Enel SpA (ENEL) Earnings Call Transcript & Summary

Good morning and welcome to Enel 2025-2027 Strategic Plan Presentation. Welcome to the people here in the room with us and one connected. I'm here today with Enel's CEO, Mr. Flavio Cattaneo; and CFO, Mr. Stefano De Angelis. May I ask to have the agenda on the screen? Thanks. Here we are with the agenda of today. Our CEO will drive through the planned strategy, while the CFO will go deeper in financials. After the presentation, we will have the Q&A session restricted to the people here in the room. Thank you. And now let me hand over to Mr. Cattaneo.

Thank you, Omar. Good morning, and welcome to our 2024 Capital Markets Day. I start from the results achieved this year. The solid performance reflects our ability to deliver our promises and confirm our guidance for 2024. We've implemented the strategic pillars set last year. Our disposal plan has been successfully completed. We refocused on our core businesses and on investment with higher returns to improve the capital structures of the group. We met the debt target enabling the long-term sustainable and more profitable growth. These results are visible in total shareholder return higher than the sector and we are now ready to start a new chapter in our strategy. Let's have a look at the energy context before focusing on strategic drivers of our plan. Electricity is set to play a leading role in the energy transition. Electricity consumption will increase driven by the electrification of industrial and domestic users, the rise of electric mobility and the increase of power consumption of data centers. Renewable are expected to grow massively across all transitional scenarios. And let me say, energy system will require baseload technologies and storage to match the demand and minimize price volatility. The new market design and the regulatory framework will be necessary to remunerate investment and sustain renewable growth. Beyond everything, certainly, the transition to renewable will happen. In this context, the role of grid is extremely clear. Distribution networks are the backbone of the transition under any policy scenario. They will require high investment to host a growing renewable capacity and increase the resilience to extreme weather events. The dramatic events of last year due to climate change, convinced governments and regulators of the urgency to enhance regulatory frameworks. Indeed, the Italian regulator and the Spanish government are providing positive signals by publishing Policy Act to incentivize investment in grids resilience. Now let's go deeper in our plan. The high volatility of the past period is now ending, and we are observing a price normalization. This shift is reflected into our plan assumptions. This business plan is more conservative, assuming lower level for electricity prices fully aligned with the current forwards. Now let's have a look at the pillars and the key business drivers. We confirmed the pillars of our strategy announced last year, and well, we're starting from the first one. Profitability, flexibility and resilience. The value generation continues to be the driver of capital allocation. Investments are directed towards the best opportunities in terms of risk premium -- risk return, sorry, maintaining a flexible approach. Then the second pillar, the efficiency. Well, continue -- we'll continue to focus on optimization of processes, activities and offers portfolio with no impact of operation and safety. We aim to improve cash generation and capital productivity. We'll expand the concept of efficiency seeking innovative solution to extract further value from existing assets, even though the positive impact is not included in the current plan. At the end, the third pillar, the financial and environmental sustainability will maintain a solid financial structure, and we confirm our commitment to address climate change issues. Now let's deep dive into capital allocation. We planned EUR 43 billion of investment, proportionally allocated to reflect EBITDA contribution. Investment on grid will increase by 40% from 0 compared to the old plan, targeting a blended regulated return of 7.2% and a 22% growth in regulated asset base. We continue to be selective in renewables, maintaining the internal rate of return on average a 300 basis point over WACC. On the client side, we leverage on bundle offered and loyalty to expand customer base and marginality. Now let's focus on grids. We'll invest EUR 26 billion in grids, more than 75% in Italy and Spain, leveraging on the visibility of regulatory framework and reflecting the contribution to the EBITDA. The increase in grid investment will lead the regulated asset base to grow from the current EUR 43 billion to EUR 52 billion at the end of the plan. In Italy, in particular, the RAB will increase by 30%, implying a CAGR of more than 9% in the planned period. Regulatory advocacy will play an essential role as detailed in the next slide. As I said before, a supportive regulatory framework is the main driver to attract investment for the transition. Regulatory schemes need to address several factors such as a proper remuneration rate and incentive mechanism for resilience and performance improvement. We focus our investment where regulatory schemes are supportive and will direct our advocacy efforts toward this objective. Now let's move to renewable generation. In the next 3 years, we plan to invest EUR 12 billion renewable and to add 12 gigawatt of capacity. Around 65% of investment will be in Italy and Spain, where new regulatory frameworks are expected to support the decarbonization plan. Additional capacity will be rebalanced in favor of wind and storage, resulting in better LCOE and reduce volatility. Other remains fundamental in our generation mix. Due to the new capacity, emission-free production on total will reach 86% at the end of the plan. Capital allocation on renewable is extremely flexible and will leverage also in brownfield asset opportunities to enhance our profitabilities. As an example of this, we have just announced the acquisition of a portfolio of hydro assets in Spain at very solid multiples. We've proven our ability to execute disposal at strong multiples and are confident we can create structural value both through asset acquisition and greenfield opportunities. But I want to be clear, in case I don't find profitable investment, I give back remuneration to shareholders. Generation in grids are the underlying of make money, not the contrary. On the next slide, I detail our strategy on customers. We continue to focus on most valuable initiative in our countries and on countries where we have an integrated position. Our commercial strategy aims at increasing customer loyalty through an ample portfolio of bundled service and innovative products. An example in the virtual solar offer, which allow clients to benefit from real photovoltaic panels without the need for physical installation. At the same time, we further optimize the mix of digital and physical commercial channels to enhance customer base management. Now we have a snapshot of the evolution of the group risk profile. This slide is very important, because we change, let me say, some of our profile. As you see, EUR 64 billion of cumulated EBITDA, that is 90% of the total will come from regulated or contracted activities in detail. EUR 27 billion are regulated by design coming from grids. EUR 4 billion are from power generation covered by regulated schemes. EUR 23 billion refer to electricity generation sold to customers and contacted through PPAs, mainly in LatAm and North America. EUR 10 billion relate to regulated customer and volume sold at fixed prices. Due to this, visibility on future delivery is higher than ever. Now we talk about efficiency. The result of our actions are already visible. In just 9 months, we have achieved 60% of the 3 years target announced last year. Now we are -- we raised the target from EUR 1 billion to EUR 1.5 billion on the back of our proven ability to deliver. Efficiency and value creation can be achieved also through innovation and new business model. Indeed, we are setting up a NewCo focused on connection assets to unlock create greater efficiency and create long-term value by leveraging on the spark connection capacity of the group. The company will consolidate existing and new connection assets both of Enel and third parties, handling O&M and construction activities. Thanks to this, its global scale, it will enable optimization of cost and timing of delivery. The NewCo will offer a valuable solution to data centers starting from Italy and Spain with plans to scale up to the other countries. This new business model is extremely promising. I give you an example, only considering our Italian connection asset, the valuation of NewCo is around EUR 1 billion. In any case, to be conservative, the numbers are not included in our plan. Now our financial sustainability. The guiding style of our strategic action is financial equilibrium. Enel's leverage is today much lower than our peers, giving us the financial flexibility to capture market opportunities and maximize value for our shareholders. In any case, our financial leverage will remain lower than the average for the sector at 2.5x in 2027. Financial sustainability goes hand-in-hand with environmental sustainability. Indeed, we'll continue to reduce direct and indirect greenhouse gas emission in line with the Paris Agreement goal. For the next years, we have a certified emission reduction target compliant with the 1.5 Celsius degree pathway. We confirm the target to close all our remaining coal plants by 2027, of course, subject to the authorizations. We target to achieve net zero by 2040 when 100% of our power generation will be greenhouse gas-free. Our commitment to net zero will preserve also the social and economic context, thanks to a Just Transition plan. Let's now take a look at the KPIs and target. We achieved a significant rerating in the group performance. For the future result, we'll continue to grow at a sustainable rate. EBITDA in 2027 will increase at a CAGR of around 7%, while group net income will grow annually by 11% versus the 2022 like-for-like level. We expect a slight increase in net debt-to-EBITDA ratio over the plan period to capture value accretive opportunities. But, as I mentioned before, if we don't tie them, I give back remuneration. This is for sure. We now focus on dividend because it's part of our market-friendly approach. We are confident that our strategy will deliver visible and predictable returns. That's why we are changing our dividend policy accordingly. In the plan period, the shareholders will receive a guaranteed minimum dividend of 46% with potential upside up to 70% payout on net ordinary income. Compared to the dividend policy set last year, we have removed the cash flow neutrality gate, increased the minimum DPS across the plan period, included upside potential linked to the earnings evolution. Visibility on 2024 give us confidence to propose to the next AGM the payment of DPS of EUR 0.46 in line with the Dividend policy setted. Now I leave the floor to the CFO to go deeper in the numbers, and I'll come back later for the closing remarks.

