Enel SpA (ENEL) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. A warm welcome to our full year 2021 results presentation, which will be hosted by our CEO, Francesco Starace; and our CFO, Alberto de Paoli. In this presentation, Francesco will provide some highlights of the period and will sum up milestone achieved, while Alberto will 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 question only via email at [email protected]. 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 Francesco.

Thank you, Monica, and good evening, everybody. We are in the chart called key highlights of the year, Chart #2. Let's start with the highlights of the period. The operating dynamics of 2021 showed a significant recovery of all industrial KPIs with a growth curve which is now landing at a level back to pre-COVID-19. The recovery of the operating business performance and the contribution of the stewardship business model translated into strong financial results with both EBITDA and net ordinary income at the top of the range, up by 7% and 8% respectively year-on-year. We have achieved a new record of additional renewable capacity, which picked up to 5,100 megawatts new build in 2021, 2,000 megawatts more than 2020. In light of the results achieved and of our remarkable operating and financial delivery, we will propose to the next AGM a guaranteed DPS of EUR 0.38 per share for 2021, which is a 6% increase versus the 2020 number and implies a 7% dividend yield at current price. Let's now move to our positioning across the various businesses. And we are now on Chart #3. On generation, we have further strengthened our position in renewables with a greener installed base accounting for 53.4 gigawatts of renewable capacity. This huge renewable asset base generated 118 terawatt hour output over the year, allowing us to reach 62% of emission-free production in 2021. Our continued investment in grid digitalization resulted in 45 million smart meters installed with the efficient management of our networks through a platform operating business model that allowed us to increase the level service quality with the SAIDI down by 6% versus 2020. The increase in the rate of electrification of our client base has fueled the electricity sold and has driven in parallel growing needs of flexibility and value-added services. Focuses on the progress we've made in renewables, we now move to Enel Green Power, this is Slide #4. As we said, total renewable capacity represented 60% of our total installed base exceeding the 53,000 megawatt benchmark. We added 5,100 megawatts renewables this year, marking a step up in our delivery track record in this year impacted in particular by tough logistic dynamics within the sector. We made further progress on coal closure. We shut down 1,100 megawatts in Iberia and almost 900 megawatts in Italy for a total of 2 gigawatts bringing the coal installed capacity now below 7 gigawatts. Thanks to a continued effort on decarbonization, renewable production accounts for more than 50% of our 230 terawatt hour total production, overtaking once again the conventional generation notwithstanding the severe drought we faced in 2021 in many geographies. CO2 specific emissions reached 227 grams per CO2 per kilowatt hour, almost in line with last year due to the lack of hydro resources and a 23% lower than the end of 2019. This acceleration is made possible thanks to our pipeline, which is depicted on Chart #5. As of today, the pipeline has reached more than 370 gigawatts. This has broadened the project's optionality and has secured both flexibility of capital allocation and protection on returns. Mature pipeline is now worth around 100 gigawatts, out of which around 46 are earmarked for the '22-'24 period, 50 are already covering projects for the '25-'26 period. Over the last 12 months, our mature pipeline grew by around 40 gigawatts. The mature and early-stage pipeline dynamics positions us optimally for our growth prospects. With respect to the 23 gigawatts that are targeted additions for the period '22-'24, we now stand at over 50% of that target addressed with around 12,000 megawatts currently in execution. The residual target is covered 4.8x by the related portion of mature pipeline. This translates into negligible delivery risk and high confidence of achieving even more than this. Moving now to the operating achievements on Global Infrastructure and Networks. You see in Chart #6 that in 2021, volumes of electricity distributed increased by 5%, fully recovering the pandemic dynamics across all geographies of operation. This now stands at the level of electricity distributed in line with pre-COVID levels. Our efforts to reach quality and efficient targets result into a remarkable progress with SAIDI, this is down across all grids by around 6%. Activities on networks remain centered on the digitalization of the networks, with the installation of 700,000 smart meters in 2021. At the end of last year, around 60% of our 75 million end-users are digitized. Let's now take a closer look at customers on Slide #7. Our position on customers has strengthened in the last 12 months both via our retail traditional operations as well as on services and platforms offered by Enel X. Around 1.7 million new customers have been added in the free market, mainly in Europe. Energy sold in the free market is up to 9% with volume increasing by both B2B and B2C segments driven by the economic recovery. Looking at Enel X, the division performed extremely well with double-digit increase recorded in all product lines. More than 130,000 charging points have been added reaching now the number of 319,000. Storage behind the meter has increased by more than 10 megawatts. 7.7 gigawatts of demand response capacity was offered globally. Electric buses reached now more than 3,000 units in 2021. Then we can move to shareholder remuneration on Slide #8. The resiliency of the business model, the high standards of operating performance and the managerial actions we have put in place allowed us to deliver sound operating and financial results. Therefore, we will propose a dividend per share of EUR 0.38 per share, up by 6% versus previous year, which implies, as I said, a 7% dividend yield at the current share price. For 2022, we confirm the simple and predictable dividend policy presented in November 2021 with a guaranteed fixed dividend per share of EUR 0.4 per share. Now, I hand over to Alberto. He will go through the details of the 2021 financial performance. Thank you. Alberto?

