Enel SpA (ENEL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Enel Full Year 2022 Results Conference Call. [Operator Instructions] I would now turn the conference over to head of IR, Monica Girardi. Please go ahead.

Good evening, ladies and gentlemen, and I apologize for the late start. Welcome to our full year 2022 results presentation, which will be hosted by our CEO, Francesco Starace; and our CFO, Alberto de Paoli. In the presentation, Francesco, Alberto will wrap up on 2022 numbers. Following the presentation, we will have the usual Q&A session. We ask those connected to the webcast to send the questions only via e-mail 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. Good evening, everybody. Let's start with the highlights of the period. We had a very challenging market context. But in this context, our business model proved very resilient and testified, once again, the importance of being an integrated player. Our economic and financial performance was supported by a sound operating delivery that did not stop on the strategic aims in spite of the disruptive events that met and realized in the past 3 years. All that, coupled with managerial actions that were promptly put in place, allowed us to hit the guidance set out at our Capital Market Day in November. Our strategic repositioning program progressed better than planned in 2022. We are well in track on the execution of the 2023 deals, as I will comment later in the presentation. In light of the results achieved, we will propose to the next assembly fixed dividend per share of EUR 0.4 per share against the 2022 earnings, which underpins a high single-digit growth versus 2021 and implying a 7.5% dividend yield at the current share price. We move now to Slide #3 that shows the importance of managing the business in an integrated way. We posted an EBITDA of EUR 19.7 billion, marking a 3% growth year-on-year above the guided range. Worth to highlight the composition of this growth. The management of the integrated business contributed $1.5 billion in a context of severe energy market disruptions. Our generation, trading and portfolio optimization activities more than offset the negative performance of customers in Europe, resulting from dynamics that Alberto will detail later. Networks net of stewardship benefited from the focus on efficiencies and geographical diversification as LatAm tariff indexation and past adjustments more than offset adverse regulatory changes in Europe. The growth year-on-year is normalized and organic, driven by our operations. In fact, the stewardship business model contributed for around EUR 900 million to the 2022 EBITDA, which is EUR 900 million less than the previous year, which recorded the contribution of the open fiber capital gain of EUR 1.8 billion. Nonrecurring items, around EUR 100 million in 2022, weighted on growth negatively for EUR 500 million. Our operating delivery supported targets achievement over time, as you can see in the next slide. During the last 3 years, the group delivered financial results that were very strong, with EBITDA and net income increasing 10% and 13%, respectively, despite an exogenous environment that stress tested our business model in many ways. I am on Slide #4. Leveraging on the strategic decisions taken in the past, we have been able to implement managerial actions that compensated the extreme volatility and allowed us to reach and exceed the targets that we set for 2022. The ability of the company to deliver financial results demonstrate that leveraging on an integrated position, combined with the flexibility of the asset base and the geographical diversification of the group, is crucial to absorb and adapt to abrupt changes. The '22 performance is set to support future growth prospects and provide visibility on the target set for the future years of the plan. Let's now move to the key drivers that allowed us to reach a level of debt within the guidance provided back in November last year. We are now on Chart #5. Group's net debt stood at EUR 60 billion, EUR 10 billion lower than what was reported at the 9 months results. This was expected and was a result of the actions implemented in the 2 prior quarters of the year in light of the evolution of the crisis. We have been able to meet the 58-62 guidance range despite the distressed environment and measures that were implemented by governments, which still weigh in for about EUR 5.4 billion on our financials. This result has been achieved, thanks to EUR 9 billion of FFO contribution, which improved EUR 8 billion in the last 3 months given the EBITDA performance already commented and a recovery of more than EUR 4 billion in working capital. Furthermore, the successful implementation of our strategic repositioning had a positive impact on the net -- on our net debt evolution. In the next slide, #6, I dive into the business delivery of our group in this last 3 years of disruptions. The developing machines derisked our generation capacity. The share of renewables capacity increased progressively over time, reaching 66% of the total in 2022, which is a jump of 14 percentage points in just 3 years. Over the last 3 years, we added more than 4 million customers to the liberalized market, providing them a wider portfolio of infrastructure and flexibility services to cope with their needs. And our continued effort in the digitalization of the distribution network resulted in grids of higher quality, with the average interaction down by more than 20% compared to the pre-COVID year, and now 63% of our customers are digitalized. In the next slide, I show you how our renewable development machine worked and is set to work in the future. We added more than 10,000 megawatts in just the last 24 months despite supply chain issues that have marginally impacted our construction activities. We will not stop. We target to add around 21,000 megawatts of new capacity over the next 3 years, of which 5,500 megawatts in 2023, a target that is already fully addressed. Our future ambitions are backed by a pipeline of more than 450,000 megawatts, of which around 130,000 are located in Italy and Iberia, demonstrating that we are in the best position to accelerate in the energy independence in Europe. The increasing share of clean energy resulted and will result in a benefit for our customers enjoying affordable prices particularly in Italy and Spain. Our customer base in the liberalized market in these 2 countries increased by 2.6 million customers in 1 year as our commercial policies protected people from an extremely, extremely distressed price environment. This is Chart #8. 65% of sales to customers were at prices on average around 40% lower than market prices and fixed throughout the period. This contract signed before energy tensions preserved our customers on the liberalized market throughout the entire turbulent period. We honored these conditions, even if at an economic loss as we prioritized consumers' protection against an unsustainable pricing pressure. The operating delivery of our networks will be key to accelerate the penetration of distributed generation, and you can see that on Slide #9. The investment deployed over time on networks have been instrumental to create the electricity grid of tomorrow with high level of security, resiliency and reliability to accelerate and a clean electrification. The yearly request of connections from distributed generation have increased 50% since 2019 and have reached 5,600 megawatts in 2022. These requests are associated with renewable distributed capacity, including decentralized energy management systems and virtual power plants, and our networks have been able to create hosting capacity capable to integrate these new generation sources seamlessly and unlock future value for the energy system. Furthermore, we have continued to focus on digitalization with almost 46 million smart meters installed at the end of 2022. Let's now have a look at the strategically position implemented so far on Slide #10. Group simplification has always been a cornerstone of our strategy. In 2014, we engaged in the transformation of group structures with the aim of simplifying governance while maximizing efficiency and efficacy of our actions, aligning priority at country level with the group's strategy, upgrading growth prospects, leveraging on synergies and accelerating delivery capabilities. Over time we have executed this strategy, implementing all necessary steps to transform the group into a simpler and leaner organization, focusing on the execution and value creation. We are concluding -- on the right-hand side of this chart, you can see it, this big effort as Eastern Europe and LatAm repositioning, LatAm on the left, Eastern Europe on the right. This kicked off in 2014, as you can see from the chart, and it now enters the final phase. 2022 has marked a leap forward in the simplification effort. And by early '23, the group will evolve further into the leaner form we targeted since the beginning. You see this in Page 11. Over the course of '22, portfolio management delivered better than expected, executing EUR 5.9 billion of asset value realization. '23 is also off to a great start. We already announced the signing of the sale of the assets in Romania to PPC for a total consideration of EUR 1.3 billion, and an impact on net debt of around EUR 1.7 billion. The closing of the sale is expected by the third quarter of '23, The sale of generation assets in Argentina. all the pending disposal that you see in this chart are ongoing, and we are confident that execution will be completed as planned. Finally, let's move to shareholder remuneration on Slide #12. The resiliency of our business model, the high standards of operating performance and all the actions that management have put in place during this '22 year allowed us to deliver a sound set of numbers. So we will propose to the AGM a dividend per share of EUR 0.4 per share, up by more than 5% versus previous year. It is worth to highlight that the business model we built since 2015 guaranteed a solid and visible improvement in the shareholder remuneration and the share price appreciation result in a total shareholder return exceeding 110%. Now I hand over to Alberto, who will go through the details of the 2022 financial performance. Please, Alberto.