Thank you, Flavio, and good morning, everybody. I will start my presentation focusing on the update of our capital allocation strategy that combined with the improvement of the core operation is transforming the business profile of the group into a more resilient one. We confirm the same level of investment in renewable as in the previous business plan with a refreshed approach, that remain selective and as we -- as the CEO told, "better safe than sorry," if I remember well. It's focused on capacity baked by regulated schemes like the contract for differences and its closing -- intend to close the short position that we have in some of the integrated markets, especially Italy and Spain. In this respect, the hydro deal, signed last Friday, in Spain, is a clear evidence that the brownfield opportunities are a good option to shorten time to market and improve the overall risk return profile and improving also our production mix. Capital allocation on grids is up again, whereby the proactive attitude across all geographies is accompanied by a magnitude of investment that at the same time, can be reactive to shifts of regulatory frameworks in terms of fairness and visibility. As shown by our CEO, the high level of EBITDA coverage for the plan period is confirmed also for the last year of the plan, the 2027 stand-alone at around 90%. We look more closely at the business line from the next slide, sorry. When we look at the CapEx for the grids, we may see that the first two part of the pie that accounts for approximately 2/3 of the investment, we'll be deploying recurring network development and to improve network operation, fostering quality, digitalization and resilience to extreme weather events. Connections will account for around EUR 7 billion as the backbone of the transition evolves to host increasing renewable capacity. This marks a significant step forward in the share of investment contributing to RAB growth that is up by 1.5x versus the previous plan. Indeed, out of the EUR 23 billion of net CapEx, means excluding the grants, around 90% will flow into the RAB that is the so-called RAB-in. I think, this is very important because differently from the past, we have seen that the huge investment that was realized in the sector before didn't reflect in the balance sheet, growing the asset base and the net worth. In this situation, where we have already recovered the amortization of the RAB with the level of investment that was in the previous plan, all this huge amount of investment enter into the RAB and increasing the value of the RAB asset at the end of the plan. So just to give a better example and discussion, I will go through to the Italian situation to show you that this huge amount of CapEx has a huge reflection into the RAB, but also the part that is not included in the RAB generates profitability. So when we start from grants, we eliminate this approximately EUR 3 billion of CapEx, but this amount of money that do not impact on the debt, receive a remuneration that is approximately 10% of the amount spent. So also this part that do not enter into the RAB receive remuneration. 35% of the investment in connection contributes to RAB, but the remaining 65% is recognized as a fee paid by the customer. So again, this has a positive impact into the EBITDA. An efficiency premium on top of these other components is recognized also on the portion of investment that exceed the regulatory cap, and that is also affected by the new Fast-Money concept that was introduced by the recent change into the Italian regulatory framework. As I said before, having already covered there about amortization, the CapEx flow into RAB is way up compared to previous plan. And it's what was 1.5x for the whole group in the Italian space is 1.6x compared to the previous plan. The resilience project we received a remuneration that is 13% of the invested capital that will be recognized as extra premium in 1 to 3 years, and that is equivalent to an extra remuneration of 1.5x, 1.7x for 12 years. In the next slide, we see how the weight of the grids has increased in the recent plan. This has established a solid resilient contribution financial profile, as I said before. And as you see, the weight is growing almost 10% in 2027. And don't forget that this is compared to the Capital Market Day 2022 to 2025, that was the target related to the disposal plan that includes the sale of Peru and Romania, a robust distribution asset. Following the changes implemented since last year in capital allocation principles, the weight of EBITDA from grids is set to rather increase along the plan, and will account for EUR 27 billion cumulated over the plan period compared to EUR 22 billion expected for the 2023-2025 plans. It's worth to highlight that it's not just a matter of projections, Grid's EBITDA for 2024, that, as I guided before, we reached EUR 8 billion is set to exceed by 10% the target for 2025, showed in the Capital Markets Day, 2 years before. This stronger and visible growth is supported by the EUR 12 billion high level of RAB compared to the past. Let's now move into the renewable in the next slide. In line with our portfolio strategy, we will invest around EUR 12 billion in renewables, net of partnership and asset rotation, the impact of that would be reduced to EUR 6 billion that is exactly the amount that we guided in the previous plan. The production is set to increase 70% with a higher share in Europe and U.S., which account for more than half of the total at the end of the plan, in line with the geographical allocation of priorities already defined last year. Technology wise, and this is, I think, the most important factor, we will improve our generation mix. Thanks to a rebalance in favor of offshore wind, which clearly has a better profile than solar, and storage that is needed exactly to balance the increasing renewables profile. On next slide, we will see a concrete case of how we are improving our asset base and risk return profile, also through the so-called portfolio rotation. I'm referring