Thank you, Francesco. Good evening, everybody. And I'm now on Page 10 for financial results of the year. EBITDA stood at EUR 19.2 billion, up 7% and group net ordinary income came in at EUR 5.6 billion, increasing by 8% versus previous year, both at the top of the guidance range. I will detail later some nonrecurring items into the net income that are weighting on the performance. For now let me just highlight that excluding the negative impact of liability management and operating and fiscal nonrecurring items, net income would have been up by 23%. FFO reached EUR 11.8 billion, up 3% versus 2020, despite the impact of some temporary regulatory items adopted to soften the energy crisis that affected the cash flow dynamics for around EUR 1.7 billion. Moving now to an analysis of the period, I will kick off with the EBITDA evolution, and I'm on Page 11. As said, ordinary EBITDA up 7%. Worth to open the performance in blocks of analysis to make a clear comparison vis-a-vis last year. Starting with the operating growth, in 2021, we experienced the full recovery of the operating performance across all the businesses which worth EUR 1.3 billion. In particular, the lion's share of the operating growth is associated with global power generation, where amongst other effects that I will detail later, the development of new capacity contributed for around EUR 300 million. Then the progressive recovery in the level of electricity distributed in LatAm coupled with the quality and digitization of networks in Europe contributed around EUR 500 million. The uptake of [ beyond ] commodity service particularly in Italy for EUR 150 million and then a higher level of efficiencies in networks and renewables for EUR 340 million. All these items relates to the EUR 1.3 billion of operating growth. Then we got on a stewardship business model, the EUR 1.8 billion related to the Open Fiber stake disposal. And all the solid operating performance has been affected by EUR 300 million of currencies devaluation and negative dynamics for around EUR 1.4 billion, out of which EUR 1 billion were related to temporary headwinds. This EUR 1 billion in particular is related to roughly EUR 450 million for the severe drought in Chile and the gas shortage that consequently affected the price in Chile and around EUR 500 million linked to the exceptional energy crisis we are leaving since 2020. In particular, EUR 250 million are related to lower prices set in 2020 during the COVID-19 pandemic and the remaining portion is associated with the sudden increase in electricity prices cost during the last quarter of 2021 that increased the cost of supply though reducing the margin in retail business. The other negative dynamics that are not temporary, includes some settlement on gas contracts and mainly the tariff adjustments in Europe, in Italy and Spain for around EUR 300 million. Moving into a deeper analysis, we are now on Slide 12 on global power generation, where the global power generation ordinary EBITDA stood at around EUR 6.5 billion, down 6% year-on-year. Operating growth accounted for EUR 370 million as a strong contribution of renewable new installed capacity for around EUR 500 million that then has been partially offset by a different profile of development of the U.S. generation and around EUR 100 million efficiency mainly in European countries. Delta nonrecurring items impacted positively for EUR 370 million. Then so the negative dynamics are related to the weak hydrology in Chile, as already said before, the lower prices in Italy and Spain due to energy contracts signed during the pandemic crisis, as already outlined, and the effect related to the settlement of previous year's price adjustment on gas bonds. So the vast majority of the negative temporary dynamics, the negative dynamics are temporary because are related to things that so are not down in the phase to be sold or so now fixed at different level, then we can discuss a little bit this point. Then moving on Page 13, and talking about infrastructure and network, ordinary EBITDA for networks stood at EUR 7.7 billion. And we have an operating growth year of roughly EUR 750 million, mainly attributable to around EUR 300 million with the investment deployed for digitalization of our grids and improve the quality of services in Europe, mainly in Italy, which contributed to our regulated asset base. Around EUR 200 million linked to the higher electricity distributed across all the Latin American countries, coupled with the effect of the asset revaluation, particularly in Brazil and around EUR 250 million of efficiencies. These positive items were offset by year-on-year on EUR 450 million of nonrecurring items occurred last year, so the positive nonrecurring. Around EUR 300 million associated with tariff adjustments in Spain and Italy for the new regulatory parameters and lower previous year regularization and then the currency devaluation in LatAm for EUR 140 million. Worth highlight that net of Delta nonrecurring and FX devaluation EBITDA would have increased by around 6%. Now we move on retail on Page 14. EBITDA for the retail business came in at around EUR 3.1 billion, while the slight decrease attributable to the evolution of the regulated markets. The Group expanded its free market customer base by adding 1.7 million new clients over the last 12 months. On the back of the end of regulated tariff in Romania and the increase in customer base, both in Italy and Spain. Looking more closely at the EBITDA of the free and regulated market, free market EBITDA is flat year-on-year. Thanks to a better performance in Italy and Spain, which compensated the negative EBITDA evolution in Romania. In Italy, EBITDA increased by 3% year-on-year, driven by a 9% increase in volumes in both B2C and B2B segment, which are now back to pre-COVID-19 levels. In Iberia EBITDA is up 5% versus previous year, mainly driven by a 24% increase in unitary margins in the B2B segment as a consequence of the economic recovery post-pandemic. In Romania, retail EBITDA decreased by more than EUR 100 million, mainly due to the higher cost of sourcing as a consequence of the energy crisis we experienced. Regulated market EBITDA is down around EUR 100 million on the back of the elimination of regulated tariff in Romania and the decrease of the regulated customer base. Worth to highlight that Enel X EBITDA increased by almost 2x versus 2020 reaching EUR 300 million driven by energy efficiency programs and customer needs of energy flexibility services. In the next slide, we will show in detail the earning evolution during the period. We are now on Page 15. Ordinary group net income came in at EUR 5.6 billion, up 8% on higher EBITDA and reduction in minorities, which more than offset the higher D&A, financial expenses and the normalization of the tax rate at 30% versus 28% in the previous year. Net of the nonrecurring items such as tax reform and the liability management program, net income would have increased by 23%. For the single items, we recorded a negative impact on D&A of around EUR 320 million, due to the higher level of investments deployed during the year, which more than offset the reduction in bad debt accruals related to the COVID-19 impact recorded in 2020. Net financial charges increased by 24% versus previous year due to liability management program executed this year. Net of this nonrecurring items, net financial charges decreased by 6% versus last year. Worth to highlight that financial expenses on debt remained stable versus previous year, thanks to our refinancing strategy that reduced by 20 basis points in the cost of debt, leveraging on cheaper sustainable instrument and hybrids. Taxes were up by around EUR 290 million as a consequence of the increase in the nominal tax rate due to the government's tax reform in Argentina and Colombia and the adjustment on the deferred taxes in Iberia. Minorities decreased by 27%, mainly reflecting the increase in Enel Americas stake and the higher contribution of Italian companies. Now moving to the cash flow on Slide 16. As said, FFO stood at EUR 11.8 billion, strongly affected by measures implemented by local governments to smoothen the impact of increase in prices in customer bills. The impact is around EUR 1.7 billion. Excluding these effects, FFO would have reached EUR 13.5 billion increasing around EUR 2 billion versus previous year with a cash conversion at around 70% compared to 64% in 2020. The dynamics underlying the FFO evolution can be summarized as follow; high EBITDA after provision, net working capital minus EUR 0.8 billion, as said, impacted by around EUR 1.7 billion of regulated items of measure implemented in Italy and Spain. Net of these effects, working capital would have been positive driven by the recovery of the negative movements recorded in 2020 due to COVID dynamics and in line with the CapEx curve of the last quarter of the year. Higher taxes paid mainly due to advanced settlement tax payment at the end of last year and higher financial charges paid related, as said, to the liability management program performed. Let's now take a look at the capital allocation evolution on Slide #17, where you can see that we invested more than EUR 13 million in the period, an increase of 27% versus previous year. In the ownership business model, investments were almost entirely allocated to renewables and networks. They totaled around 5.8 and 5.3 respectively, with the remaining portion deployed on conventional generation and customers. From a geographical perspective, around 70% was spent across Europe and U.S., of which 6.7% in Europe and the remaining 2.3% in North America, 3.7% was spent in LatAm. We have invested around EUR 400 million through the stewardship business model focused primarily on the renewables capacity managed through our joint ventures and Enel X. Worth to highlight that the full contribution of the new renewable capacity installed in 2021 will be visible in 2022 and we will generate around EUR 500 million of EBITDA. I will now move on debt evolution on Slide #18. Net debt is equal to EUR 52 billion, that is below the EUR 53 billion, EUR 54 billion range announced back in November thanks to an higher than expected FFO and a bad debt cash conversion. Net of the purely accounting effects of FX and leases which accounted for around EUR 0.7 billion and EUR 2 billion, the net debt would have landed EUR 49.3 billion with the following operating dynamics, negative free cash flow for EUR 1.3 billion. As already commented, dividends paid for EUR 5 billion, active portfolio management activities mainly related to Enel Americas PTO for EUR 0.8 billion. In the period, we counted as equity about EUR 3.2 billion of hybrids, out of which EUR 970 million related to the change in the accounting treatment following the concepts of solicitation process in around EUR 2.2 billion of new hybrid issued in 2021. Gross debt stands at EUR 72 billion, increasing by 22% versus December as a consequence of the already mentioned increase in the net debt, then the increase in financial receivables associated with credit related to cash collateral payment following the commodity prices scenario and a higher level of cash to finance 2022 activities performed at the end of the net debt year, so we issued more at the end of the year and so we add the cash of this issuance at the end of the year in cash. Before the closing remarks, I would like to highlight the soundness of our liquidity profile and limited exposure to fluctuations in interest rates. Our total liquidity at the end of December stood at around EUR 24 billion, of which roughly EUR 9 billion in cash on hand and the remaining EUR 15 billion in readily available committed credit lines, reducing refinancing risk. This level of liquidity covers 1.4x the debt maturing throughout the '22-'24 plan period amounting to EUR 17 billion net of short-term debt that is routinely rolled over. Finally, worth mention that more than 84% of the 2021 long-term debt has been swapped into fixed rate limiting the exposure to interest rate fluctuations. We consider the group liquidity position as more than satisfactory to face the turbulence we are leaving and we don't see any short-term risk that might impact the solidity of our balance sheet. And now I hand over to Francesco for some closing remarks. Francesco?