Thank you. Thank you, Francesco. Good evening, everybody. I am now kicking off the analysis of financial results on Page 14. EBITDA stood at EUR 19.7 billion, and group net ordinary income came in at EUR 5.4 billion. Both above the guidance we communicated at the Capital Market Day. Net debt, as anticipated, totaled EUR 60.1 billion and reached the midpoint of the guidance range, thanks to the delivery on operations and the managerial actions implemented. I will detail later all the moving parts underlining the '22 economic and financial performance. Let's now take a look at the investments of the period on Slide 15. We deployed investments for around EUR 15 billion to secure future EBITDA growth. In particular, EUR 8.6 billion of the total has been allocated to support our integrated strategy, with renewables accounting for EUR 6.4 billion, up by 11% versus 2021 and the remaining portion focused on widening our portfolio of beyond commodity offerings. And almost EUR 6 billion were allocated to our grids to improve their level of digitization, quality and efficiency. From a geographical perspective, also almost 90% of CapEx has been allocated in the 6 core countries, in line with our strategic repositioning, with the lion's share spend in Italy and accounting for around 35%, followed by the United States. Francesco has already shown you the main drivers of the EBITDA evolution. So I will kick off the analysis of the performance with a deep dive into the some KPIs on Slide 16. On the integrated business, our generation assets backed in full the increase in the fixed power sales preventing margin contractions deriving from spot wholesales market exposures. Notwithstanding this, the exceptional hydro scarcity weighted on renewable sales coverage, particularly in Italy, as I will explain in a few slides. Our RAB per customer increased in the year by 7%, thanks to a higher CapEx intensity, particularly in markets where regulatory frameworks are supportive and the protection against macro volatility is the highest. I will now dive into the EBITDA volution of the integrated business by geographies. We are now on Page 17. The integrated business increased 16% year-on-year, thanks to Enel's geographical diversification and ability to manage a generation portfolio that allowed us to deliver strong results in a year affected by volatility and external disruptions. As you can see from the chart, Italy suffered the most for the energy transition tensions, with EBITDA decreasing EUR 1.5 billion. In Iberia, the integrated margin management contributed positively for EUR 1.6 billion, of which around EUR 700 million as a net-net effect of the higher generation margin, partially offset by lower marginality on the retail business, impacted by increasing sourcing costs, and roughly EUR 900 million from the gas business and the optimization of the power sales portfolio. North and Latin America contributed positively for EUR 1.2 billion in North America for EUR 300 million, EUR 1.2 billion LATAM and EUR 300 million in North America for a total of EUR 1.5 billion, mainly thanks to EUR 700 million linked to new capacity built, of which EUR 500 million in the United States, EUR 200 million for FX impact and the remaining for the gas valorization in Chile. On the stewardship result, [indiscernible] money transactions generated around EUR 400 million. Worth highlighting, the performance in LatAm in U.S. was backed by long-term PPAs that allowed to stabilize prices for customers and secure returns, while Iberia has benefited from the cap on gas prices implemented by the government that allowed the stabilization of power price evolution and a better marginality of the generation business. And now let me deep dive into Italy in the next slide. As I describe and quickly, the different business clusters that from now on will represent our integrated business. The first is power free. This includes renewable thermal generation and the retail free markets and analytic services. Then we have the power regulated, that includes must run regulated power generation and retail regulated market. Then we have the gas market that includes retail, gas and wholesale; and last, trading and generation services that includes portfolio optimization activities and balancing services. In Italy, the EBITDA associated with the integrated business stood at EUR 2.7 billion, down 34% versus 2021. As power free dropped to EUR 1.6 billion on peculiar business dynamics that I will detail in the next slide, power regulated declined by EUR 500 million due to a change in the status of the coal plant located in the south of the country that is no longer considered as must run, and due to lower prices associated with green certificates recorded in the year. Gas recorded a negative EUR 300 million associated mainly with the price review of some contracts that entails future positive impacts. And these negative dynamics were only partially offset by both power and gas portfolio optimization performed by our trading activities and generation services accounting for around EUR 900 million. And now last, let's deep dive on the power free dynamics, which, as said, generated a drop in the EBITDA integrated of around EUR 1.6 billion in Italy. The negative performance was mainly driven by an unexpected and exogenous open position for around 13 terawatt hours generated by 6 terawatt hours of higher sales and 7 terawatt hours lost in idle production due to our persisting [truth]. This unexpected open position came together at the beginning of the year with around 10% unhedged position of around 6 terawatt hours, a level that was in line -- that was in line with the -- our historical risk policies. This overall 19 terawatt hours open volumes were covered through a combination of thermal sources and market purchases that accounted for additional EUR 4.3 billion in sourcing cost, out of which only 60% translated into customer bills. In fact, as Francesco already mentioned, we decided to honor contracts signed in a completely different environment and to protect our clients from power market volatility. I will now dive into the EBITDA evolution for networks on slide 20. Ordinary EBITDA stood at EUR 8.3 billion. Going in details by country, Italy proved almost flat as the negative effect associated with last year's regulatory review was offset by efficiencies. Iberia decreased by around EUR 70 million on previous year resettlement and increase in fixed cost. Romania contributed negative for more than EUR 150 million due to a delay into the recognition of the higher cost due to spike in power prices needed to cover network losses. This delay has been already recovered in January this year. Latin America countries performed extremely well, contributing EUR 600 million, mainly thanks to tariff indexation for around EUR 350 million, currency revaluation for more than EUR 100 million and efficiencies for another EUR 100 million. EBITDA was also impacted