to the two deals signed and announced -- signed and announced in Spain this year that rebalanced our generation capacity exposure by selling a stake of 2 gigawatt of solar plants and replacing them with more than 600 megawatts of hydro, which has a programmable and a storage capability that is very relevant, especially in this transitional phase of the sector and especially in Spain, where we have saw this year how the renewables can impact the market. By comparison, another thing that is really relevant for us is that the brownfield assets have the advantage of not being subject to the permitting phase and the construction risk, enabling us to increase our share of sales to customers covered by own renewable production with additional returns generated as the case in Spain by our integrated presence in the market. The transaction is expected to be finalized in the first half of 2025, and the EBITDA contribution is expected to be in the 12-month period of more than EUR 100 million EBITDA without including the benefit that we have in terms of integrated margin. I'm just referring to the valuation that is based on just the asset, and then, as generation asset, not the positive impact that we have on the integrated part of the business. And talking about integration, we may move to the next slide where we have the integrated business deep down. Geographically wise, we will keep managing the integrated business in accordance with the difference in global market scenarios and specifics. More in details. In Europe, we can leverage, as I said before, on a solid resilient customer base and a distinctive offer portfolio. The increase in renewable production, we expand the coverage of the B2C as one medium business sales, securing and improving cost of sourcing and marginality. In the Americas, power markets, these are limited or absent in terms of B2C and SME client segment. So we will remain focused on fully hedged through PPAs, the production that we also consider the mandatory in the case, we have to take the final investment decision of new plants. Overall, the renewable sales portfolio is largely secured, headed through the contracted share or through the volumes offtaken by the retail customers. Hedging strategy takes into account also a buffer that will be used as protection from the risk of losses associated with research availability. This mostly refers to our hydro capacity. Now I will deep dive in the coverage on customer side in Europe. The integrated sourcing-sales management is set to improve on higher renewable coverage and end-to-end profitability. In detail, in Italy, the fixed sales account for 55% of the total. And as underlined in the previous slide, B2C has small medium business represent the majority of volumes sold at fixed price and are covered by renewable production for 76% expanded in this way, the integrated margin. Indexed volumes instead are naturally hedged by wholesale power prices. In Iberia, we can leverage also on the new production, which brings the coverage of fixed sales from CO2 free production to 90%. Move now to the next slide, where I will detail the EBITDA evolution for 2027. The EBITDA is set to range from EUR 24.1 billion to EUR 24.5 billion at 2027, as I said. Looking more closely to the drivers of the evolution grids will represent the bulk of growth, thanks to the strong RAB increase in Europe. Generation will benefit from the 12 gigawatt of new renewable addition offset by conservative assumption we took on prices evolution as well as the sharp decline of thermal generation on the back of lower volumes. Commodity management activities will continue to normalize. In the plan, we assume a decreasing trend to neutralize also any volatility. Finally, customers' EBITDA growth will be supported by the increasing electrification of consumption that will drive volumes and the bundle of expansion. Moving to the financial plan. Next slide, please. We will maintain a solid financial position, leverage on the financial flexibility and cash generation to fund the most of our growth ambition and to guarantee a sustainable shareholder remuneration. The source of fund will reach EUR 52 billion on a cash conversion that is set to increase up to more than 65% at the end of plan period, and the cash-in of partnership and also asset rotation for EUR 6 billion. Over the plan, we expect an increase in net debt as a balance of around EUR 6 billion, that leveraging on the financial flexibility achieved with the leverage plan that was successfully implemented will drive to a net EBITDA -- net debt-to-EBITDA ratio that is continued to be at 2.5x, one of the best in the sector. Moving to the refinancing strategy. Over the next year, we expect to raise around EUR 31 billion of funds, of which EUR 27 billion would be issued at a centralized level, bringing the percentage of centralized finance on total at around 90% in 2027. The overall cost of growth that will be lower 4%. We expect 3.9% at the end of the plan. As a result of the lower exposure to non-core geographies and the continued focus on sustainable finance that we are increasing our target for 2027. We expect the sustainable finance will reach 75% that as the total, that is an increase of 500 basis points compared to the previous plan. Finally, it's worth to highlight that around 3/4 of our debt is or has been swapped in fixed debt that protects us against any fluctuation of interest rate. Finally, I will comment briefly the soundness of our liquidity position that amounts to approximately EUR 28 billion that covers more than onetime our refinancing activities. We can go directly to the targets. As the CEO has already shown the targets for 2027, I will discuss about the 2025 where we expect to reach an EBITDA that is ranging from EUR 22.9 billion to EUR 23.1 billion, and the net income between EUR 6.7 billion and EUR 6.9 billion with a compound annual growth rate of 10% and 17%, respectively, versus the 2022 like-for-like. And with this, I hand over to Flavio for some closing remarks. Thank you.