Thank you, Alberto. As you've seen, 2021 was a year in which post pandemic recovery forces coexisted with exogenous headwinds that have affected the business. We were however, able to successfully navigate these turbulent waters confirming strong capabilities in delivery and a very strong financial solidity. Our business model already demonstrated in the past is -- has a very high level of resiliency in tough environments. We believe we'll continue to perform leveraging on our set of assets, people and expertise. It is now clear to everybody how the role of utilities is pivotal to manage abrupt changes in the energy sector. Our strategy is built on that. It is built on maximizing the value creation from decarbonization and electrification, by tapping all opportunities across all segments of the value chain with a very short time to EBITDA investment cycle. We reiterate our commitment in paying a dividend based on a visible and simple policy, which will implicitly return a double-digit TSR to all our shareholders. So thank you for your attention. Let's now open to Q&A. Please, Monica.

Okay. We received an exceptionally high number of questions. So thank you to all of the analysts that send them true. We tried to pack them a little bit. Otherwise, we will never stop in answering. So I'll start from the most popular and then we'll go into the numbers of the full year. So a number of analysts are asking in this context, the European Union has worked on a toolbox to tackle energy issues and announce the Repower EU plan. Can you share your views around this? And what is in your view the implication in the short and in the long-term? I think, Francesco, it's for you.

All in all, we think that the repower use quite a good plan, it makes a lot of sense. And by the way, it is totaling continuity with the previous direction in which the European Union was going. If you want this crisis proves how right it was from the beginning to really try and decarbonize the economy of Europe considering the fragility of its exposure to gas and other commodities. So we think this package is good. There are basically 5 lines. One is the one to diversify the gas supply, increasing the number of suppliers and the optionality from the sourcing of gas standpoint, so more pipes, but also more LNG terminals and acceleration in domestic production and also production of biomethane. We think the second point, which is also quite important is the increase in the share of renewables where gas is dominant, accelerating the development of solar rooftops and in general of renewable plants that were already there. So I think that is definitely an acceleration that we're looking at in the package. Another good part of the package is the effort on the energy saving and electrification of heating in particular in the installation of homes that will cut further demand on gas by substituting it with decarbonized electricity. We think there is a trend to permitting and authorization of these investments, namely renewables with fast tracks trying to be defined and the use of sandboxes to take the best examples and spread them around. I think there is a good effort also on what concerns the lack of potential interconnections in critical links and the synchronization of grids. And I just note here that the synchronization of the Ukrainian grid that happened the last -- yesterday, actually. So in short, I think this is a good package. In addition to that, I think it's to be noted that there is a discourse that started with this package on setting some caps on gas prices that are at the root of the present crisis that are largely unjustified if you look at the dynamics of the importation contracts that gas have. And I think that is a very encouraging bold thinking from the side of the commissioner of the commission to really try and bring some clarity on the turbulence -- today is basically affecting the energy sector.