by a negative delta nonrecurring for around EUR 300 million due to the regularization of past year's remuneration in Spain, and the positive effect of Resolution 50 recorded last year in Italy. Excluding this negative impact, EBITDA would have grown by 12%. Stewardship business model added around EUR 500 million, thanks to the valorization of Gridspertise. I end up this part of business performance with some highlights on RAB evolution and tariff use. Investment in networks stood at EUR 5.7 billion. Around 66% have been deployed in Europe, mainly in Italy, to cope with the increasing request of connections from distributed generation. Investment in quality, resilience in digitization resulted in higher RAB across almost all the countries of presence with a 7% increase at group level on a like-for-like basis. Furthermore, our networks in LatAm benefited from regulatory adjustment that resulted in a 70% tariff increase in Rio, 25% in Sierra and 12% in Sao Paulo. And now let's now continue the analysis of results with the earnings evolution, and I am on Slide 22. Ordinary group net income came in at EUR 5.4 billion on the back of the dynamics commented at EBITDA level, higher G&A and minorities only partially offset by lower taxes and financial expenses. D&A are up year-on-year at EUR 600 million as a consequence of EUR 500 million amortization on higher investment deployed and FX impact and EUR 100 million of higher bad debt made in Italy, up on higher turnover in the period. Net financial charges decreased 11% with a positive impact at net income level of around EUR 240 million, thanks to the accelerated debt refinancing carried out during the last 12 months, which pushed down cost of debt by 20 basis points versus December '21. Income taxes decreased around EUR 200 million mainly for the adjustment recorded in previous year on deferred taxes, partially offset by higher taxes for higher taxable results. And finally, higher minorities interest due to higher contribution from our subsidiaries versus the result of the Italian entities resulted in a lower net income for around EUR 550 million. And let's now move to cash flow on Slide 23. FFO stood at EUR 9.1 billion, showing a strong recovery versus the 9 months, thanks to the improvement in working capital dynamics in line with our expectations. It was to highlight that FFO has been affected by EUR 4.2 billion impact in working capital in the year associated with the government measures in the current energy context. Excluding these effects, FFO would have reached around EUR 13.5 billion. Deep diving into the working capital, the dynamics underneath can be summarized as follows. EUR 2.5 billion of government and regulatory measures still to be collected. And in the next slide, I will show you how the government-related debt has piled up over time. Worth to highlight it in Q4, a decrease of EUR 2.6 billion versus the 9 months has been achieved, mainly thanks to the reabsorption of tariff equalization in a partial recovery of FX related to the cap on gas prices in Spain. EUR 2.2 billion impact are from the energy market context improving versus last September due to the decrease in power prices in the last quarter of the year. As planned, we fully recovered the EUR 1.1 billion related to the CapEx seasonality in line with past years. Excluding exogenous impact associated with government measures and energy market context, the evolution of working capital would have been completely in line with historical trends. Finally, financial charges paid declined by EUR 400 million, mainly thanks to the liability management program executed last year, while taxes proved flat. Before we move to the net debt, let's take a closer look at pending governments measures that have still to be collected. Am I on Page 24. Over the course of the past month, working capital was affected by the pile up of measures to tackle the energy crisis in Europe, reaching the sheer amount of EUR 8 billion as of the 9 months 2022 at the peak of the crisis. As of the full year, we still suffer from EUR 5.4 billion to be recovered. Reduction is led by Italy and Spain, whereby the recognition of the tariff equalization in Italy accounted for around EUR 1.4 billion and the price cap on gas in Spain for around [ 1 ]. Net or managerial action that already partially compensated for this burden. We still have to cash in more than EUR 4 billion that, as you probably remember, we don't anticipate to be collected, not in the short term, not in full. In fact, our target for 2023 do not include any repayment while we expect half of the EUR 4 billion to be re-integrated by the end of the plan period. And now let's now move on net debt on Slide 25. Net debt stood at EUR 60.1 billion, landing as at the midpoint of the guidance communicated last November. Net debt strike amounts of EUR [ 59.6 ] million, that is EUR 500 million below the reported level. Net debt-to-EBITDA ratio stands at 3.1%, at the low end of the range we announced at the Capital Market Day. This level, coupled with the visibility of the underlying dynamics of the business plan, bodes well for the targeted lending point of 51, 52, we have in our guidance for 2023. But financial solidity was instrumental through the extreme volatility of the past 12 months. We are now on Page 26, where you can see that, along the year, the group had to financially manage 3 black swans at the same time, margin coal requirements triggered by severe commodity fluctuation. They already mentioned measures introduced by governments as well as the impact from the broader energy market context. All these factors peaked in August when we recorded around EUR 21 billion impact. The financial discipline followed along the year allowed the group to remain unscathed by this unprecedented situation. which has instead severally affected other players, leveraging also on our ample available liquidity. In the last quarter of 2022, the impact was reduced by EUR 6 billion, thanks to the managerial action implemented at the evolution of energy prices. Our total liquidity as of the end of 2022 stood at more than EUR 30 billion, healthier than ever. And worth to highlight that this does not include the EUR 12 billion credit line signed with SACE that can be used in case of a further increase in margin call requirements. The work we have been done so far on our financial position bear fruits in 2022, where liability management has always been a staple of our financial discipline, effort have accelerated further in 2021 in order to safeguard the group from the rising rate environment through the execution of the EUR 8 billion equivalent program, building a cost of 0.6% that allowed us to decrease further the cost of our gross debt, which is now at 3.3%, 80 basis points down compared to 2019. The average maturity of our long-term debt remained stable over time at around 7 years. Thank you. And now I hand over to Francesco for the closing remarks.