Thank you, Stefano. The business plan we presented today is focused on core activities and it's open to innovative solution to unlock for future value. We have always in mind our shareholders' remuneration and all our actions and investments are in this direction as our interests are fully aligned. And this is why we accelerate investment on regulated assets with stable and predictable return. We focus on core activities, businesses, and geographies to enhance visibility and drive long-term value creation, and we continue to maximize cash generation to maintain a solid financial structure. This plan confirms the change of Enel's mindset. We are focused on maximize efficiency and profitability across all businesses and geographies, leveraging also on the flexible approach on capital allocation. Well, now we are ready and available for Q&A session, please.

Let's start the Q&A session. Since, we are short of time, please keep questions focus on strategic topics, not more than three. I will take two analysts in a row. Before asking your question, please stand up, state your name and company. Please, Alberto.

It's Alberto Gandolfi, Goldman Sachs. I have three. Congratulation for the plan. The first one is, can you elaborate work in progress for December 2027? I think, on your network slide, there's like EUR 6 billion to EUR 7 billion of CapEx that does not go into RAB and therefore, does not go into profits. Can you tell us the work in progress for networks and renewables? And how much EBITDA net income the CapEx you're going to spend is going to mechanically add? Because I have a feeling that the numbers are a bit better. The second one, you were very clear, this is for Mr. Cattaneo, it was very -- you were very clear that if you don't find returns you like, you will return capital to shareholders. However, the leverage at the end of the plan is only 2.5x. Your peers are 3.5x. So why not incremental capital return over and above the current plan? Or are you thinking about bolt-on M&A acquisitions? So what's the incremental balance sheet headroom over and above what we are seeing here, today? And the last question is on '25 guidance. It strikes me as quite conservative. At the 9-month 2024, you have delivered EUR 5.8 billion net income -- for 9 months. And so I wonder, what do you see as a step down for next year? Or are you very simply assuming a dry year or something goes wrong. Do you have contingencies in there? So if it's a normal year, do we need to see upside to the '25?

Okay. Roberto.

Roberto Letizia from Equita SIM. They are actually a little bit of add-on on Alberto's questions. But yes, as he said, you're not increasing the overall leverage that much, despite the significant increase in investments and exposure to regulated investments. So wondering maybe as an add-on what is the debt EBITDA that you think you may not sustain as a more regulated groups in the market? You said you are going to keep some space for any eventual additional acquisition. So if we assume you do that kind of acquisition through the plan, what kind of debt EBITDA you can sustain as reasonable? Contingencies, that my second question. You mentioned a couple through the plan, but maybe you can sum up where you think you have been a lot conservative in your view, what actually can be an add-on to the results presented? And maybe a clarification on the investments in network for what regards Spain, there is a regulatory review over there. Maybe you can highlight a couple of assumptions that you have included in the plan for what regards Spain and the regulatory decisions.

Okay. I answered the question in ample manner. In this case, you satisfy them the number. I leave the number to Stefano. What you have seen in this plan is, what we have already defined in terms of grid, generation plan and what we have defined with a certain return. Neither the last acquisition of the hydro in Spain, we don't know this deal just 2 months ago. What I think of the market? The market, in my opinion, will have, especially in U.S., are repricing. In my opinion, there will be more occasion in the brownfield -- on the brownfield side. That means more profitability rather than the past. In case there will be an important acquisition with important return, taking in consideration Enel is the only company ready to take action without destroy the balance sheet. This, in my opinion, is a strength. It's important. It's a strong position for the company, because you have seen even though we realize everything, we will be at the end of the plan at only 2.5. We know like you. We have wrote this. This is our flexible position. And I said also another sentence, in case we don't find because the market improved like the last action in U.K. for the grid. This is not the number in our expectation. When I said, when we discuss about profitability, we intend a good profitability. We have both at 8x of EBITDA, the hydro with 30 years of expiring -- the duration of the concession is paying. Do you remember the last acquisition of Enel? I don't talk about the other [ of work ] for only 7 years of the duration of the concession. This is our mindset. That means, we have a possibility to buy an important and good price, in this case, make profit for the shareholder. And they give us a possibility to improve also the dividend, because it is a relation on that. Or if we don't find nothing, no, there is many other activities to remunerate our shareholders. Could be jumbo dividend, could be share buyback, both, I don't know. But we have room for take action in any direction, and optimize the return for the shareholder. This is the key message. We have setted a company. Today, a company is business-oriented. We don't spend a lot of word about Giga and management authorization. We have 400 of authorization, because authorization, if this authorization, don't transform in money, we are not interested. This is our approach. I think for the shareholder, and I am a shareholder. I intend by other shares is what personally expect more dividend, more value, location and don't waste money. We have closed -- we have had a cost in the U.S. We have closed the charging point, the sale, the wallbox in Amazon, all the activity that produced loses, no money. In this case, we are not interested. Today is the company is in perfect shape to realize in any activities for profit. Please? I don't know if I satisfy your expectations.

