, mainly in the metallurgical and paper sector and records a 3.5 drop. On the other hand, the service sector demand grew by more than 11%, benefiting from a more relaxed, both COVID restriction and the summer season. When it comes to pool prices, persistent market imbalance and uncertainties over gas stock for the next winter have multiplied pool prices by 3.5x, reaching an average of EUR 206 per megawatt hour. These conditioning factors can be extrapolated to most European countries, with the generation mixes and procurement source distinction recorded similar electricity price level. In July, the Russian gas supply flow reduction has resulted in European price rising again. While in Spain, the gas cap enforced since June, the 15, has contained pool prices at around 50% lower. On Slide #5, we can see a quick summary of the latest regulatory development aimed at containing electricity prices and mitigated social impacts. The last set of measures announced in May by the European Commission is fully aligned to several toolboxes of available measures unveiled since the start of the Ukrainian crisis and mark an important step forward for the sector, mainly for renewables and network, entailing a significant increase in the investment pace for the rest of the decade. Concerning the regulatory development in Spain, the approval of Royal Decree Law 10/2022, established a gas production cost adjustable mechanism, which is internalized by the CCGTs in their [ pool bits ], and as we have already mentioned, it has brought a noticeable moderation of Spanish electricity prices in July. Additionally, it includes a mandate to introduce a price reference for regulated tariff based on a basket of products, including both daily and intraday and forward market price references to be applied in 2023. In addition, Royal Decree Law 11/2022 extended some of the energy measures already developed in the Royal Decree 6, including the gas clawback, which will be enforced until year's end and where -- and what the electricity cap reference is maintained at EUR 67 per megawatt hour for hydro, nuclear and renewable output. A new proposal of order to conduct regulated auctions for the fuel supply in the non-mainland territories was disclosed. We have submitted a series of allegations as we believe that this ministerial order must ensure that the outcome of these auctions truly reflect a full cost pass-through in the current commodity price scenario. Lastly, Spanish Prime Minister announced the establishment of a new tax to clawback extraordinary profit from all energy companies. While the details are still unknown, it should be stressed that we have sold all our hydro, nuclear and renewable energy below the EUR 67 per megawatt hour threshold that the government has considered reasonable and therefore, our results do not show any windfall or extraordinary profit. Now, we turn to the evolution of the generation operating parameters on Slide #6. Over the last 12 months, we have continued to make progress in shifting the generation mix, bringing more than 700 megawatts of renewables into operation. Mainland renewable capacity is 9% higher than in the first half 2021, while CO2-free sources now constitute 70% of installed capacity on the mainland. Over the first 6 months of 2022, Endesa connected 122 megawatts of new wind and solar capacity to the grid. Total mainland output reached 25.2 terawatt hour, that is 11% higher than previous year. First half maintains lower hydro productions in the first quarter, one of the driest quarters in recent years. In that context, the increase in wind and solar production due to the entry of new capacity, together with the recovery of thermal production, mainly CCGTs and nuclear more than offset the drop of hydro production. Thanks to the continued effort of decarbonization, emission-free production is up by 6 percentage points versus 2021, reaching 78% and positioning us well on track to reach our decarbonization target. Moving to Slide #7. As of June, the renewable pipeline reached 77 gigawatt, supporting our growth ambitions to accelerate renewable deployment. The mature pipeline now is worth around 10 gigawatts, out of which 9 gigawatt have TSO-awarded connection points. 2022 renewable target are thus secured, as we have around 90% either in execution or in operation, while in 2023, this figure amounts to around 70%. With respect to the 4 gigawatt committed additions for 2022 to '24, we stand at around 50%, addressed with 2 gigawatts currently in execution or already built, with solar technology representing the majority of this project. Based on our policy of hybridizing storage with new renewable capacity, we aim to gradually incorporate batteries into newly installed renewable capacity once the regulation guarantees the competitiveness of these facilities. Let's now take a closer look at our customer base on Slide #8. Free power sales increased by 1% versus the previous year, while regulated sales dropped by 20%. Total sales decreased by around 2% to 42.9 terawatt hour. The decrease in B2B sales is clearly marked by the economic slowdown mainly due to the Telstra contract termination and the cease of production at Alcoa. Our very focused commercial strategy and the introduction of attractive offer in the current price context have resulted in a remarkable increase during the last 12 months in our free market customer base by adding over 1 million new customers, of which 700,000 were in the last 6 months. Looking at Endesa X, e-Home contract performed extremely well with a 25% increase. Charging points increased by 39%, up to 11,100 devices, and e-bus charging points reached 120 units, tripling last year's figure. On Slide #9, electricity sold on the Iberian free market increased by 2%. The unitary free power margin reached EUR 32 per megawatt hour, 28% above previous year, despite the complex and challenging market and price scenario, resulting from unitary revenue that rose to EUR 141 million associated to an increase of index sales and higher pool price context and increasing variable costs due to higher energy purchase costs and higher fuel costs. Free Power margin reached EUR 1,178 million, well above previous year. Analyzing its breakdown, the generation margin increased mainly due to the new price reference and higher thermal output, partially offset by lower renewable contribution and other minor effects. The supply margin was likewise affected by the net increase in sourcing costs and higher ancillary and ship costs, not fully passed on to our customers, positive effect on our position. Regarding forward sales, 100% of our 2022 price-driven output and 88% for 2023 have already been hedged at the baseload price of EUR 65 per megawatt hour set in the bilateral contract between our generation and supply subsidiaries. Moving to operative achievement on network. I am now on Slide #10. Distributed energy stood at 66 terawatt hour, up by 3%. Our efforts to improve quality and efficiency resulted in a drop in losses that improved 0.1 percentage points, while time of interruption improved by around 8%. I now hand over to Luca, who will detail the financial results.