Thank you, Alberto. As you see in the presentation, we have navigated 2 very turbulent waters, maintaining a solid operating economic and financial delivery as well as a trajectory along the structure of our strategy. We reached our targets, thanks to an integrated business model, which protected us against extreme volatility. It's been proving to be a very solid and useful tool. This protection, combined with the productivity and fast response attitude of all our colleagues, worked properly in good years, but also in bad years, proving that this strategy is appropriate to face very different cycles. The crisis we have faced is an opportunity to leverage the focus on Tier 1 country, and the growth that we can pursue in these areas of increased focus, reducing the risk profile of our investment and maintaining a sustainable growth of our results. We now move to Q&A with Monica leading.

Thank you, Francesco. We'll move into Q&A now. If you -- just a reminder, if you have any questions, just shoot an e-mail to [email protected]. First 1 is for you, Francesco. You have highlighted the significant operational progress accomplished through our global pandemic and the energy crisis in Europe. What do you think was pivotal for these results?

Well, as I said already during the presentation, it's the integrated business model. This model has been tested through these 3 years since 2020 from every possible angle, even the unthinkable ones like a global pandemic and a lockdown, and it proved to be very, very useful to increase our resiliency. We saw the acceleration of the energy transition. We positioned as early as possible, convinced that being integrated was really the best option to successfully strive in this transition. And this model is not only integrated across the value chain, but also diversified geographically. So that also proved to be very valuable beyond expectations. So I think that was basically the most important observation and pivoting in that direction was crucial for these last 3 years.

