Enel (BIT:ENEI) SpA (ENEL.MI) has reported robust financial results for the first half of 2024, with a notable increase in ordinary EBITDA by 9% year-over-year. The company's CEO, Flavio Cattaneo, remains optimistic about achieving the 2024 delivery goals and hinted at a possible increase in dividend payouts.
Strategic initiatives have led to significant disposals generating over €5 billion, alongside a partnership deal in Spain. With a clear focus on sustainability and efficiency, Enel is poised for continued positive performance, particularly with their renewable energy projects and strategic investments.
Key Takeaways
- Enel's ordinary EBITDA increased by 9% compared to the previous year.
- The company generated over €5 billion from disposals and secured a partnership deal in Spain.
- CEO Flavio Cattaneo expressed confidence in meeting 2024 targets and suggested a potential dividend increase.
- Strategic pillars include capital allocation, efficiency improvements, and sustainability.
- Two partnership business model deals worth around €2 billion were completed.
- Enel achieved efficiency savings of €500 million, aiming for €1 billion by November 2023.
- The company's net debt to EBITDA ratio is on track to reach the target of 2.4 times.
- Full-year guidance for 2024 is expected to be at the higher end of the range.
Company Outlook
- Enel projects organic, clear, and predictable growth.
- The guidance for the full year remains positive, with a focus on Greece, renewables, and retail segment normalization in Italy.
Bearish Highlights
- Net debt stood at €57.4 billion, impacted negatively by €700 million due to currency movements.
- The company's net debt to EBITDA ratio is expected to improve, with pending deals of more than €2 billion.
Bullish Highlights
- Enel's financial sustainability has seen a significant boost with EBITDA up over 40%.
- Positive regulatory updates, hydrology improvements, and an integrated energy management model have supported financial performance.
- Net income is expected to start contributing positively from Q3 2024.
Misses
- There were no specific misses mentioned in the provided summary.
Q&A Highlights
- The CEO and CFO provided insights into the company's financial structure, regional targets, working capital dynamics, and renewable additions.
- Investor Relations remained available for further questions post-call.
Enel's financial outlook for the second half of 2024 is promising, with FFO expected to exceed €8 billion, excluding one-off events from 2023. The company anticipates a cash flow impact of around €4 billion by year-end, including grants, dividends, and an investment deal, leading to a positive result of €2 billion after net CapEx and dividends.
Globally, hydro conditions are favorable, especially in Chile, supporting a positive outlook for the second semester. Enel is on track with their renewable energy projects, confirming the addition of 2 gigawatts of capacity in Latin America, 550 megawatts in Italy, and 400 megawatts in North America and Australia, aligning with their 2024 guidance.
InvestingPro Insights
Enel SpA's financial achievements in the first half of 2024 are complemented by strong InvestingPro metrics that reflect the company's stability and appeal to investors. With a market capitalization of $73.42 billion and a price-to-earnings (P/E) ratio at a comfortable 16.21, Enel presents itself as a solid investment in the utilities sector. Notably, the P/E ratio adjusted for the last twelve months as of Q1 2024 stands at an even more attractive 12.49, suggesting that the company is potentially undervalued compared to its earnings.
Adding to Enel's investment allure is its dividend policy, which has seen a consistent increase over the past 25 years. The dividend yield, as of mid-2024, is a significant 5.26%, showcasing Enel's commitment to returning value to shareholders. This commitment is further underscored by the company's dividend growth over the last twelve months, which is an impressive 69.51%.
InvestingPro Tips highlight Enel's status as a prominent player in the Electric Utilities industry and its low price volatility, which may appeal to investors seeking stability in their portfolio. Additionally, Enel's stock is trading near its 52-week high, indicating strong market confidence in the company's performance and outlook.
For investors interested in further insights and metrics, InvestingPro offers additional tips that can provide a deeper understanding of Enel's financial health and future prospects. To access these valuable resources, consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. With these tools at your disposal, you can make more informed investment decisions regarding Enel SpA.