Thank you, Pepe, and good evening to everybody. On the financial highlights, I'm on Slide #12. EBITDA like-for-like increased by 4%, excluding the sale of Endesa X Way to Enel, which has generated a positive impact of EUR 238 million. Net ordinary income was down by 12% year-on-year, reaching EUR 734 million, excluding the net effect of the Endesa X Way transaction. Reported funds from operation figure, which amounted to minus EUR 169 million was strongly affected by the increase in the regulatory working capital during the period by EUR 733 million. Once strip-out from this impact, both years, FFO would have reached EUR 564 million, 32% more than adjusted FFO in the first half of 2021. Moving to the detailed analysis of the period on Slide 13. We invested EUR 934 million in the period, almost 26% more than in the previous year, mostly allocated to the 2 main strategic pillars; networks and renewables. EBITDA like-for-like reached EUR 1,950 million, plus 4% versus first half 2021. Generation and supply showed an improvement of plus 17%. Distribution EBITDA declined by 8% to EUR 874 million. Going into more detail. Customer business was impacted by the net increase of the commercial sourcing cost, mainly as a consequence of the bilateral contract with the generation business still not fully passed on to customers. Including the capital gain obtained from Endesa X Way transaction, reported EBITDA increased by 17%. Moving into a deeper analysis. We are now on Slide 14 on the generation and supply businesses. EBITDA like-for-like reached EUR 1,076 million, plus 17% increase versus last year, including the following effects. Net effect of non-recurrent for minus EUR 84 million, higher free power margin for EUR 278 million and in particular, the generation margin increased by EUR 492 million, mainly due to the new price reference for EUR 303 million and higher thermal output for EUR 121 million, partially offset by lower renewable contribution for about EUR 50 million negative, and other minor effects. The supply margin decreased by EUR 295 million, likewise affected by the net increase in the sourcing cost and higher ancillary and ship cost, not fully passed on to our customer and a positive effect on the share position for EUR 81 million. We had also a positive evolution for Endesa X during the period, and then we have EUR 30 million negative of other effects, which includes gas and mainland. In particular, the gas business decreased by minus EUR 71 million as a result of the volatility of the market context, partially offset by an improvement in the wholesale activity compared to the previous year. Non-mainland generation margin increased by EUR 40 million, mainly explained by full cost compensation accrued in accordance to new recognized fuel cost references, higher revenues associated to the increase of the activity. Fixed cost increased by EUR 29 million, mainly due to the inflationary context and higher activity. On Slide 15, distribution EBITDA dropped by 8% to EUR 874 million, mainly affected by lower gross margin impacted by previous year resettlements, lower regulatory revenue mainly due to loss reduction incentive and others. Fixed cost increased as a consequence of repairs and maintenance expenditure in the first half of 2022. Few details on the fixed cost evolution. And I'm now on Slide 16. Total fixed cost reached EUR 1,025 million, 6% higher than last year. The increase of EUR 58 million, explained mainly by the negative inflation effect and perimeter and growth impact on costs, partially compensated by efficiency and others. In more detail, main impacts in fixed costs were the salaries increased due to the inflationary context and higher repairs and maintenance cost of distribution facility as previously commented. The price increase clearly affected the unitary cost across the different business lines. In the case of renewables, it was also impacted by the lower hydro output seen in the period. In distribution, unitary cost increased to EUR 45 end user, mostly explained by inflation and higher activity. In supply cost to serve, increase was lower than CPI rate during the period. The decrease in unitary cost in real terms is basically due to the major efforts made to optimize and digitalize the business line. In particular, we recorded a 24% growth in the number of digital contracts to 7.3 million, 22% increase in the number of e-billing contracts, reaching 6.7 million e-bills. On P&L evolution from EBITDA to net ordinary income and I'm now on Slide 17. Ordinary net income came at EUR 734 million, down by 12% year-on-year. And in particular, we had higher reported EBITDA for 17%, which includes EUR 238 million from the Endesa X Way transaction. D&A were higher than