Second question, I stay with you, Francesco additional risk capacity with 5.2 gigawatt market, a new record, but is behind planned targets. The first question is, can you tell us what has created this lag, and when do you expect to recover it?

I think there was clearly a lag that started to surface during '22 -- sorry, during '21 and continued during '22. It has to do with basically supply chain stressful situation during '21 that then morphed into a very specific problem of importing PV panels into the U.S. market. So this -- the lack of additional capacity was basically due to this 1 effect. And the U.S. import slowdown of panels imported from China was the real reason behind this 5.2 not being 6 basically.

Associated with the new installed capacity, what is the expected run rate in terms of early development that we can expect?

I think that we have to be cautious that this single issue is not fully resolved during '23. It is being worked out, but there is still a backlog to be sorted out. We expect to deliver 5.5 -- something north of 5.5 during the '23 year. I think that's really safe enough to commit to that during 2023. So we will beat again the 2022 number. But we still have a conservative view of what can happen in the U.S. on PV imports from China during '23.

Okay. Still with you, Francesco. Renewable capacity in Italy. Can you quantify the level of pipeline you currently have? And by how much you could step up your yearly deployment in the country?

So the overall pipeline of renewable projects in Italy today accounts to around 40,000 megawatts, of which probably you can say 17.5 gigawatts are late stage. That means they're very close to being investment opportunities. They are in different degrees of permitting, and that is a little bit the bottleneck in Italy, as you all know. We foresee to deploy 1.8 gigawatts in Italy in the next 3 years, accelerating gradually. We are absolutely ready to do more should this acceleration be faster. So you can see that we have about 10x the late-stage pipeline vis-a-vis what we think we will put on the ground based on a negative view of the acceleration of this permitting. If that would change, there are signs of improvement, I should say, then definitely, we will see us doing much more than 1.8.

Coal production spiked in 2022 for obvious reasons. Do you see this as a threat to your coal phaseout trajectory? Francesco, do you want to take it?

Not really. I think this was a very special contingency because of what happened in '22. In fact, we have been requested and actually extracted to work with coal to reduce the dependence on gas during the '22 year and through March this year. We see this now easing out. We don't think that the '23 outlook is that to -- such to require, let's say, a forcing of coal production from a government standpoint. So no, we don't think this will change our decarbonization strategy vis-a-vis coal. So we still maintain the 2025 date.

Okay. Alberto, the market is definitely will be picking up the new clusters on the integrated business. An analyst is asking clarification on activities -- about activities that we account into the regulated power and the gas business.

Okay. So it's useful to reiterate this new cluster in items. So in the regulated power segment, as I said, we include all generation assets that are subject to a regulatory remuneration scheme. For example, I don't know, the must-run power plants or the non-mainland generation in Iberia. And all the retail customers' business under regulated tariff. We have this kind of business in Italy. It's called SEN. We have in Spain, SCVPs, and also in all the LatAm for the not liberalized market. In the gas business item, we classified the margin from the management of the gas wholesale portfolio and the gas retail.

Alberto, still with you on grid's performance. Grid performance was driven by South American stewardship gains. What is holding back Italy and Iberia?

In Italy, main changes were associated with the WACC review. We have the WACC review down from 5.9% to 5.2%. And on the other side, also reduction in the OpEx remuneration mechanism through the X factor, that is a factor that, at the end, draw down a part of the efficiency you gain in the previous years. One point on the Italian WACC is that based on the WACC formula and mechanism of adjustment, now we see room for a trigger event that would bring back WACC above 6% in 2024. In Iberia, impacts were mainly generated by the famous ministerial orders for the 2017-2019 period issued last August, and in this, as already detailed in this presentation.

Alberto, still with you and still on grids. Can you break down the region the RAB of 2023?

Yes, we have, all in all, roughly EUR 38 billion of RAB associated with the 6 countries, in which we will focus our effort in the next years. EUR 31 billion in Europe, and roughly EUR 7 billion in South America. The remaining EUR 6 billion are related to grids or countries that are included in our disposal program.

I think you mentioned in the presentation, but just to make sure I repeat the question, what would have been a normalized level of FFO for the year? Alberto?

Yes, we have labeled exogenous impact on our FFO in 2022 because of the energy crisis of around EUR 4 billion related to the government actions, on 1 side, and exogenous increase in the total turnover triggered by the variable fixed offers that have suffered suddenly the price increase. Because we had the EUR 9.1 billion of FFO, together with this exogenous factor, we would have done EUR 13.5 billion FFO, marking a double-digit increase versus the previous year.

Still on net debt, can you provide more color on the EUR 1.5 billion impact from FX?

Well, this EUR 1.5 billion is associated with the accounting FX of currency devaluation against euro. In this EUR 1.5 billion, it includes also new leases for EUR 0.5 billion. Worth to highlight that, as I said in the presentation, our debt strikes amounts to EUR 59.6 billion. It is EUR 500 million lower than the reported level. And within this EUR 59.6 billion, it includes EUR 2.7 billion of accounting FX related to operating leases.

Net debt on EBITDA landed at the end of the year at 3.1x. How confident are you to reach your guidance of 2.4x, 2.5x in 2023?