Okay. Another one for you, Francesco, do you see areas of upside downside for new vis-à-vis the plan assumption coming from this package?

Okay. So let me first talk about the downside, which is quite obviously a concern for most of the observers. The downside has to do with the potential windfall profit taxes that have been aired back and forth and/or potential caps on energy prices. We have successfully demonstrated in both Italy and Spain, that the policy -- the commercial policy we have, which basically is all about selling our energy forward maximum 2 years from 1 to 2 years in the past and now forward even more, has basically prevented us from getting any win for profit from the huge jumps in marginal system prices on the pools of these 2 countries. So we have nothing to fear on windfall taxes or windfall province clawbacks and no matter what kind of methodology is used. We think it is not -- it's going to be extremely easy to demonstrate that we had done. And in fact, we have basically insulated all our customers from this huge price increases, thanks to this policy. On the second part, which is the cap of -- on prices for future pricing, I think that is definitely going to be an issue. But I think it has more upside than downside for us at this point, provided that the real root cause of all this is tackled, and that's why we're encouraged to see the discourse moving clearly on the field of gas. That is the reason why there is this havoc on the electricity and on the -- in general, the energy supply to the industry in Europe. And that is totally justified if you look at the dynamics of the industry and also the volatility that the TDF hub is today demonstrating. So we think that is an upside because if there would be a gas price set up, then our policy of long-term contracting and serving our customers with reasonable and sustainable profits would definitely be further strengthened. So that is the upside we see if this regulation, perhaps for a temporary moment would be implemented in Europe.

Okay. Another popular one for you, Francesco, do you think this set of measures we opened to a new phase of government intervention?

Yes, I think they are going to be -- well, they have already been there government interventions of various nature. I mean we've seen that in the early part of this -- the late part of 2021 in both Spain and Italy. However, because these interventions did not tackle the rail cause of all this turbulence, which was gas, they were not fully resolving the issue because they didn't really tackle the reason of all this. So I think there will be further intervention this time finally addressing the real problem, which is the unreasonable volatility of gas prices and the fragility of the system that results from that. In that, yes, I think there will be some intervention. And I think in that case, fully integrated companies that will have had, like we a wise policy of fully translating the advantages of this integrated position to their large customer bases will have an advantage going forward.

Okay. Another -- set of really popular question, which I think more for you, Alberto. The energy sector is in a special phase, and you have a degree of exposure to commodities dynamics, how staggering increase of electricity prices might affect and it's financial in the short and in the medium term?

Well, I would say, first of all, that so for our hedging policies that we have followed. So since the beginning, so we have no major impact on prices because we are not benefiting of this rise in pricing. We do think that our integrated position will be for us good in the medium term because it will allow us to offer competitive price to customers while stabilizing our stream of revenues. And so making us to have normal profit and pushing the electrification of consumption so in this case, increasing our overall gross margin through this way. In the short-term, it's clear that now as Francesco has said, we are trying now to participate because the needed intervention in a very short-term markets will not end up in being a long-term distortive factor.

Okay. Another one, what's your exposure to Russian gas? How a sudden increase in gas prices may affect and as financial in the short and in the medium term?

Well, first of all, let me underline this point. We have 0 supplies of gas from Russia. Our gas needs in Europe. Second, the overall gas needs in Europe are covered more than 90% from our long-term contracted supply gas. And the third point is that 50% of these needs are covered by LNG contract and in particular, LNG from the U.S. that represents roughly 75% of our total energy contracted volume. This, you can see, provides ample flexibility and potential value creation over medium term.

Okay. Another one on commodities like Alberto, how a, revamp of coal production in Italy might affect NS financial in the short and medium-term?

Well, first of all, also here, to be clear, that will be no revamping of closed coal facilities. So the only way to increase if needed, coal production would be by the active coal plants that we have in Italy. And it will be mainly driven by a request for the system operators looking for solution to potential shortage of gas. This clearly will have to be in case of -- so this increase will not act at economical level will have to be compensated with -- compensation measure that will be discussed and defined along the time and the needs. So we don't see a major impact economically impacting increase in production. But for sure, we are not seeking any kind of loss because of this.

Okay. Francesco, one for you. What are you planning to do with your Russian assets?

Okay. So first of all, let's see what they are. First of all, this is an activity we have in Russia since quite some time. It is self-contained within the country. It is ring fenced for what concerned the rest of our operations. It is a limited portion of our financial accounting for less than 1% of our EBITDA in '21. And in the plan, '22-'24 we have about EUR 240 million earmarked for investment in this part of the world compared with EUR 42 billion of overall group investments. So it's not a real material position. However, we have decided that in these present circumstances, we cannot deploy more growth in Russia. And we are also exploring various scenarios for what concern the future of the existing assets that are basically 3 large, combined cycle power plants with a total of 5,700 megawatts and 2 wind farms. The potential scenarios include all the possibilities that are now being analyzed under the legal system that has been established in Russia recently after the sanctions have been put in place. All our employees are safe. We have no crisis and no difficulties at the moment. But clearly, this is a situation that we would like to have a decision about in the few months.

We move to CFO back again to you, Alberto, 2022 EBITDA guidance. Can you walk us through the moving parts that can get you -- that can get us to the 2022 EBITDA target range considering the EUR 1.7 billion from Open Fiber and the EUR 600 million of nonrecurring items that you booked for in 2021?