last year by 11%, mainly as a consequence of amortization increased by EUR 51 million due to investment effort, mainly renewables as well as customer acquisition costs activated, higher provisioning as a result of expected deterioration in the payment behavior for about EUR 37 million. Financial charges and others increased mainly as a result of the net effect of late interest payments for minus EUR 65 million, and the net exchange difference due to the evolution of the euro-US dollar exchange rate during the first half, partially offset by the update of the workforce reduction plans, provisions and other minor effects. Rising taxes, mainly due to the higher results with the tax rate similar to the previous year. And finally, minority increased by EUR 31 million in first half, most due to the better results in 12 wind generation subsidiary with minorities participation, out of which 2 plants have exited the regulatory schemes after having fully recovered their investments. Including the non-recurring item booked in the first half, reported net income increased by 10%. Moving to the cash flow. And I'm now on Slide 18. Provision paid amounts to EUR 219 million, including the cash outflow from the provision of restructuring, digitalization and the commissioning of previous years. Funds from operation reached minus EUR 169 million, impacted by EUR 1.8 billion of degradation of working capital and others. This item was strongly affected by the EUR 733 million of regulatory working capital increase during first half 2022, most of it in the non-mainland business due to the regulatory settlements at historical full cost far below the current market. Excluding this impact, adjusted FFO would have reached EUR 564 million. Working capital evolution once excluded rights from regulatory assessments would have amounted to minus EUR 1.1 billion, out of which about minus EUR 0.5 billion are expected to be temporary and corresponds to minus EUR 0.6 billion, associated to the sudden change of the energy market environment, which unbalanced the equilibrium between vendor payments and client bill collections. Minus EUR 0.2 billion corresponded to the Social Bonus sentence pending to be cashed in and plus EUR 0.2 billion net system charges impacted by the government measures in 2021 and 2022. We expect the above effects impacting working capital to normalize over the year, assuming stabilization normalization of the energy context and/or further regulatory measures. I will now move to the debt evolution on Slide 19. Net debt amounts to EUR 10.3 billion, EUR 1.5 billion higher than full year 2021. The increase is clearly affected by EUR 169 million of the degradation of FFO, as commented before, about EUR 900 million of cash-based CapEx and about EUR 500 million of interim dividend corresponding to 2021 results. Regulatory working capital at the end of first half 2022 was EUR 1,528 million, EUR 733 million higher than full-year 2021, mainly due to the higher pending compensation in non-mainland. This EUR 10.3 billion net debt figures deduct the financial guarantees required for commodity management contracts, which has been materially increasing in 2022 due to the volatile situation. In that sense, gross debt has notably increased as a result of the aforementioned collaterals and is expected to normalize along the year as commodity volatility lessens. With no further regulatory intervention and stabilization of the market scenario, driving the absorption of the negative temporary impact in FFO, we expect net debt to be just over EUR 10 billion at year-end, driven by the increase in a regulatory working capital expectation at year-end, which is expected not to improve in the second half. Our leverage measures as net debt-to-EBITDA ratio was 2.2x. Average cost of debt decreased to 1.1%, one of the most competitive financing cost of the European utilities. Despite the context of increasing rates, we expect the cost of debt to remain at attractive levels in the region of 1.5% by year-end. We enjoy comfortable access in the markets, having liquidity for up to EUR 5,987 million, which allow us to meet debt repayments in the coming 27 months. When it comes to the details of sustainable finance on Slide 20, during the first half of 2022, we closed sustainably-linked transactions for an aggregate amount of EUR 12.2 billion in a complex context where certain sustainability principles were under review. The most remarkable transaction is to increase the limit of our SDG7 euro commercial paper program from EUR 4 billion to EUR 5 billion. As a result, sustainable finance now represents 62% of our gross debt, gradually approaching our 80% target in 2024. Now let me hand over to Pepe for his final conclusion.