Well, we'll end as expected, and at the low end of the guidance we gave at the Capital Market Day. Based on the visibility we have today, we are more than confident that net debt will reach a target lending point in 2023.

Net working capital set of question. I think, again, here you mentioned, but maybe it's worth to repeat again, which items within the government regulatory measures have been recovered in the last quarter?

The -- we recovered EUR 2.6 billion in the last quarter. And this is mainly related to the reabsorption of the tariff equalization in Italy. And also with the partial recovery of the impacts related to the cap on gas prices in Spain. The equalization effect working capital roughly EUR 1.3 million, and the rest is on Spain cap gas.

Second question on working capital. What has driven -- I think you mentioned again this factor in the presentation, but what has driven down the energy market context item?

This is mainly related to the fact that in the last quarter, we saw a steep decrease in power prices, and this draw down the effect of the energy market context.

In slide of the presentation, we sum up the impact of margin cost, government measures and energy context. Can you remind analysts how do you see them evolving over time?

Well, yes, so what we see is that this exposure is going to shrink significantly. And taking the current level of commodity prices, we expect another 30% of reduction within the first quarter of this year. We can, therefore, assume a reabsorption of 50% by year-end 2023, and the remaining part in 2024. And so just to stress that prudentially now our net debt estimates for 2023, we are not anticipating any meaningful reabsorption associated with government measures. Therefore, if it happens, it will be -- it will represent upside to numbers.

So a few questions about the disposal plan. So the first one is, can you share with us which deals you expect to happen by the first semester?

So which deals? So If you see there is a chart I think we showed before, I think it's Chart 10 or 11, maybe it's 11, let's see. If you look at Chart #11, you see that we have basically announced Argentina and Romania, we will probably have, within the first -- within the next trimester, so within June, July, the end of the semester, some stewardship deals and most likely the Peru negotiations to the point that we will have to be able to make exclusivities and announcements in that sense. The other deals will come the following. But I think Peru is the biggest deal we have outstanding. So we are confident that we can wrap it up before the end of the semester.

Francesco, still with you for also the second question on disposal. Is there any change in the list of assets that we put on the block?

No, we don't see any change at this point. I mean, these are assets that have been put on the process way before. So no, we don't see any change.

Alberto, disposals and value associated with disposals, can the EUR 12 billion we plug into our net debt level for 2023 be higher? Are you discussing any deal at any level that shows materially different values from CMD expectations?

Well, we can clearly not disclose the details on ongoing negotiations. Let me say that some differences may arise, but the overall portfolio is sort of taking and bringing the value -- the overall value that we gave during the Capital Market Day.

So the other 1 is kind of a consequence of the 1 that I just asked as the -- an analyst is asking if [indiscernible] and EBITDA is still valid or you feel there is potentially upside?

From the visibility we have today, we see the multiple as appropriate.

Francesco, group repositioning, you feel that anything could have been done differently or maybe sooner?

Honestly, I think that there are basically 2 large fronts, one is Europe, one is Latin America. And we can maybe observe that the COVID years slowed down the European exit a little more. So I think the -- we could have probably wrapped up Romania earlier and -- than now because -- but during the COVID, this was impossible. So I think not in Latin America where we followed quite strictly a sequence of steps that finally brought us where we are today. Remember, we had to go through a sequence. I think there is a chart showing the sequence coming before. I think Latin America did okay in the timing, but Europe, we could have maybe exited a year earlier or something like that, if not for the COVID.

Okay. We have now a quite large section around 2023 expectations and planned delivery. Francesco, maybe you want to pick this up. How is 2023 shaping up versus the planned expectation based on what you have observed so far?

I would say so far, things are -- I should not say this because it's always dangerous, but so far teams are unfolding according to our estimations, if not slightly better for what is the outlook on commodities and the way in which the markets are behaving. A little worse, but not that much. On hydro, we were negative already, so it's unfortunately looking like that. And I would say, we don't see reasons to deviate from what we observed at the beginning of the year at this point, not yet.

So do you say... Sorry.

Yes. So I think you can say what we projected 3 months ago still is there, which means, after a trimester, you can say it's already quite more solid than it was 3 years ago -- 3 months ago.

So do you see your 2023 guidance confirmed?

Yes, of course. Yes.

Okay. Francesco question about policies. What's your view on the U.S. IRA? And what opportunities could it bring for Enel?

It's a great -- first of all, we were not expecting the IRA to be finally approved as it is -- as it has been. So it's been better than expected, and then that's positive. We think it has intrinsically an incredible acceleration potential for all the major strategic direction that we intended to pursue in the U.S., both in the range of decarbonization. So more clarity on all the fiscal treatment of power plants going forward, much more than before because it's a 10 years time frame that we finally have in front of us not just 3 years. And also, much more emphasis on electrification and push into electricity that the U.S. is finally shifting into. So great also for all the analytics and the electric mobility and all the customer added value services that we were launching that are picking up speed quite strongly in the U.S. It has also a potential of adding value in terms of potential production of solar panel and the supply chain of solar. As you know, we are committed in Italy to build the factory. We are building 1, 3,000 megawatts a year factory in Europe. But we can say that the U.S. IRA clearly opens up the window for a similar identical factory to be deployed also there. To ease out the problems we have, as you all know, we have mentioned them before, that we think we will continuously face in that part of the world because of tensions on the panels being manufactured outside of the U.S., namely in China, becoming difficult to import increasingly so. So, all in all, extremely positive views and encouraging for our development in the U.S.A., definitely.