Well, first of all, we have a composite growth in 2022. But taking account that as said, we are -- we suffered roughly EUR 1 billion of negative headwind with temporary headwind in 2021 that we may consider that are part -- a relevant part of this headwind may be recovered in 2022 and it's the first step of growth that you can add from so the math that says 16.8%. Then we have the lion's share of -- related to the renewable growth because you have -- we have all the capacity deployed in 2021 that worth roughly EUR 500 million that will be so a full growth in 2022. And then we have the growth related to the 2022 development that is more or less in the same range. Then we had we have the asset from ERG acquired that worth roughly EUR 150 million, and this is the overall impact of generation. Then we have networks EUR 200 million because of RAB increase, roughly EUR 400 million coming from customers, so a combination of retail and analytic activities. And we will have roughly EUR 400 million related to our stewardship business model. This is what is giving us numbers of growth that we have in our target. Clearly, we have now also to monitor the situation, where we see some positive and negative contribution that right now are combining themselves in a neutral impact, not giving at this time, so any major sign off on the targets and so -- the feasibility of reaching the target announced.

Okay. CEO, back to plan assumptions, are you still planning to lease your electric mobility business and the grid service company? Are you confident to be able to do this in this current environment?

Yes, I think we will succeed. I actually -- I think these are 2 businesses that are very special, extremely driven by the large evolution of the electrification business across the world. They seem not that linked to the present crisis of gas prices, but actually, quite the contrary being pushed by the necessary measures that are behind getting out of this. So to make it short, we think we are going to do that. Whether then it's going to be a listing or a private placement followed by a listing of our private placement. As such, we will find out during the next months, but the preparation works and the activities that aim to this are according to schedule. And we don't see at least the first signs. We don't see a lack winter, the contrary. We see a lot of interest, in particular, for the EV charging business, which is really hot at this point in time.

Okay. Francesco stay on another one, group repositioning and current uncertainty at global level change, the strategy or timing of LatAm restructuring and possible acquisition in the U.S. and analysts is also asking if you're still looking at India?

Okay. On the timing of the Latin America restructuring, we are proceeding. Actually, this -- what happens in Russian/Ukraine clearly is affecting the world. But I would say, minor way what's going on in South America. So our progress is according to our plans, and we think we will continue to strive to simplify the assets and make it more, simple to understand what our intentions are in Latin America. On the U.S., the same, I think we have continued to scatter market. We think that some potential acquisition might be a good idea. Clearly, it's a question of time. It's a question of value. We don't want to rush it. We don't want to make mistakes, but we are determined. So I think there are no impacts from our side because of what's going on in between Ukraine and Russia at this point. On India, India is a good place for renewable energy investment at this point. We are, as you know, progressing. We have just connected 2 large plants this month, but nothing else to say. I mean this is not -- there is, no new developments, there are no particular big news to tell. We just continue to grow organically our pipeline in that part of the world.

Okay. Another one on regulation, can you comment on the regulatory situation in Romania? What is the projected impact for your business? What immediate action you are putting in place I think CEO it's for you?

I think the kinds of Romania is still open. I mean the government clearly is struggling to, let's say, contain the price hikes that are resulting from the gas situation. Clearly, this is having an impact. By the way, because of the system that the government has chosen to act upon, which is work on the price levels at free market level, which is really difficult to understand. On the distribution side, due to the particular situation on the regulatory side, the increase of energy prices and the tariff cap of a maximum 7% increase year-on-year are affecting all the distributors, mostly on financial terms. We proposed several measures to including the elimination of the tariff cap in order to and being able to acquire energy from existing producers, we have bilateral contracts at a recognized set price, which is, by the way, quite high, EUR 90 per megawatt hour. And a state budget compensation and capitalization of remaining losses for a period of 5 years with a state guarantee. We think that the new ordinance that will be issued by the government in March will indicate how some of these measures can be accepted. And we are quite encouraged. On the windfall tax side is applied only on revenues with -- a sales price that exceeds EUR 90 per megawatt hour. This was introduced by November 21. We have of course, recurred. We think -- there is an encouraging sign that the government might change the law applying corrections that will minimize the impact for the sector. Overall, we think this is what we have to say. I think the appraisal of the impacts largely depend on the next weeks. So I think we will have to wait until we have a real settled situation before throwing out figures that can be widely different from the -- truth that will emerge after a few weeks.

Okay. CEO another one for you, you have a fixed dividend of EUR 0.40 per share for 2022. Is there any risk to the dividend payment?

The dividends we project are basically underpinned by the results we have in the year and the results in 2022 are quite -- I mean, not predictable, but they are quite in our control. So we don't see even in this present turbulence, we don't see the reason why we should not be able to pay these dividends. Now if we had an increased turbulence or a prolonged crisis way past the next weeks, something that can go on for months. We would still have the capability to pay the dividend. Don't forget that we also have a flexibility in capital allocation that are quite unmatched in the industry that gives us the confidence that if the worst, worst, worst scenarios happen, we can still sustain the dividend policy at the expense of capital allocation during the year. We don't think this will happen, but it's still something we can do. So at this point, we don't see any reason to change this policy given the -- even turbulent situation we are facing.

Okay. We move to another set of questions that pertain more the business. So Francesco, another one for you, additional build capacity came in at a record level. Target for 2022 is in excess of 6,000 megawatts. Can we expect an upgrade for 2022 delivery, is there any risk from current geopolitical environment or any opportunity?

Let's see that when we define the 2022 targets, we already knew the delivery of 5,100 megawatts was there because that was basically in November. So we have that number quite clearly in front of us. I don't think you can say that we can be short of 6,000. This would be an increase of about 1,000 megawatts don't forget this year, we increased by 2,000 megawatts. So I think this is a reasonably realistic target given the situation, even considering, let's say, the extension of the logistics difficulties that we experienced in 2021. For the same reason, I think it is quite unlike that we will be exceeding the number by and large. I mean, okay, this can be short or long, maybe 100 or 200 megawatts. But I think that number is rock solid at this point 1 on the upside and on the downside to.