Full transcript - ENEL SpA MX (ENELN) Q2 2024:
Operator: Good day and thank you for standing by. Welcome to the Enel First Half 2024 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. I would now like to hand the conference over to your first speaker today, Monica Girardi. Please go ahead.
Monica Girardi: Thank you and good evening, everybody. Welcome to the first half 2024 results presentation, hosted by Enel's CEO, Flavio Cattaneo, and the CFO, Stefano De Angelis. Following the presentation, we will have the usual Q&A session. We ask people connected to the webcast to send questions only via email at investor.relations@enel.com. Before we start, let me remind you that media is listening to both the presentation and the Q&A session. Thank you, and now let me hand over to the CEO.
Flavio Cattaneo: Thank you, Monica, and good evening to everybody. Let's start with the highlights of the period. The strong performance of the beginning of the year extended also in the second quarter, with visible progresses on financial results, the leveraging, and efficiencies. Today, we have cashed in more than €5 billion from disposal, and we have taken a step further with the partnership deal in Spain, as just announced. All this confirms our confidence on 2024 delivery. We see a result to move towards the top of the range, with a positive impact also in our dividend. Indeed, I remind you that our dividend policy allows us to pay up to 70% of our ordinary earnings if cash neutrality is reached. Let's now dive into the details of our performance. Financial results improved visibly. Ordinary EBITDA came in at €11.7 billion, up by 9% versus previous year. Stefano will elaborate on the main drivers later on in the presentation. Ordinary net income is up double-digit, confirming the trend observed in the first quarter. Cash generation remains strong, with FFO reaching $5.5 billion and providing some coverage of the net CapEx. These results are supported by managerial action put in place so far. We record further improvement in the regulatory frameworks across our operations due to our ongoing advocacy activities. In Italy, we welcome a set of decrees that can be a game changer for the renewable development. Still in Italy, on July 1, we welcomed in our customer base the client leaving the regulated segment. In LatAm, we enjoyed the stability of the regulatory frameworks and appreciate the ongoing constructive discussion with the various regulators. Value creation is mainly achieved through a carefully planned capital allocation. In line with our strategic pillars, CapEx in networks account for more than 50%. More than 65% of total investment were deployed in Europe. As a consequence, industrial parameters improve across the board. RAP customers do that around €650, renewables production on total increased by 10 percentage points, while the share of emission-free production reached almost 85%. This industrial performance benefited also our customer segment, with fixed sales covered by renewable production for almost 90%. In the period, we recorded a significant progress also in the partnership business model. In the first six months of the year, we have already completed two deals worth around €2 billion out of six to be cashed in by 2026. In particular, following the successful completion of the partnership with Sosteneo in Italy, today we announced a partnership with Masdar our solar assets in Spain. This is a clear example of how we can enhance the value associated with our project. In the partnership business model, investments are shared with the third parties to foster capacity growth and to accelerate paybacks and return, and more will come. I will now move to the second pillar of our action. Over the second quarter, we continued to progress on efficiencies. In just 12 months, we reached around €500 million savings versus 2022, and now we are halfway through the €1 billion target set in November 2023. More than 70% of this reduction is associated with the project and gross business and geographies, while the rest has been recorded at holding level due to the rationalization of operating expenses and overhead reduction. Let's now focus on the third pillar of our strategy, financial and environmental sustainability. In two years, the quality of our result improved, thanks to the managerial action implemented in the last 14 months. Notwithstanding the perimeter effect, EBITDA is up by more than 40%, and it is clean of any capital gain. Operating cash flow produced organically increased by almost 8 times. Net debt on EBITDA improved strongly, not yet included around €2 billion cash in from announced disposal. Enel is now positioned as one of the less levered companies in the sector. On environmental sustainability, emission intensity recorded a remarkable 41% decrease over the past 12 months. And now I leave the floor to Stefano, who will deep dive into the financial performance of the period.