Thank you, Luca. To close this presentation, on Slide #21, I would like to share some final remarks on the main achievements of the period. The resiliency of our long-proven integrated business model has allowed us to cope very successfully in one of the most complex energy scenarios and continued regulatory volatility. Our customer strategy allowed us to attract new free market customers over EUR 1 million more in just one year, benefiting from energy and a wide range of valuable services at competitive prices. More than 90% of our additional renewable capacity targeted for this year is already in execution or in operation, well on track to reach the milestone set in our last business plan. And finally, our solid track record of delivering in complex years make us confident to navigate the risks and opportunities for the remainder of the year and achieve the EUR 4.1 billion EBITDA and EUR 1.8 billion for net ordinary income guidance committed. And ladies and gentlemen, this concludes our first half 2022 result presentation. Thank you very much for your attention. And we are ready to take some questions.

Okay. Thank you, Pepe. Thank you, Luca. We are now open to answer all the questions you may have.

[Operator Instructions] Mrs. Mar Martinez, Head of Investor Relations, Please go ahead.

Okay. The first question comes from Manuel Palomo from Exane BNP Paribas.

I will stick to 3. So first one is an update on the bad debt situation and bad debt evolution. What is your expectation in terms of percentages versus sales and also total amount for the coming quarters in light of increasing energy bills? That would be the first one. Second one is about how you are managing in order to pass-through on to final customers the rising energy prices. So what percentage of total volumes have seen already a tariff update in the last, let's say, 12 months? That would be very helpful. Just to have a view on and a sense on what is left, what is the potential for increase in the coming quarters? And, finally, I mean, this is something I'm curious about. It's whether you could please remind us the criteria that the group follows in order to consider some divestments as recurring as in the case of Enel Open Fiber last year, while others are non-recurring in the case of Endesa X Way this quarter?

Okay. Thank you, Manuel. I will try to answer your second question, and then Luca will answer the first and the last one, and perhaps will comment also on the second one. With regard to the rising energy prices and if we translate or not, let me say that we are not transferring the electricity price increase to our customers. Our price-driven production is, as I have said, 100% hedged for this year and 88% for the year -- for the next year, the 2023 at prices of EUR 65 per megawatt hour with our fixed price contract portfolio. During the second half of this year, we expect to complete the review of a cluster of a contract whose conditions have been kept unchanged, but we will not pass on unreasonable prices. Therefore, in the second half, we are forecasting a recovery of the unitary supply margin. And we do not expect any negative regulatory impact this year. Luca?

Yes. When it comes to bad debt, as I mentioned, we have already recorded in the first half EUR 37 million of [ EBITDA ] on this better duration [indiscernible] behavior for basically this period, but this is obviously a forecasting also for the rest of the year. So, we are not expecting, let me say, further deterioration. In terms of percentage of provisioning towards sales, we keep maintaining the same percentage. However, as you can imagine, with this high price scenario, the billing has increased heavily in terms of absolute volumes. But between now and year-end, we do not expect, let's say, further deterioration as the one already mentioned. As far as the third question, basically, we adjust in our net ordinary income results of capital gains about EUR 10 million. Therefore, the Endesa X Way transaction constantly throughout the year. Some has already been executed in the first part of the year, which will bring increasing supply margin for the rest of the year. As you've seen, we have supply margins in the first part of the year, in the first semester of EUR 1.6 megawatt hour. We expect to end the full year on the region of just below EUR 8 megawatt per hour supply margins, which implies the second half supply margins just above EUR 13 megawatt hour.

The next question comes from Alberto Gandolfi from Goldman Sachs.

I have 3 on my side as well. The first one is still on the guidance, not much on EBITDA as to the bottom line. Essentially, you need almost EUR 1.1 billion in the second half. So maybe can you give us a bit more granularity? I mean the integrated margin is very helpful. May I ask the integrated margin expands either because you can put those tariff increase or the procurements are going down. But in this case, I suspect it's not procurement. So what tariff increase do you need to implement in the second half to get to the guidance? The second question is, we have seen a socialization of a potential shortfall of gas in Europe, agreed on a voluntary basis, [indiscernible]. If I'm not mistaken, that would imply a 7% reduction for winter for Spain. May I ask you if you have any visibility on how this may happen because being voluntary, would this -- I mean, would there be like a reverse option where if you are interrupted, you get paid as an industrial customer? Is it possible you're losing revenues in winter. So can it be a headwind for you? Could you be mandated to run your combined cycles less? And can a reduction in gas perhaps impact electricity as well because then, again, we need CCGT to produce power gas to produce electricity as well? So can you tell us how this could impact you? And the last question. Look, I'm sorry, it was a long day. So maybe I'm a bit brain-dead. But can you repeat what you said about, if you don't mind, the EUR 10.3 billion definition of net debt when it comes to collateral? So what are you not including in the net debt, if you don't mind me asking?