Okay. Alberto, one small question around the new renewable capacity that has been, mostly in Tier 1 country if you can provide more color around the countries?

Well, development plan 2022, we have roughly 2.5 gigawatts in North America, United States, 1.9% in Latin America, mainly Chile and Brazil are the main countries of development, 900 gigawatts in Spain and then the remaining 15% between Italy and some Tier 2 countries like India and Morocco.

Okay. Another one for you, Alberto do you see any impact on projects under development from procurement dynamics?

Well, if it means so the cost of projects. So for 2022, we have almost hedged all the capacity we are developing. So we are seeing a very minimal cost variance because of the situation, related to some delays that may occur on the overall development as Francesco has said. So we have -- we see a range, but it's very, very little range in the target we have. So some projects may be delayed but not more than 2, 3 months and not in a very big size.

Francesco, a quite popular one for you, potential issues on gas supplies prompt a different stance on coal-fired generation. Any change in your strategy? What is the expected level of coal capacity to be commissioned in 2022 any impact on the coal trajectory for 2023 and beyond?

No, we don't have a change in our strategy at all. In fact, we think we will be decommissioning another 1.7 gigawatts of capacity in '22, basically both in Chile and Spain. I think what we can maybe find is if this crisis of gas gets worse, no particular push to keep coal functioning in Spain because they don't -- they will not be short of gas. They have no connection with Russia at all. Probably maybe a little bit of a, conservative assumption that could be pushed by the Chilean government if they would be concerned about their energy supply from LNG. But other than that no, we don't have any plan or see any difficulties in continuing this trend. Obviously, if a government doesn't allow you to take a power plant off, it doesn't actually mean that the total power plant produces. It can be just in standby waiting for the government to decide whether it's worth the risk or not. As far as -- production is concerned, if you want the major potential increase of coal consumption could be from Italy if the Russian gas supply would be interrupted for some reason, and therefore, an increase in the production of the existing power plants, the one that are the commission. There's no way that they can be started up again, but the existing power plant could maybe have marginally an increase in the coal production. But we're talking really about marginal figures at this point.

Okay. Alberto, I think there are, a couple for you. One is on the deal on hydro you have announced the purchase of and hydro plant from AG and over CCGT. Can you share what's the rationale of the transaction? What's the expected normalized contribution and if we can assume the EBITDA contribution is an upside versus the plan?

Well, we completed the deal with Idea and there was a package of the 2 plants, it was a hydro and the CCGT ones. Then so the execution of the deal followed the 2 different paths. But at the end, also it was only one transaction. Rationale for the hydro, it's clear. So it's hydro it's so we are in Italy, we are short of energy. So everything that is related to renewable energy that can be managed for us is relevant. CCGT is because it was and it is also linked and package with hydro -- worth to say that so while for the hydro plant, we got all the approvals of the antitrust approval. This is CGT plant will need to have a full clean authorization from antitrust to be completed. All in all, so the contribution is around -- for the hydro plant is around EUR 110 million, and this is already in the 2022 targets. And for the gas plant is -- now it's very difficult to say what will be the final impact, but it is not meaningful. And this is not today in the budget numbers, in the target numbers.

Okay. Alberto, another one staying in Italy, you were recently awarded 12 to 9 gigawatt in the capacity auction. What is the expected contribution? And when will we see this in the P&L? Was that included in your planned targets?

Okay. Let me put under the spotlight this trend, this tender -- because it's important to underline the results. So first of all, the tender has been launched for 2 things. One is the yearly capacity, existing capacity for capacity market and the second is for the new capacity. On the existing capacity, we have been awarded 10.4 gigawatts of capacity, plus 1 gigawatts of foreign capacity. More important is the 1.5 gigawatts of new capacity that we have been awarded. And let me underline that it's relevant because 1 gigawatt of this capacity are best, so are related to storage. And this -- and we won a capacity contract for 15 years for this 1 gigawatt of storage capacity. Spread over WACC of this new capacity is ranging around 250 basis points over WACC. And the nominal contribution is for 2024, it's roughly EUR 500 million between the existing capacity and the new one. And the new one is roughly EUR 200 million, and this is valid for 15 years. So this EUR 200 million was not included in the previous business plan, while the EUR 300 million of existing capacity, yes.

Okay. Alberto, we still stay with you, resources availability. Can you give us an update on hydro levels for Europe and LatAm?

Well, Europe, so now we have look into the first 2 months and it's particularly low in Europe. Resources are down around 30% Italy and Spain compared with average historical values. In Latin America, Chile and Argentina are recovering, not fully recovering but are recovering so the extreme situation of the last year. Colombia is experiencing high resource levels, plus 11% versus a historical level. In Brazil is more a patchwork so you have some zone with a higher level of rainfall, other not. But I remember you that Brazil has a regulation that will balance -- as balance all the different zones. And this balancing is netting every kind of shortage of production because of rains.

Okay. Alberto a few questions on networks. Are there any major regulatory events in 2022? Do you see any risk across your network operations coming from changes in regulation?

We don't have any relevant regulatory changes expected in 2022 mainly in Europe, everything related to WACC happened last year in Spain and also in Italy. So it's something that now is only in the application phase. I think the most important aspect that we are waiting for, for 2022 are all the P&L tenders that now are starting in Italy to happen and also in Spain and other countries. And mainly, we are -- we will apply for the next tenders in Italy. I remember you that also a form of [ premiality ] for the investments that we will deploy under the P&L scheme will be now will be set. So because there are investments that are -- will not flow into RAB. So a sort of premium of the investment that we will deliver is now something that is have already defined and will be applied to these investments. In South America, we don't have relevant regulatory events in 2022, out of which so we still are waiting for a setting of the missed tariff indexation in Argentina. Now it's now 3 years that we are waiting for. So -- every time it's good to define and set this problem. And other little action and adoption of some legal regulations that are happening here and there, we have from Brazil some positive news in terms of financial aids to distributors and also some recognition of past losses and other regulatory items.