Stefano De Angelis: Thank you, Flavio, and good evening, everybody. I'd like to highlight that, notwithstanding the energy scenario continue to be impacted globally by declining price trend, the resilience of our operating results leverages on the integrated end-to-end model we have implemented that is based on a market-driven energy management tailored on different generation assets and country-specific regulation. On the other hand, we benefit of the new capital allocation focused on visible and risk-balanced financial returns and efficiencies already achieved in this semester. As concrete evidence, we close the first half with an ordinary EBITDA up 16% for like-for-like basis, supported by the progression of grid performance on the back of constructive regulatory updates and the positive renewable generation contribution to the integrated business performance. From a geographical perspective, European countries' EBITDA accounted for 73% of the total and increasing 13% versus previous year. As you may remember, this was something we have guided in our capital market day. I will now move to the business segment results. I am on Page 11. As I commented in the previous slide, net of the 2023 disposal, grid's EBITDA increased 4%. In Italy, while the increased CapEx efforts will sustain a growing path moving forward, we recorded positive regulatory updates both on inflation and work. Spain proved almost flat year-on-year and some issue is starting to be addressed and key regulatory topics will be crucial for future growth. In Latin America, the operating performance benefited of the new rules for tariff indexation with a relevant and contribution from Argentina, only partially offset by the impact of inflation on cost. Let's now move with the evolution of the integrated business. Again, the net of perimeter, the integrated business increased by some €1.5 billion. Renewables are confirming its growth driver role already observed in the second half of 2023. The €3.7 billion EBITDA booked in the first half of this year was supported by different positive items that I am going to comment. First of all, we had higher resources of EBITDA, mainly driven by better hydrology across all countries. This accounted for approximately €800 million. We have the contribution of the investments we were performing last year and in this first half of 2024 that accounts for approximately €300 million. We do not have -- when we look at the comparison year-on-year, the €200 million clawback measure in Italy. And as also a result of the different energy management model we are implementing, last year we had a €600 million negative impact of the hydro shore position that also affected the 2022 results. Don't forget that a potential headwind represented by the poor price drop in Italy and Spain was more than offset by the increased portion of edging in the integrated margin energy management. When we move to the thermal generation, the decline trend is linked to the 12 terawatt lower output on the back of better hydrology and then of the mandatory requirements on coal production that we have commented many times in the last year. Finally, retail EBITDA decreased €100 million as the expected normalization of margins in Italy is now compared on a year-on-year basis with the impacts of the repricing of the entire residential customers program in late 2022 and first quarter 2023. Remind that in Italy at that time the forward pool price was higher than €200. This short-term positive impact on margin of debt repricing is now normalizing and we are working hardly to recover on the negative customer base impacts, leveraging on our bundle strategy and reshaped offer portfolio. Moving into the early evolution on Slide 13, we see that the magnitude of the net income expansion compared with the last year has been supported by the greater EBITDA conversion rate that stood at 34% halved by 4 percentage points year-on-year. More details, the D&A that includes the bad debt provision increased following the business investment trend, partially offset by the perimeter reduction for the assets disposed. In terms of conversion, we saw a positive contribution of 1 percentage point. The contribution was also positive with the flat financial expenses that we start to benefit from net debt reduction, tax to the cash in of the M&A deals realized at the end of the second quarter of 2024. After the deduction of taxes, net income benefited also from a higher contribution from countries with the greater equity interest as a consequence of the geographical reposition of the business in Europe. Worth to mention finally that the first half reported set of results is higher than the ordinary figures we are reporting. Let's now move on the slide related to the cash generation. The FFO stood at €5.5 billion, slightly higher versus the first half of last year. Focusing on the moving parts, let me start with the delta working capital that were minus €2.8 billion. As you know, the economic and financial impact of the operation has frequently a time lapse that may affect significantly the cash flow and the working capital short term dynamics. In the first half of 2024, we cashed out the gas arbitration and we settled the CO2 2023 provision affected by the extraordinary coal generation spike we have commented many times. On top of this, working capital was impacted by the recurring