Okay, Alberto, I will try to answer the second question, and then Luca will give you a clear guidance, just to get the guidance on the third question. Talking about the shortfall of gas, the rigs or the shortfall of gas, well, in my opinion, well, it is really a rig, but Spain doesn't depend on the Russian gas, is the first thing. Less than 10% of the Spanish gas demand comes from Russia and almost can be, in my opinion, easily replaced. The gas state in Spain, this 7% to 8%, well, it's a measure of solidarity to the other member states. But what I say -- or what I think is that we can -- with this measure, we can transfer this gas to other European countries due to the lack of infrastructure, either pipelines or regasification plants. In any case, what we are doing and what -- as far as I have understood, we tried to do at the level of Spain and the Government of Spain is just to export more gas to France. Today, we are -- these days, we are exporting more or less 11% of all the gas that comes into the Iberian hub, and it is possible almost to triple this quantity. So, we think that this should be our target, just to do that. But trying to answer your question, well, we are not going to be as Endesa affected by any interruption. And we don't expect any negative impact in our P&L just because these possible shortfall of gas coming from Russia and affecting all the members state.

Thanks, Pepe. And on the guidance question, Alberto, we confirm our EBITDA guidance of EUR 4.1 million for the full year, not considering the positive non-recurring items already booked in first half, which are the EUR 152 million for Social Bonus, as well as the capital gain on this X Way transaction, which means that we have a better evolution of the business in the second half. Now let me try to comment on this better evolution so that you have the number. This means that we are expecting basically an EBITDA increase versus first half of about EUR 500 million in the second half, which is supported by a higher gross margin for EUR 350 million and a reduction of cost for about EUR 120 million in the second part of the year. At EBITDA levels, we expect networks to improve around EUR 150 million, thanks to normalized condition, and I would say the absence of negative previous years settlements, which affected the first half. While the generation and supply EBITDA would increase by about EUR 300 million, mainly from the expected improvement in the Iberian free power margin, which is resulting from a rise in the underlying price, also driven by the repricing activity I commented before in supply. We estimate unitary margin for the second half to reach above EUR 40 megawatt hour, which is very similar as well to the performance we had in the second half of last year and supply margin, as I commented before, above EUR 13 megawatt hour. Now from EBITDA to net ordinary income, we expect the D&A to basically be EUR 80 million lower vis-a-vis first half in the second part of the year and to lend to a D&A guidance for the full year of EUR 1.7 million. And this basically implies an improvement in net income in the second half of about EUR 400 million. So, that's how we basically get to our guidance, both EBITDA, net of non-recurring as well as net ordinary income. And then on the third question, I commented that we have basically an increase in gross debt, vis-a-vis, net debt, which is substantial. We are reporting EUR 10.3 million of net debt and about EUR 14 million of gross debt. The increase is driven by basically the collateral behind our derivative hedging with exchanges, which are basically public markets. And that is accounted in the differential between net debt and gross debt. The only, I would say, adding items in the 2 metrics is about EUR 200 million of cash available.

The next question comes from Jorge Alonso from Societe Generale.

I have a couple of questions, please. The first one was related to the improvement in the generation and supply that you were mentioning for the second half. The question is, can we assume that in the second half, the company will be able to reach the level of profitability in order not to trigger the clawback. So that, in essence, the level of profitability in the contracts, the pricing level can be maintained for 2023. So the second half improvement can be maintained in 2023? Or there is still room for a further repricing in 2023 at the levels that you are thinking in the second half? So if there are still volumes that will be positively impacted in 2023, thanks to this repricing that you are mentioning for the second half. And the other question is regarding the distribution grid. We have seen some weakness in the first half. You are mentioning that you expect a recovery in the second part of the year. Can you explain a little bit what I mean -- what the weakness was related to and if this can really be reverted? And if that could you make to reconsider to accelerate or not the investments in the distribution grid and shift that on to other areas like renewables, for example?