Okay. Alberto, can you provide us the total RAB level for full year 2021 and the breakdown between countries? What is the growth in RAB expected for 2022 in Europe and in LatAm?

RAB 2021 is equal to EUR 43 billion, with Europe EUR 32 billion and LatAm EUR 12 billion. Now we expect for this year, RAB to reach EUR 44.5 billion, increasing EUR 1.1 billion. In Europe, the main increase will be in Italy and also in Romania. And while in Latin America, we will have the big increase coming from is almost a little bit splitted between Brazil, Chile and Colombia.

Okay. One question on customer, customer in the power free market in Italy went up significantly. Can you provide more color on this trend, sorry, not in Italy and Europe?

Well, yes the customer business is doing very well. Also in the last part of last year and also in this first quarter is very strong, the take of customers, the increasing in consumption. And last year, we increased 1.7 million customers on our free markets and across all countries, Romania because of the end of regulating their market, Italy and Iberia. So the main of this increase has been observed in the last quarter and of last year. And that means that our commercial offer and our stability is something that is now appreciated by -- the customers, and that's why we are getting so a big share of the new acquisition of the market.

Okay. On financials, regulatory merger in Italy and Spain impacted the cash flow in 2021. What is your expectation for 2022? How much will you be able to recover and is there an additional impact that will flow into the cash flow for this year?

So we closed the year with an impact on the overall measure of EUR 1.7 billion, EUR 2 billion last year. And clearly, so the expectation is that a normalization of the situation mainly in the second half of this year may, at the end to restore this impact and having this improvement in the working capital. It is something that is, for sure, will not happen in the first quarter because we know that for the deepening of the crisis, other measures are added, but also that a stable solution that will reduce the gas prices. And through this way, will reduce the energy prices, is now also under discussion, and we think -- so we will wait some resolution coming in the next days if this would work. And so if it will be so starting from the gas prices, we think that it will, we can think that a normalized situation could be the situation that we may have in the second half of the year. And through this way, we think that everything, maybe not everything but so the vast majority of this program can be solved within the year. In this case, we see that a clear positive impact on our working capital.

Okay. Alberto, net debt evolution twofold here, net debt went up by almost EUR 10 billion considering all solutions and conversion of hybrids. And now you are around 3x net debt to EBITDA. What's your expectation on net debt for 2022?

Well, let me say that we -- out of what I have just said on so the situation, we were and we are in line what are our financial plan. Taking account as said, roughly EUR 2 billion out of this EUR 10 billion are accounting impact, so leasing and so the fluctuation of debt on FX, on accounting impact because our debt, as said, and every -- we say it's fully fixed. So it's only the way in which we accounted it but a strike price, so we have a fixed debt. Having said that, we have invested a lot as said, because the investments in the space, are needed to position the company along the energy transition. But we have plenty of way if situation will not come back to normal will worsen. We have plenty of strength to manage the situation. First of all, I said, we are working with EUR 20 billion of liquidity available. And second, as every said, our development program, so is made in a way that we are not committed for more than 18 months. So every time we may change, we may increase or reduce the speed of development to comply with our financial strategy. And that is to stay at the level we ever said not to increase our debt and our ratio for more than 3x. So right now, we are looking at the situation, but so we are ready to manage all our aspects to manage also the financial situation.

Okay. Another one on debt, why the impact of FX on net debt is negative despite the general depreciation of currencies against euro?

Well, as I said, so and I will stress it, it's only an accounting effect. So having said that, that is, I think is clear. It is not a financial effect. It relates on the fact that it's the local currency against the euro compared to the dollar -- so the year driven by the dollars. So the relative, movements of the currencies through the dollar and the dollar through the euro is impacting the way in which we account the debt.

Okay. Any risks to -- the cost of debt would not be in line with plan assumptions?

Well, I think you know that we ran last year an EUR 8 billion liability program, refinancing this debt with the years of -- before the natural expiring. And also, we have also issued at the very beginning of this year in a different situation, a big tranche of the refinancing needed in the year. So we don't have almost -- very, very residual refinancing need for this year, the debt is fixed. So I would say that we don't have any kind of impact from sort of the current situation on the overall cost of our debt.

Financial receivables, can you give us more color on the evolution of financial receivables that are up by EUR 3.5 billion over the period?

Well, financial receivables are related on the hedge accounting. So that's the problem of the marginal calls. The time in which you have to put cash collateral for your margin calls, you have, on one side, put cash -- and on the other side, you have some financial credits related to this cash. So this is a temporary situation, and this is variable because every day, it is changing because of the changes in gas prices and energy prices. And on the other side, the situation will be reabsorbed completely at the time in which the hedges will come to maturity. And so we will disappear from credits and cash will come back.

Alberto how do you consider your liquidity position at the moment?

Strong.

Okay. Quick very quick answer okay. I'm actually now going through a number of follow-ups that I received during this first part, which are a little bit a mixed box of things. So I'll try to go in order Francesco, I think there are a number of follow-up on the EU repower and what might come with that? So given the high portion of gas-fired power production in Italy, what can the Italian government do to keep power prices under control?

I think the easiest way to do that is to keep under control the gas prices because that is actually what drives very simply the prices of -- electricity in Italy. Without that, this will be impossible. And I think the government has clearly understood that and is trying to find a clever way of doing that, which in Italy is, by the way, not that difficult. Because we don't have a high level -- a high volume of gas indexed to TTF in the import side. When TTF is used internally to benchmark the gas that is traded within different players, but it is not a driver of gas prices in Italy on the import side.