seasonality of cash costs and especially CapEx. Considering the non-recurring items that will not affect the second half cash generation and adding to this the reversal of the seasonality effect, we have full visibility on the second half cash flow being able to support our ambition in terms of net financial position and the cash neutrality target commented many times. Cash out for taxes was €1 billion lower versus previous year. As in the first half 2023, we paid the solidarity contribution in Italy and a portion of tax payments in Italy shifted to July. Finally, financial charges are in line with previous year. Don't forget that we were for approximately one year into the region of €60 billion and we had also €2 billion of held for sale that now is, let me say, less than €100 million that was generated financial cost. So, the benefits of the reduction of the reported net debt plus the held for sale that will start to contribute positively to the net income from the third quarter 2024. With this, I move to the net debt that came in at €57.4 billion, including €700 million of negative impact from currency's movement which have no cash impact. In that period, FFO more than covered the investment needs with FFO minus net CapEx being positive for €1.6 billion. Net CapEx amounted to around €3.9 billion as we received $500 million of grants and we cashed $1.1 billion thanks to the closing of the partnership with Sosteneo in Italy. Active portfolio management was positive for $4 billion at the back of the closing of the U.S. solar and geothermal deal that we performed at the beginning of the year and Peru disposal in the second quarter. I want to remind that we have already signed deals with more than €2 billion pending to be closed. Taking into account the contribution of those deals, the net debt on EBITDA ratio is already landing a target 2.4 times, one of the lowest figures among the peers in the industry. Let me now quickly remind all the M&A deals executed. The solid financial structure we have been able to reach allow me to state we have basically completed the M&A plan, aiming at the leveraging the group. The range year disposal plan has been executed at strong multiples and in some cases significantly better than comparable transactions. This latest evidence of our over-delivery is the compression of the sale of the assets in Peru that resulted in around €4 billion cash sheet recorded at the end of the semester, and a debt consolidation of around €900 million accounted as held for sale. The execution of the deals allow us to strengthen the group financial profile, add financial flexibility and unlock resources to support the industrial plan execution. Moving on to the guidance for the full year. I already updated with the same structure in the first quarter, so I will update you to the second half for ‘24 performance at EBITDA level. We had a strong semester, as you know, but it's important to highlight that results included around €300 million associated with the contribution of the Peruvian asset we disposed in May and June. That was not included in our CMD guidance. So, excluding this part of the result, in the next month we expect Greece to confirm a linear positive evolution along the quarter, supported by the existing regulatory framework and solid investment plan. The integrated business will contribute for around €7.5 billion, as renewables will continue to improve, thanks to the enhanced integrated energy manager more than offsetting the reduction in thermal generation. And the retail segment that will progress in the normalization in Italy, where we are completing our reposition in progress. The results achieved so far and the expected trends aligned with our CMD assumptions provide us visibility and growing confidence on full year 2024 EBITDA, which is expected to move towards the higher end of the guided range. And now I hand over to the CEO for some closing remarks.
Flavio Cattaneo: Thank you. As you could appreciate, the management team is focused on the implementation of the business plan pillars to deliver organic, clear and predictable growth. Our action to restore the sound production of operating cash flow will bring leverage from the one of the highest to one of the lowest in the sector. The concrete approach we are implementing, together with the strategic focus on profitability of our investment, efficiency and advocacy, will result in a different company, more profitable, resilient and able to deliver value. All of this will couple with a dividend payment that will satisfy our shareholders. Thank you for your attention and let's now move to the Q&A session.
A - Monica Girardi: Thank you. We now move to the Q&A session. I'll start with a set of questions directed to the CEO. The first one is on guidance. Numbers continue to be strong, and you confirmed the guidance. What factors could drive a revision upwards?
Flavio Cattaneo: Let me say, everything's going well. And as I said before, we see the 2024 numbers to move to the upper part of the range. But it's not the right moment now to talk about a potential revision of the guidance that remain the existing ones.
Monica Girardi: Second question is on shareholder remuneration. When will you officially disclose the level of DPS for 2024? In case it will be above, as we said, above €0.43 per share, how does this translate to ‘25 and ‘26?