Okay, Jorge. I will try to give you some color and then Luca will go deeper in these 2 questions. First of all, the improvement in generation and supply are mainly -- we are not going to trigger the clawback of gas. First of all, let me say, as Luca said, the supply margin, first of all, our own inframarginal production that is hydro, nuclear and renewables, we are selling this electricity at the price of EUR 65 per megawatt hour. That is the first thing. The second thing is that just because I would like to say that given the high sourcing cost of the first half of the year to mitigate part of the supply price increase to our customer, we have absorbed in our margin -- supply and margin, part of this increase. And that is the reason why Luca has said that with these higher sourcing costs, we have not passed all to customers these prices. Having said that, it is not sustainable, let's say, that just to maintain this very low level of margin in our supply business. That is the reason why -- what we have said is that this first half and in the rest of the year, we are reviewing the prices, the lowest -- the lower -- the lowest prices that we have with our customer trying to renew this contract and to increase our margins somewhat. In any case, Luca has said that the final supply margin will be lower than EUR 8 per megawatt hour, which is still lower than what it is reasonable. That is the reason why we don't expect any negative impact with the clawback. Yes, in the next year, we will see -- I mean, in the year 2023, we will see what happens or what will happen. We will -- we should take into account the evolution of the cost of the sourcing. And we have many levers just to manage the situation in the benefit of our customers and in our own benefit. But that is the reason why we are improving or increasing these barriers. And now, Luca, do you want to add anything?

Sure. On the second question on distribution grids, I commented the expectation for the second half. Basically, we are guiding to an EBITDA of EUR 1.9 million for the full year, which is just EUR 100 million lower than what it was expected, mainly on the first half evolution that I have commented already. Now what do we expect in the second half is basically a recovery, especially in other revenues line in distribution, which is mainly coming from clients contribution. So that should allow us basically between the regulatory margin and the other revenue line to reach the guidance that I was commenting before. And on the first topic, I just confirm what Pepe said, the pricing will not trigger for us a clawback for this year.

And we have now Javier Garrido from JPMorgan.

Actually, there is only one clarification left. When you have talked about the guidance for 2022, you mentioned that you are excluding the capital gain on Endesa Way. And I understood you are excluding also the Social Bonus recovery for you to get to EUR 4.1 billion. But on the other hand, if I understand correctly, the numbers that Luca mentioned, if you are looking for a EUR 400 million increase in net income in the second half versus the first half that would make EUR 1.1 billion. And therefore, in order to get to the EUR 1.8 billion ordinary net income target, you are including in this ordinary net income target, the recovery of the Social Bonus. I just wanted to clarify if my understanding is correct that the recovery of the Social Bonus is not needed to get to the EUR 4.1 billion EBITDA target. That is needed to get to the EUR 1.8 billion ordinary net income target?

Thanks, Javier, for the question, which I think, clarifies for everybody. Basically, you are right, i.e., the EBITDA guidance is net of social bonus and net of the capital gain on this X Way. Net ordinary income below for how it is defined includes basically the Social Bonus. Now this Social Bonus below basically EBITDA for us is enough in order to cover the increase in D&A that we are expecting for the full year, as well as the evolution of minorities that I have commented for the first half that we are expecting basically to drop for the second part of the year. So that's how basically we are reaching the EUR 400 million in the second part of the year at net income level.

Okay. Thank you. We are done with the questions from the call. And I have just one question from the web. That is -- it comes from Jorge Guimarães from JB Capital, and is in relation to the announced tax on extraordinary profits. And what would be the potential impact of an Italian style tax?

Well, Jorge, first of all, we don't know the details of this proposal. And first of all, to make a proper assessment, we must wait to know the scope, to know the mechanism, to know the tax. And let me say that in our case, not only there are no extraordinary profit, but also the current crisis is reducing the result of all the electricity companies. As we have said, we have sold our hydro, nuclear and renewable energy at a price of 65 or below 67, established like reasonable by the government. We assume that the tax would not apply to earnings generated by regulated business. On the other hand, the European Commission stated that the new tax should not be excessive, should not jeopardize investment in renewable or restore the CO2 market. And with regard to the Italian one, we really think that it's absolutely different and we don't know how this methodology could affect us. In any case, Luca, could you add anything?

Just adding that, for us, it's basically impossible to give any estimates without knowing how the measure will be drafted. So at the moment, we cannot really comment on estimates of this impact.

Okay. That's all. So thank you for participating in this conference call. Just remind you that IR team is available, as always, to help you in any other questions you may have. Thank you, again, and have a nice summer break.