Okay. Another one, I think, sort of related to that, do you see a risk of intervention on your margin in supply or any decision that can claw-back earnings from your supply business?

And the margins we have in our supply business are not that high. If you look at the cost of generating that we are facing at this moment. So we don't see that at all at risk. What we think today, there is maybe an opportunity on the same tune to finally end the regulated tariff given the fact that today. The regulated tariff for the first time since its inception is the most expensive price of the market because it is fully reflecting the volatility that gas prices are driving on the electricity pool. So I think it's a great opportunity for this government to end the regulated tariff if they wish to do so this year as the law foresees by the way.

Okay. Another one, which is still there in this kind of basket so do you think there is a risk of an introduction of a cap to electricity price? And what is, in your opinion, the risk within the integrated chain of selling electricity at a fixed price?

No as I said before, I see no risk. And I think, by the way, this is one of the measures that explicitly the toolbox at EU level has ruled out because it has been proven over the case of experience at capping prices at retail level is the worst possible mistake regulator can make. So I don't see that risk at all. I think it is, as I said, an opportunity to cap the regulated tariff increases provided that -- the gas price is capped and the regulated tariff is abolished. That means that, for example, for these people, we're talking about 12 million customers. There would be safe exits from spiral of increasing tariff system with soft landing into a free market for the first time since the beginning of the regulated tariff.

Okay. A little bit outside this range. Are you considering introducing green hydrogen in Europe or in Chile, thanks to your -- additional renewable penetration?

In Chile, we are now already starting up pilot plant with Siemens and Porsche on based on wind farms feeding hydrolytic converter and therefore generating hydrogen from hydrolysis. And we have projects in Spain and in Italy to generate hydrogen through hydrolysis in an attempt to find an economic way to produce green hydrogen, which as we know today, is still not competitive price-wise, with the gray carbon-intensive hydrogen that the industry is using. So I think in the next 2, 3 years, we'll find out if this economic equilibrium is finally possible to reach or even reached. And from there on, we will be able to, let's say, speculate about the business case. Today, what we're trying to do is find the cost equilibrium and based on that, then later develop our business case.

Another one, which is composed of 2 parts. So I'll just ask you the first part, and then we'll see if the second is needed. Will you consider directly investing in gas infrastructure in Italy?

In?

In Italy gas infrastructure?

I think probably the question is referred to the disclosure -- at the regasifier.

Exactly.

We have a project that we have developed a long time ago and is fully permitted for a regasification facility of about of exactly actually 8 billion cubic meters of gas a year. We have fully permitted this facility, but I have not invested in it. We wouldn't probably be able to offer this permitted project to any investor that is interested in doing that. If necessary, we would even step in partially as an investor to facilitate the early phases of this investment. But certainly, this is not our strategy, and we will not be either consolidating or being remaining full owners or long-term owners of this infrastructure. As we have done in Chile in the past, we will perhaps finish the construction and then sell -- the part of ownership we have retaining some regasification capacity if we see that fitting our strategy in the next 10 years, but certainly not becoming an investor long-term in this structure. It's not our business case it's not our business strategy.

Okay. There was a follow-up on the toolbox analyst, analyst is asking if we expect Italy and Spain might adopt additional windfall taxes. So they're asking again?

They have been saying that since a long time. We think probably making the calculation and finding that at the end of the day, the potential revenues they would gather from taxing this particular small renewable sector, the renewable power plant sector is not that high and does not probably justify the political price, they would have to pay. But that's something I can speculate about. Windfall taxes on renewable capacities that are not committed to long-term customers is relatively a small portion of the revenues of the system. And I think for us, it's a known point because we don't have any of that. But I think overall, in the systems, this course is widely out of proportion with the actual revenues that such a thing would be able to corral and the damages on the credibility of the financial investors in a moment in which investment in renewables is needed would be tremendous. So I'm not particularly concerned about it, but I think it's kind of maybe more symbolic than real in terms of impact.

Okay. We move to Alberto shall we expect a revision in 2022 debt given currency strength, what's the impact on the current mark-to-market of currencies on our debt, basically?

Well, the mark-to-market today, our debt is -- today, we have roughly EUR 700 million of debt increase because of FX. That is not -- so the level of debt that we have a strike price that is right in line -- on what we have presented at the end of 2021.

Okay. Another one on financials, 2021 capitalized costs have moved from EUR 2.4 billion to EUR 3.1 billion. Can you elaborate on this to which division they refer? Are you expecting similar numbers in the coming years?

The main of increasing of capitalized cost is related to the investments in distribution because here, we have the vast majority of cost capitalization in terms of human cost. And it is related to the increase in the investment that we are experiencing in this business line. We think that after the rise related of the same rise in the overall investments, we will stay at this level in the coming years.

Okay. Alberto, you actually gave us the impact on net debt of currencies evolution, in particular, in Latin American currencies, given the recovery against euro. Can you give us what's mark-to-market, the potential 2020 EBITDA positive contribution?

Right now, mark-to-market of currencies is positive in the range of EUR 300 million, EUR 400 million.

Okay. And just -- I think the one that we basically was left over, it's the -- on usage of gas in Europe for both retail supply and used in gas power generation, how much this is committed to -- firmly committed to customer -- supply with no force majeure or gas power generation already sold forward?

We use roughly 12 billion cubic meters for our activities in Europe from -- for 2022 and in the coming years. Roughly, we use say, 4 billion or 5 billion cubic meters for our thermal production and 9 billion cubic meters for our retail activities. As I said before, we have an almost perfect balance between. So I said, we have 90% of these needs that are covered by our long-term contracts, as I already said before.

Okay. I think we went through all of the questions that were sent to our address. If anything was not answered, I do apologize. We will make sure to answer after the call promptly. So thank you to all of the people connected. Thank you, CEO, thank you, CFO, and see you next week on road show and with this call, the 5th of May for the first quarter. Thank you.

Bye, everybody.

Bye. Thank you.