Francesco, still with you with another question on the regulation and policies. What's your view on new power market design? What's the ideal market design that you think should be implemented?

As you know, there is a proposal that just came out after quite a debate at different levels. And this is not a bad, this is quite a good proposal because it finally complements the short-term market design we used to have in Europe with a longer-term market tool that is being formed that combines CFDs and PPAs that gives the European buyers. So the demand, the visibility on longer-term time horizons, which we always thought was the missing point in the energy policy of Europe. And I think -- so that is a very, very positive evolution. It does not fully recognize our ideas that this should also be coupled with some mandatory long-term buying quotas on retailers because that will imply that they would be intrinsically better hedged and also they will have an interest to sell long term to customers. That would trigger a faster development of this long-term market, which I think is eventually going to happen. I also like the fact that it is giving the member states some discipline in what kind of creativity they want to put in place in ruling on inframarginal technology retrospectively and extension of price caps that I think, at this point in time, if the volatility remains contained, make no more sense, and therefore, should be no more allowed under the European system. And I think that's quite strongly mentioned. So it's a very good step. Clearly, it's still not the end of the story, but it moves in the right direction for us.

Alberto, I jump a second with you. An analyst is asking a clarification around the guided range, net debt and EBITDA in 2023. If you can just confirm the range.

Yes, as I said, so based on visibility we have today, we do confirm the 2.4x, 2.5x net debt to EBITDA in 2023.

Okay. Alberto, still, 2023 onwards, I would say power prices have changed quite substantially since your CMD. How this affects your 2023 targets?

Well, the impact may be relatively small because we have already hedged around 95% of Porto [indiscernible] and Iberia for 2023. Clearly, being a decent year coming from another with high volatility, there are still areas of uncertainties, and that is mainly the clawback in Italy and also the churn rate that is something that we are carefully assessing around the year. And we are working to reach better-than-planned results combining the effect coming from prices, clawback management and in churn rate.

Okay. Another set of -- set of question on retail, a bit of positioning and strategy. So Francesco, maybe I'll address them to you. So based on the experience in 2022 on retail activities, are you considering any change in your commercial strategy? Or it's still worth to go fixed price or index contracts can secure better your marginality?

Well, there is not a really fundamental change in commercial strategy. We have been adapting and evolving the commercial proposition while we have widened the range of the offerings. The point is here that what we have in our hands is now a very flexible tool. How do we want to value our fixed price generation -- fixed cost generation, be the sum of the renewable portfolio and also the hedged portion of thermal generation. And I think it's still good to have that play on a fixed price level, hedging customers from further volatilities. We will have obviously always a variable price formula for those customers that would like to go into this kind of logic. But definitely, we think it's still best to play the integrated margin, although with less volatility risk, but it's much more safe and also, I would say, much more respectful of the deal that we have with all our customers.

Another one on retail. Is there any change in your hedging strategy to prevent the impact recorded on the open position in 2022?

I think if there is some change that we want to describe is that we will make this hedging loops more frequent and continuous rather than before they were kind of discrete every month. And that was because the regulation, in particularly in Italy, had a monthly time frame attached to customer switch so that we were adapting the demand of customers, and therefore, the hedging on a monthly basis. I think we will bypass this. Although the regulation might remain on a monthly basis, we will do much more frequently hedging loops so that we will be much more precise in adapting to eventual changes. And that is probably the last -- I mean, the improvement that we have learned to -- during this 2022 crisis.

Another one on retail coverage of sourcing cost. Alberto, maybe I'll move to you. How does either availability compare with your planned expectations? How are you hedging against hydro levels?

Well, we foresee for the first quarter a lower level of [hydro electricity] production versus what we have budgeted before. This -- but this year is not impacting a lot our numbers because we are well prepared to manage this specific situation. And taking account that -- so economically speaking, it would impact lower than the previous year; one, because we have done different hedging strategies, also taking into account the possibility to have low [water] hydro on 1 side. Remember that until June, we work under the clawback scheme that will change. So we'll make a sort of natural hedge on the lower hydro production.

Okay. Alberto, still with you, can you provide some details on the expected sales for 2023?

Well, at a global level, if we exclude the asset under disposal for the 6 core countries, we expect a sales volume of around 200 terawatt hours, which nearly half sold at fixed price. And for Italy and Iberia, the overall amount is around 165 terawatt hour on the 200, I said.

Alberto, how much of the fixed price volumes will be covered by own production in our expectation and how much by renewables?

Well, in Italy, we have -- we plan to cover 100% of our fixed price sales by our own production. Also more than this because, as I said on the hedging strategy, we are putting in place to front any kind of hydro reduction we have for 2023 an extra cover of fixed sales. So we go in excess of 100%. And renewables energy, stand-alone, will cover 50% at the budgeted level. In Iberia, we have roughly 70% of fixed price sales covered by our own production with energies -- renewable energies covering 20% and the remaining 50% covered by nuclear production. And sourcing, as I said before, sourcing already hedged in Italy and Spain is around 93%.