So talking about the contribution, if I understood, I think, that I understood perfectly. The question is how much the EBITDA will grow from 2028 going forward? I think, that I have already spoken about this topic. So I will answer, also remember for another time that in our plan, I think you start to know us, there is no EBITDA coming from asset rotations, viewerships, something like this. So what you see, it's a utility EBITDA trend. So we do not expect something that is boom, because it's not part of our industry. If it, this happens, like happened this year, for example, the positive result of the sale of Peru and the -- if we conclude, as we expect the [ Lamberti ] asset sale, we will reduce another EUR 1 billion approximately of positive results from the disposal. But again, nothing of this is in our plan. So what is in our plan is something that is different from the past, that is. First of all, the asset base is growing. So if you look at the industry in a certain period of the industry, you see huge investment, huge EBITDA, but no growth in the asset base. What does it mean? That if you start to invest, you start to have a huge portion of EBITDA. I don't need to tell you the name of the peers, because you know perfectly. So in our plan, there is nothing like this. And as you see, just for the RAB, sorry, we are putting a growth that was never seen in the last 15 years in the company. This will generate the famous EUR 3 billion of EBITDA in Italy that you call the RAB base, just to give you a direct example. We grow to EUR 3.5 billion, EUR 3.8 billion. What does it mean, that if I do nothing my EBITDA in the network will not grow but will not decline. So I will need a reduced amount of CapEx moving forward, just to stand. We do not expect to stop to invest in the networks. We expect to continue to invest until 2030. So you will see the EBITDA continue to grow in taking benefit of 100% of the incremental CapEx compared. I give you the example of Italy that we know perfectly that was in a range of EUR 2.5 billion, EUR 2 billion, the amount of CapEx that we put into the network in Italy. With EUR 4 billion, EUR 4.5 billion, we will see an EBITDA that will continue to grow. And when we will move back to the ordinary, this will not decline. Another example, we talked about the data center. We have a business plan on the data center. We have a clear EBITDA goal for the data center, that is in the plan. When we discuss about the asset and the connection...

So let me say, the asset, the regulated that's a base now, the grid. In your opinion, all the country are in shape for strong investment for the climate change or other, because this is the situation. Which is the company ready to catch opportunity in comparison with the average of the ratio of net debt-to-EBITDA? If you have already 3.5 or 3.7, this is at the end of the race. We have at the beginning.

So I mean, just to conclude, there are a lot of EBITDA that is coming from the new investment and the result of EBITDA that is coming from extracting value to the assets that was already invested and from the efficiency. This is to stay. So the base of EBITDA, what is really important is the predictability that you have in our -- the visibility we have, but this will not decline. If for any reason, the company is not going to invest more and more, you see the trend. We moved from EUR 8 billion to EUR 14 billion, just to sustain level of EBITDA, not to growth. Now you see that each time we put the money into the company, with increasing effort, the EBITDA for sure will grow because again, 90% of the EBITDA is realized with that amount of CapEx, and there is part of the EBITDA that we are working on that is just the example of the trending topic data center. It's clear that we are working on -- we were already working on data center. We don't need to make you a presentation on what does it mean data center. We -- personally, we have worked also on data center too much time as we're looking at me. Okay. For the Spain, I think -- I don't know if we want to leave to maybe on to Marco, there was asking about some...

No. It's a [ bogus. ]

No. If you won...

No. You already know. Already you know. The government already announced, the intention to improve the WACC and also the premium for the new investment for resilience. For example, Spain, it has been a country that proved in -- with their scheme, what means the climate change, the intensity of the climate change. All the government are ready for investment.

In our risk analysis, Spain has begun after the 2 weeks -- before we have the announcement, let me say, with the guidelines of the government now in our risk return analysis that we present joining with the brand, we see opportunity compared to our figures in terms of what EBITDA impact from the regulation in Spain. Because when we build up the plan, we were not so -- we will say, let me say, find that the work was going to increase that between 7% and 8.5%, et cetera. Then just to answer that is important for the net income to 2025, we have to make work together, let's say, especially with you to understanding better what is below the EBIT or the EBITDA because, for example, we have contribution of interest on equity. The interest on equity contribution comes from the [ Slovenská, ] for example. That, as you know, we received a part of the net income, as always, that is not going to distribute dividends, and we are capitalizing the interest on a shareholder loan that for example, for the rating agency is accounted as debt. So that part impact -- has an impact on the net income, but this do not move currently with the rest of the company. So if you continue to project that impact considering that this may be not part of the growing balance sheet of the company. You may have an impact on the net income that is a non-cash one that do not impact our distribution. Also because I remember you that in 2022, the net income reported by the company was EUR 1.6 billion. So we have a lot of space in terms of dividend to be distributed as a dividend policy. But this is a part of the discussion that we will do with the Investor Relation development.

Okay. Javier -- Javier Suarez.

Thank you, Omar, and thank you for the presentation. Maybe three questions. The first one is a follow-up versus the previous first two questions by my colleagues, is on the intangibles, more than the tangibles of the presentation. So what you are saying during these presentations is -- in any case, the company see 2.5x net debt-to-EBITDA as too low by 2027, excuse me. And therefore, during the plan period, we are going to see either bolt-on acquisition or an increase in the dividend policy, a clarification on that would be very helpful. So what the company, again, is saying that 2.5x is not where the company is going to be by 2027. Then the second question is also on the intangible from the dividend. I have noticed that on the previous business plan, you were linking dividend policy to be free cash flow positive. And now that statement is just valid for 2024. So, What the company is saying is that the balance sheet solidity is of a level that allows the company to go into a negative free cash flow policy through the negative free cash flow during the plan period. And then, there is a question also related to multiple expansion. I think, that the company has made a lot of emphasis on increasing CapEx on networks, reducing or being more selective on renewable. There is an element that the company may consider of expanding the multiple producing maybe corporate complexity or the holding discount.

Robert?

Rob Pulleyn from Morgan Stanley. I just have two questions. One is on Slide 8, you have your power price assumptions for Italy. And whilst I agree power prices look like they will be stronger for longer. I'd be very interested in what the gas and carbon inputs into this power price trajectory are? And as a related question, could you update us on the Italian retail profitability? You previously guided we would see a decline to EUR 3.2 billion EBITDA in 2024, which you were on track for with 9 months. Could you give us some color as to how that evolves through '25, '26, '27?