Flavio Cattaneo: But let me say, this is a mathematical approach, no? Because our dividend policy is extremely clear. If we reach cash flow neutrality, this is the case so far. We'll pay up to 70% of the net ordinary income. As I said before, we see this condition. For years to come, our Capital Market Day is in November, and you will have the answer to your question. Having said that, everyone is able to calculate in your mind the result.
Monica Girardi: Addressable cost baseline reduction, do you see an acceleration of your program and potentially an upgrade?
Flavio Cattaneo: Let me say, first step is to reach the first target. And we are focused on delivering this target announced in the Capital Market Day. Again, this will be something we will discuss in the next Capital Day. We have shown to the market our ability to reach in advance, because €1 billion was the target for three years, and we have reached 50% of the total target in only one year.
Monica Girardi: I go back to the guidance out of 2026, are we still comfortable about the guidance in that year?
Flavio Cattaneo: Yes, we are.
Monica Girardi: Next question is on the evolution of the retail clients in Italy. We recorded a negative evolution on retail clients in Italy, what are the main drivers of this evolution, and what do you project for the future?
Flavio Cattaneo: As discussed in the first quarter, the evolution of the client base, the customer base, is a consequence of price strategy executed before our appointment. We are now adjusting prices, moving back to market condition and a fair marginality. I want to stress here that our churn rate is below the market average, and in July we have already clear signs of recovery. All this is in line with what is forecasted, and at the moment we don't see reason to be concerned.
Monica Girardi: Next question is about the regulation in Spain. Any news on the grids regulation? How can you define your capital allocation in absence of visibility on the regulatory framework?
Flavio Cattaneo: We have met the Spanish government, clearly explaining that it's difficult to increase our allocation of resources in the grid without a supportive regulatory framework. This is not just our position, but we share this view also with the industry. We think the government understood, and a fair agreement will be reached.
Monica Girardi: When do you expect to secure the extension of concessions in Brazil, like it happened for other companies operating in the country?
Flavio Cattaneo: The law has been already approved, and allow an extension of 30 years to all distribution companies, if, of course, the quality metrics are met, and CapEx is spent to maintain them to the future. Our concession meets the requirement, so we will apply for it in line with the timeline defined by the authority. I think in the next six-eight months, we can reach the final step to sign a contract. But the law, it has been already approved.
Monica Girardi: We have a bunch of analysts asking about the renewable deployment in Italy. In particular, they're asking if we can share our views about the approved laws to accelerate renewable deployment in the country.
Flavio Cattaneo: I think we talk about a [indiscernible] decrease. It can be interesting for development of renewable and represent an enabler for accelerating further investment. Regarding the decree on eligible areas, the impact on our pipeline will depend on the response of each region. They have six months to comply, and we wait for them to work on this before drawing our considerations.
Monica Girardi: Again, a number of analysts are asking about the disposal plan, congratulating on the execution. And they're asking also if there is a headroom for acquisitions and what would be the ideal target here.
Flavio Cattaneo: So far, nothing on our table.
Monica Girardi: Next question is on the retail again in Italy. Can you share some details on the customer acquired through the auctions in January?
Flavio Cattaneo: Yes, at the end of the period, we have added around 1.1 million customers from the auctions. Many clients already migrated to the free market and multiply offers.
Monica Girardi: I think the questions to the CEO are completed. I would move now to the CFO. Stefano, can you provide building blocks to bridge our targets to your end by region?
Stefano De Angelis: Regionally speaking, let me say in Europe, we expect a second after EBITDA higher than €8 billion in the region, with a balance of the mix in favor of the Iberian business. On the back of the normalization of the integrated market in both regions, whose direction has different drivers, but both in line with our expectations. For a time we are excluding Peru, don't forget, so in the guidance, I am excluding any perimeter effect. We will continue to perform our growing path, also versus the past of the year, supported by the incremental EBITDA contribution of the investment in renewables, and the rolling tariff adjustment implementation. The United States and other countries will confirm a contribution for around €0.5 billion.
Monica Girardi: I think the presentation was clear on working capital dynamics, but maybe it's worth to repeat that again, as we are receiving a few inbound questions on the movement in working capital and what is the projected level for year-end.