Alberto, another one on retail. How does churn rate compare with your plan expectations?

Well, churn rate is in line with our expectations, all in all. We expect, in Italy, churn to go back in line with historical average. In the first quarter, we are seeing a little increase versus the previous year. We are working in a 7%, 8% range. And for Iberia, we have no relevant variation for 2023.

Francesco, a question for you. Do you have any expectation of additional government intervention for 2023? Or do you believe the current measures will be extended? Or are the new ones in the making?

You know that there are some measures that have not yet finished to have their effects. Some measures in Italy and Spain continue through June. But given the situation that is quite normalizing, given the strong message that the commission gave to several governments that if there are no special circumstances, then special measures should not be any more warranted. Honestly, we think the likelihood of extensions of these measures might fade out if this situation remains as stable as it is today. Again, this is an if because we have to see what happens in the next few months on the gas side. I'm not aware of additional measures being planned at this point, no.

Alberto, stewardship business model, just a question coming from an analyst that wants us to remind the market how much of stewardship is expected for the plan and for 2023?

Was to recall numbers on the stewardship business model, we said at the Capital Market Day that in the 3 years period, stewardship will contribute for EUR 1.5 billion, out of which EUR 900 million of capital gain and EUR 600 million of service and fees sold to the joint ventures that we will establish. For this EUR 900 million of capital gains of the 3 years, we see around EUR 600 million in 2023. Then so the business was going to 0 on the capital gains at the time in which we will establish all the joint ventures that we think we need to work. And then the result would be only related to the fees and services sold to joint ventures.

Alberto, minorities in 2023 -- sorry, minorities in 2022 were up on EBITDA mix. What's the level you can consider for 2023 following the completion of the repositioning?

Yes. So in 2022, minorities stood at EUR 1.6 billion. As triggered by the EBITDA mix, as explained in the presentation, this is 23% on the total net income compared with an historical level of 19%. If we see the future, also in light of the simplification plan and the normalization of the business, we can expect that this level will be around 15%.

Francesco, a question on the dividend policy. Is the dividend for 2023 confirmed at EUR 0.43 per share?

Yes. That is the number we provided during the Capital Market Day. We confirm it. Remember, this time is our dividend that could improve if the conditions allow that. So there is a slight different flavor when compared to last year's commitment, but that's confirmed.

Okay. A number of questions around the future of the Board. Analysts are asking, if you can remind them what's the path to board renewal and...

Board renewal, yes.

Board renewal. And if you can share any latest thoughts around the composition or what you expect?

The board renewal is something that happens every year, so -- because the Board is appointed for 3 years. And the Boards are -- the Board is composed of 9 members. They are all up to renewal I think the likely -- there are 3 board members appointed by a suggestion, which typically, it's not absolutely certain, maintains the Board members for a maximum period of 3 terms. So for this term, only 1 of them reaches this level. So 1 of them will be changed, but the other 2 most likely will remain. The rest of the Board members are all up to renewal. And that is a part of a list that is compiled by the treasury and then bolted at the general assembly where remember that treasury has a 23.76% of voting rights. So it will most likely be some board renewal, yes. And this is something that has more or less happened in the past years -- in the past 3 terms that I witnessed. And that is a process that will be happening within the next 3 weeks, I guess. This is 25 days before the general assembly date. So that list will be published. But I have no indication of who is going to be in the Board. There are headhunters that work. There is a process in the treasury that is being carried out and the headhunters have been now selecting Board members or confirming the existing ones and the work will, like I said, conclude in the next 2, 3 weeks. So we're almost at the end.

Alberto, an analyst is asking an update regarding the likely refinancing costs given the level of the 10-year bond in Italy and the recent issuance, I guess, it compares to the CMD guidance that we gave for 2023?

Well, this year, in 2023, we really don't have major refinancing needs. This is because we have done them along our liability management last year because we refinanced in advanced EUR 8 billion at 0.6% interest rate. And because all the needs we may have this year will be financed through the use of proceeds of the M&A disposal that we will progressively do in the year. On the other side, we have a very, very high level of fixed or swapped into fixed debt. That's why all the combination around these items will give us stability and a reduction in our cost of debt.

Alberto, stay with you. With the SLBs, PPC just announced that with increased cogeneration this year, it meets its KPI for its SLB. And consequently, the coupon has stepped up. Where does Enel stand on the KPIs? And if there is any expectation that coupon might step up?

Well, it's too early to predict. As we know -- as you know, we are working under an energy crisis that we think is far to normalize in 2023. While -- so we have to see what is going to happen in the summer to refill the stocks and the impact on prices and everything and if a different way to produce to save gas will be needed or not along the year. We are working clearly to stay in the targets. And so we will look at the end what will be the final outcome. And so we will see in 2024 if target would be mature not. And if you have to step up our cost of financing or not.

I think that was covering all the questions we received mostly. So if anything was slipping out, just bear with us, we will answer via e-mail or we will call you. So thank you so much. Thanks for attending the call. And I guess we'll see you at the first quarter. Thank you.

Thank you.

Thank you.

That should conclude the conference for today. Thank you for participating. You may all disconnect.