The first one for Javier. You know that there is a room. But if today, I'm not in keeping on the opportunity, I can't put in the plan. What you see in the plan is, what we are convinced it is today possible, realized. And this is important. And at the same time, I said, I have flexibility for catch opportunity or improve the return for the shareholders. This is for sure. And the second question, I leave the floor to Stefano, but I want to answer regarding the Italian market, because I work in this sector, and I remember 20 years ago, the question is when the price in Italy will reduce, because it's the highest in Europe, it's impossible to remain. 30 years ago, the best question is when the price in Italy will reduce, because it is the highest in the EU. Last year, the same, 2 years ago, the same. The price in Italy, there is a structural problem. There is -- we don't increase generation and increase the consumption. This is the problem essentially. And we don't have nuke like Spain or France. You have seen what happened in Germany when they have decided to block the nuke. They have copy Italy, increase the price. And this is the rule for the price of energy. And there is a proportionality in terms of marginality, is the same percentage margin, but if the price is higher, is in proportion, this follow this marginality. We have taken our account the number follow the forwards. But I don't think there will be a strong change in Italy in terms of price of energy. And also the analysis for build the nuke. We talk about at least 10 years, not included in this plan another in the next plan, for the next year, for the next Capital Market Day to be honest. This remains -- indeed, all the company want to be in Italy, and is not -- this is -- but in Spain, we have a good marginality, the same. The price is less, but the pool price is not that the price that pay the final customers for the energy component and the bill is different, because the pool price is around EUR 50, and we'll pay the family, EUR 80, EUR 90, EUR 100 in Spain. You see, in any case, the pool -- but the pool is the reference for wholesale. It's not the price that paid the final customers in any country. I leave the floor for the other question.

A lot of figures -- so just to give one direct example. If you have EUR 10 of change in the pool price, if you go wholesale for example, in Italy, we have 25 terawatt you may add or lose EUR 250 million. If you sell the energy to Francesca, that said to the final customer, for me, that revenues is just an intercompany. So what is important is the retail price. The retail price, EUR 10 means EUR 25 per year, EUR 2.5 are average, then is EUR 2 per month. So this is not what affected the competition and not -- I don't -- nobody in the market will change the and make a price adjustment for EUR 2 per month, and we do not gain or lose customers for EUR 2 per month. So this is the resiliency that we have in the customer base that is completely different when we look outside Europe. And this is exactly the same for [indiscernible] in Spain. That's why it is very important because, again, if you imagine EUR 20, EUR 20 is EUR 4 per month bill. This was not the problem that we face when the baseload went to 350. That was the problem. So we use the customer base as a floor option, and we will [ pre-hedge ] eventually, the production only if it is higher than Page 8, we will make the question was Page 8, if I'm not wrong. So we will pre-hedge only if -- so we have a clear prediction. Consider that now we have already sold 100% of the 2025 to our customers, including the residential one, we are already priced for the first quarter of the 2026. In some months, we will almost complete the hedging of the customer base for more than half, the 2026 revenues. There is the churn, okay, but there is also the acquisition. So it's a resilient customer base in terms of behavior and in terms of sites. So the retail Italy, was the EBITDA of the [indiscernible] Remember that the Italian retail unit, if I was not wrong, it was EUR 2.5 billion of EBITDA before 2020. Before 2020, the free market was in half of what we have today. So there was a spike in the profits for all the industry in all the European countries. Yes, we reached EUR 4 billion. Now we will stabilize at more or less EUR 3 billion. This is what we have in mind and what we are confirming by several months, also Francesca this year. Look at me, smiling is confident.

Okay. Jenny?

Jenny Ping from Citi. A couple of questions, please. Firstly, just going back to the 2.5x net debt EBITDA target in terms of the flexibility. Can you talk a little bit about where that additional opportunity comes from in terms of M&A? So grids clearly is one area that you would be focused on? Is it foreseeable that we could see additional M&A outside of your jurisdiction as we stand in terms of networks, i.e., U.K. or U.S., for example? And then just then coming back to your point on cash return and share buybacks that you talked about, do we have to wait until '27 to get visibility on that? Or is this something that you're going to be constantly reassessing? So come this time next year, if that CapEx is not deployed is something that we could be looking at on the agenda.

Francesco.

Francesco Sala, Banca Akros. Just a couple. The first one is on Italian regulation. I wonder what you expect in terms of WACC and deflators, especially given the consultation documents published at the end of July by ARERA? So both on 2025 and beyond. And secondly, on hydro plants in Italy, I wonder what are your, let's say, latest assumptions on the tenders? It's a big issue here in Italy. So I wonder what you expect will happen. And also, I wonder what is -- how do you go back in terms of investing more on this sector especially as regards pumping, which is obviously a great fit for intermittent sources?

Okay. I want -- let me explain, if I am able to explain. M&A, of course, in my opinion, there will be opportunity in renewable side, but also in the grid side. As I said before, need to invest a lot for all the country in every part of the world. Obviously, if you have a company with a lower leverage, you have more possibility to participate at the auction or a direct one-to-one M&A. Our intention is addressed this M&A in the euro-dollars areas, because if there is, this room is, we intend to concentrate in a better, in the safe areas as the area euro-dollar is the better. For what concern, the generation, we take into account where we have already integrated, because this is transform this generation with less risk, because we have an integrated position and they are the final customer that give us opportunity to cover this generation. This is for to define. The dimension depend. In my opinion, 2025 will be here. We're stacking this M&A. And we can, after this year, define what capital we need and what -- okay, is possible to give to the shareholder. I wanted to repeat, including me, because I stay in the same situation. Because I'm not blue, if I receive money. No, I'm totally green. This is -- we have a line, this is not a problem on this side. Regarding the hydro, because the rest for the [ ex-factory ] or the other is -- I leave the floor to Stefano. Our concession expire in 2029. We are addressing our action at the EU level, because no other European country approved this adopting the same policy. Indeed, in Spain, we have both the hydro. We are working both with advocacy at the EU level even because the government is -- the new government because this is a decision, it has been taken from the old government and EU also, on the legal point of view, because there is also the possibility for us. But we have time for discuss. You have seen some action. It has been blocked from the tribunal for the court in [indiscernible] central region. We know that in Lombard, there is some legal issue between. We are in this position now.