Stefano De Angelis: As I said, the presentation, maybe to give some additional detail, the second quarter was impacted by some negative seasonality and one off related to 2023 economic items like the CO2 settlement that is a mandatory process with a fine settlement date. On top of this, I want also to take note that we have to optimize for an entire region the funding across the last two quarters. Taking into account the huge liquidity related to the cash-in in the M&A assets that was basically with one specific direction to the South American business. But let me say, as I mentioned before, we have full visibility that the negative dynamic is temporary and will be reabsorbed by the year-end.
Monica Girardi: Okay. Next one is on the net debt guidance for 2024, if you can provide the expected moving parts to get to our net debt guidance for the year.
Stefano De Angelis: Yes. So, if you look at Page 14, we have shown what may be an expectation of the FFO for the second half of the year. Just taking into account the rebalance of the first half working capital dynamics and excluding from the first half the 2023 one off. Adding to this the tax payments at the end of the year and the -- let me say, stable slightly declining financial expenses payment in the second part of the year, we are guiding for an FFO that will be higher than €8 billion. Take this figure and keep in mind that if we have something that is exceptional, positive or negative, that have no negative effect, this change the FFO, but may have the compensation in other part of the net debt. So in this figure, I'm not considering any extraordinary potential impact happening in the next six months. In net CapEx, we expect an impact that is basically the similar to the first half of the year, because we have still to cash in a similar portion of grants based on the CapEx that we are realizing in Italy and that is funded by the [indiscernible]. And the deal that we have announced will be part of the partnership program. So, if you consider the cash in of the grants expected for the second part of the year, additionally on top of the €500 million already cashed in in June. And the cash in, the closing of the investment deal, the asset rotation in Spain, by year end, we will have a cash flow impact in terms of net CapEx of around €4 billion. We have already paid dividends and we have also -- the dividends in South America that will account for less than €3 billion. And we have another €1 billion coming from M&A that in this case is not part of the partnership model that is the grids in Milan that we again expect to close by year end. If you sum all this figure, more than €8 billion, minus €4 net CapEx, minus less than 3 dividends, plus 1 M&A, you will have a positive result of €2 billion. That is exactly what drives us in the direction of the leverage that we are projecting for the rest of -- the second part of the year.
Monica Girardi: Two questions on renewables. Hydro conditions are really strong. How do you project them for the full year?
Stefano De Angelis: All around the world, let me say after the tremendous trend registered in 2022 and part of 2023, we are experiencing a really good semester for hydro production, mainly in Chile. Because in Europe we have a normalized hydro production because it was a very negative performance realized in 2022 and 2023. And this allows us also to maintain a good level of reservoir. Regarding the outlook of second semester, we are projecting a positive semester, mainly driven by, again, Chile, where we see high level of reservoir in hydro [indiscernible]. And in Argentina, also we will have the impact. Don't forget that we have one of the most important assets in terms of hydro in South America represented by the Argentinian hydro asset. For the remaining areas, we expect projects that are, let me say, positive, but in line with the historical trend, that is what we consider into our budget and guidance.
Monica Girardi: The last one, I would say, Stefano, if you can provide granularity on the targeted renewable additions for this year and for the capacity currently and execution.
Stefano De Angelis: Yeah. The additional capacity we have got is 100% confirmed because we don't see any change in the program, in the spending already booked in the, let me say, last 18 months. We have this 2 gigawatt, this was deployed in Latin America, mainly in Brazil. And this is part of the upside of the trend in the EBITDA I was commenting before for the second part of the year because this asset would be 100% productive and able to generate additional EBITDA. In Europe, we added around 550 megawatt, mainly in Italy, while the red was added in North America, 400 megawatt, and Australia. Again, we expect to -- we are completely in line. Honestly, we have anticipated part of the program, especially in North America. So we will confirm, we are confirming the guided number for 2024.
Monica Girardi: If I'm not wrong, this is concluding the call. Thank you so much for being with us tonight. Our Investor Relations department is always at your disposal to answer any questions you still might have. And we wish you a really good summer break.
Flavio Cattaneo: Good evening.
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