[Foreign Language] There is a backup table in the selected figures, one that explained, I think, the most of the answer. So I will not go into other figures. In Spain, as I said before, we are today prudent, because we maintain the assumption that we were working on the plan. So if we want to -- we have more opportunity as of today, and it's important in this case, to remind that also talking about the 2.5 leverage, that is low. I'm very happy, because last year, I was spending all my time with Alberto and my guys on the disposal plan to recover a situation that seems dramatic. So thank you so much for asking so many times that we are with a very positive leverage. I'm not -- I think, that Alberto remember perfectly the Capital Market Day, 2 years before. So it's a fantastic situation to explain how we feel safe and we don't want to make probably the same mistakes that the industry did in the past. So let's wait. The situation is completely volatile. When I look, probably I come from another sector, so it's easier for me to understand this. When I look at the projection of the year. And I see that more than 50% of the renewables will come from photovoltaic. And when I see what is happening in terms of profile and in conjunction to the revenues expected by the -- for the photovoltaic, I think that it's better to wait and to buy, for example, existing asset without any risk of permit, without any risk or what will be the profile of the solar in Spain. Today, we are talking about something that is more near to EUR 30. We'll continue to reduce the LCOE, but we continue to add the profile risk to the technology.

But you take into account today, we have a good relationship with the regulator. In this, we have under discussion for the deflector and the WACC. They have already authorized they're resilient. I don't know if already published or not yet. They published the document, the public document for the additional WACC for resilient that we have announced last year, if you remember. And today, for 12 years...

The first country in Europe that adopted formally what we were discussing.

And what we have announced last year is real now. Starting Italy, then we are in discussion with the Spain, for sure, they follow. I'm not particularly concerned about the situation on this. I've already answered, that.

Yes.

Okay. The cash return, we waiting 2027, I hope before. Waiting 1 year. Then in 2025, we define some investment. This is the year that the market take action in some direction. And then we decided what I have to do with the cash available. Now 2027 is too long.

Yes, I'd also consider that when we say that we have a proactive attitude and proactive magnitude to network, it doesn't mean just low CapEx, but also it means, for example, in Spain, it's a case, there is a lot of space moving forward to increase the investment in Spain if. So we have put the proactive attitude also for Latin America. This is part of what we may imagine as additional growth and additional leverage, nothing dramatic. We are not talking about an M&A, but this is part of the flexibility that we want to retain.

Well. Okay. Bartlomiej.

Bartlomiej Kubicki, Bernstein. I will ask also three questions on the plan. Firstly, what [Foreign Language] in earnings in the grid. Secondly, I think, which has not been really discussed is your conventional generation fleet, especially the FlexGen CCGTs. How do you see the role of those power plants in your overall portfolio? And what do you expect from profitability of those assets given declining spreads, given declining load factors? And maybe lastly, on divestments. Obviously, there's not much said about divestment. I wonder if you are still open to this kind of a exit strategy? And I would be particularly interested in the high-voltage grids in Italy, given ARERA's kind of a view to consolidate high-voltage grid within Terna and incentivizing distribution companies to sell the high-voltage grids to Terna. Whether this is something you are considering, and this is out of the question?

Okay. Emanuele.

Emanuele Oggioni, Kepler Cheuvreux. My first question is on Brazil, because recently, also in Chile, but particularly in Brazil, Sao Paulo, your relationship with the local authorities were bad, in worsening in the last few months, also due to bad weather, extreme weather condition, et cetera. So my question is, what is the main risk in this -- the concession could be the renewal, the concession could be risk. I know, this is beyond the plan. But in any case, I think you have to fix the problem to address right now this issue. And secondly, in retail, in particular in Italy, what are the main underlying assumption in terms of cost per customer, profitability per customer, what do you see the competitive pressure in Italy and in Spain in the retail business?

Well, regarding LatAm, especially Brazil, our intention is make money and profitability with the new activity, but without reduce the value with existing ones. Now, because if I make EUR 1 billion, but I lose EUR 1 billion, not for activity, I don't buy -- I find this activity. I didn't buy this activity, but I have to preserve this value. And the value of the concession in Brazil need investment. And I confirm the investment for retain and obtain the revenue of concession. I want to point out that when Enel bought the concession in Sao Paulo after the war with another company. And -- this is the situation. And this concession aspiring in the next 3 or 4 years. My objective is obtain the renewable or the renewal of this concession. This has preserved the value of the Enel asset. This is the minimum level for attaining this due to the advocacy. Also, let me say, a good relationship with the government and the government approved an intelligent and smart law that anticipate the expiring of the license in front of investment and renewed the concession without pay concession, but only with investment for further 30 years, 3 0 years. And my opinion, this is the good way for preserve the value of the asset, give me a possibility to preserve this. This is important. Relating Chile is different, because the risk -- while in Brazil, there is the renew is preserve the value. In Chile, it is an important -- we don't have the same risk, because the value of the concession is more than our some other part in real, but at the same time, we have done our better effort there. We are confirmed all the legal condition. We don't expect a negative impact, even though taking into consideration, if you analyze the declaration of politician especially when there is the election. And unfortunately, we have done -- we have had a blackout in Sao Paulo in the middle of the election of the measure of Sao Paulo. And in the same time, in August, we are very close to the local election in Santiago. This is the situation. There is not a particular problem. Regarding -- which is the other -- we are not interested to sell asset, regulated asset. We are interested to buy a regulated asset, unless they offer me 20x of EBITDA. Okay, this is for some major. But could be. Indeed, we have sold the part of the grid of Milana 15x. But at the normal value, I'm not interested. If there is some lowers that particularly appreciate this, we can analyze. At the contrary, we are interested to analyze, as I said before, portion. Also in the grid in high-tension grid, Because also [indiscernible] need a lot of investment, not only in distribution, also in -- we are interested in the business fully regulated, of course, or non-regulated lag generation. But as I said before, where we have an integrated position and we transform in the same safe EBITDA, the same -- in the same way. The rest, I think...

EBITDA, the retail customers, where are you -- just to add that, as I said before, so I can elaborate on this. The transmission asset is not more a tabu, because Enel was not interested about the connection. When we talk about the how to extract value from our connection asset, it is exactly something that is similar. So if somebody comes to me for also excluding the 20x EBITDA, that's okay. But if it's somebody that I cannot add value, who knows? But now we have a plan, again, and a business plan and people working on a project that is to extract value from our transmission and connection, not regulated asset. And so we are buyer in this segment, in this subsegment of the industry, not seller. For what regards the retail customer value consider that today, we have approximately more than EUR 200 EBITDA per customer. That's something that is increasing especially if you consider the customers and not the point of distribution concept that is more of the industry when the market was not a free one. As you see, we are now selling -- we are adding more fiber and gas than power, for example, in terms of net debt. But this is exactly where we want to reach. We want to have a multiservice customer base, also expanding to the virtual solar solution, all that is part of a relationship that is not just based on price, because we are not -- we don't want -- we cannot be the company that can compete at this interest and compete into price. We want to compete into service. The electrons do not have any quality. So you need to add something that gives quality to our relation with the customer. And it means, to add services and create a loyalty relationship that goes beyond the electrons, not say the commodity, because again, the commodity has no value and no quality that -- that is not the price, and we are not interested to have a price into the energy sector.

Last question, because as I mentioned also, advocacy is crucial, and our CEO has to catch a flight to attend the G20 in Brazil. So last -- okay. Quick one.

It's Peter Bisztyga from Bank of America. So two questions, please. Firstly, you've spoken a lot about M&A, and you've talked about sort of euro and dollar countries. Would you consider pound sterling countries given that's a geography you're not in? And would you also consider technological exposure that you don't have, so for example, offshore wind? And then just on net income growth, actually, between 2025 and 2027, sort of 3% or 4% annual net income growth. Obviously, you've got generation, thermal generation rolling off in that period. So there's a few headwinds. I'm just wondering, what do you think is a sustainable long-term organic net income growth rate for a company like Enel?

Okay. I think, Gonzalo, last one, quick one, please.

Gonzalo Sánchez-Bordona from UBS. Two quick clarifications actually on one previous questions. On the investments in Brazil and Chile, just wondering in the current plan, are you incorporating all the investments that you need to actually meet the quality demands that have been made public by, I guess, regulators and politicians? That's one. And then the second one, on the nuclear. I mean, it's very clear that you are expecting nuclear to be in Italy only 10 years from now or later, I guess. But I was wondering if you could just dive a little bit what do you see yourselves as in terms of role in the nuclear deployment in Italy? Are you expecting to be a major player there? Are you involved in conversations with, I guess you are based on what has been the press? And basically, that's the question.

Well, the -- excuse me, I'm not included pound but offshore, because there is not -- of course, there is a pound as one of the currency included in this club of area of investment. We are not interested in offshore. First of all, because we are analyzing what happened in offshore in terms of revenues, but also in terms of cost, cost and maintenance, problem, connection is not of our kind of business. I don't find a problem. If it's possible, I want to find profit, that's just different. Then from -- on my side, nuke is not included in this plan. Of course, we are involved in any discussion. I think in Italy, especially for the industrial consumption in the industrial site, there is a need to have electricity less cost. And the people talk about always the renewable are important. Indeed, we realized a nuclear -- sorry, a renewable. But taking into consideration, we talk about always in terms of power, we need energy, we need hour, and an hour today to have the same profile. Today, we realize it in Italy with gas. And there is the volatility of cost of the commodity, the cost. Nuke allowed the country to have less price, especially for industry and the sectors -- and for a certain sector of the industry. [indiscernible] time, we are involved in any technology, but also the most promising SMR, we need for the realization at least 10, 15 years, is not included in this plan and maybe not including neither in the next plan, not next year in 2025 industrial plan. Before Stefano, I want to point out only one element. In this plan, the effect of the CapEx, the CapEx of the grid has not completely included. Why? Because the CapEx in grids and the regulated business have the time lag, there is some delay between the investment and the return on the tariffs. In this case, we can enjoy of this return and then the consequently profitability beyond 2027, because if you realize the CapEx in 2025, or 2026, you need 2 years to obtain the maximum return. This is important to point out, because I leave the floor for the organic evolution of...

No, in terms of compound annual growth rate, as you saw in this year, all the industry have presented the CAGR, the compound annual growth rate moving back to 2022 approximately. This is not because it's better, but because we all come from 2023, 2024 that is better than the average. So we have to look at a more long-term and normalized growth. It's clear that we need to grow higher than we are projecting, but began from a starting point that is still reflects -- you see that everybody in the industry see a decline in pool price, so we are normalizing. But at the same time, we are showing you that we have a double-digit compound annual growth rate compared to the 2022. This is higher than the, let me say, normal. We have to growth at a premium compared to, let me say, a bond, as I always say also internally. We have to be a premium bond. We need to have a notional value that grow, not to stay at 100. We need to have an interest rate that may grow in order to give to our shareholders the opportunity to have a little more risk, but a correspondent and current remuneration. So we need to grow at a premium compared to the, let me say, to the treasury that is depending on the country, and something that is very, very similar to the comparison between the return on the networks that is 7%, the work, 6%, 8% if you look before tax in Italy and the treasury results. So something that I need to say. If we look at Europe, I will say you mid-single digit. Then if you add Latin America, you need to go into the high single digit because the risk is higher. So in the average, you need to have more than mid-single-digit returns and you compare with the treasury that now is in the range of 300 basis points, if you make an average between Spain and Italy.

Okay. We are out of time. And so the Q&A session is over. Thanks for your participation, and IR department is at your disposal for any follow-up. Thank you.