Enel SpA (ENEL) Earnings Call Transcript

Good evening, ladies and gentlemen. I'm Monica Girardi, Head of Group Investor Relations. A warm welcome to the First Half 2020 Results Presentation, which will be hosted by our CEO, Francesco Starace; and our CFO, Alberto de Paoli. In the presentation, Francesco will walk you through the highlights of the period and will sum up with the further opportunities. After that, Alberto will guide you through the operational and financial performance of the group. Following the presentation, we will have the usual Q&A session. In line with what we have recently done, we ask those 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 it over to Francesco.

Thank you, Monica, and good evening, everybody. So let's look at the highlights of the period. So we are in Chart #2. Over the second quarter of the year, we have touched the peak of the crisis that is associated with COVID-19 across all the countries we operate in. You will see in the next slide how this context has evolved over the quarter and the extreme scenario that has materialized. Despite this stressed environment, the group recorded a solid performance. Net ordinary income is up 6% year-on-year, demonstrating the resiliency of our business model, even against sudden and deep disruptions. Our strategy was not put on hold. Actually, dynamics of the business that we consider as being long-term trends has accelerated. We made significant progresses on decarbonization. We commissioned 800 megawatts of renewable capacity, paving the way for a new record delivery for early installations in 2020. We shut down 2.1 gigawatts of coal and announced the accelerated closure of our coal plants in Chile, which is the last one, and one unit in Italy, the Brindisi power plant. Simplification of the group structure progressed as planned. At the beginning of July, we have reached a 65% shareholding in Enel Chile, and we are well on track on the second share swap in Enel Americas, on which you will receive an update in the forthcoming weeks. In 2020, ordinary earnings will continue to underpin a mid- to high-single-digit growth versus last year. I want to highlight that this business model of ours is solid and sustainable. It is set to capture unprecedented opportunities that will come from energy transition worldwide and will translate into supported growth in future years. In light of the solidity of our company, we'll reinstate our minimum dividend per share. For this year, minimum DPS is set at EUR 0.35 per share, which underpins a 7% growth compared to the dividend paid last year. So let's analyze now the evolution of the scenario in the second quarter. As said, and we are now on Chart #3, the market and micro trends we observed during the first quarter deteriorated further in the second quarter, closely mirroring the dynamics of COVID-19. Foreign exchange represented the main headwind with Latin American currencies devalued significantly since the beginning of the year, on average, 18% just in the second quarter alone. Brazilian real is one of the currencies that have been -- that has weakened the most. At this point of the year, we don't expect any recovery in the FX rates, and we use current levels to project the financial adherence. So financially, we hear about based on the present FX rates. Electricity demand went further down in second quarter with Italy and Spain making double-digit decreases, widening further the contraction of demand that we have observed in the previous quarter. Spot prices had shown a sharp contraction in the second quarter with Spain and Italy the most affected. We expect this trend to normalize in the coming months, along with economies bouncing back from lockdowns and adjusting to a new normal. In July, we are already seeing improvements in demand in the European countries as well as in Brazil and Peru in Latin America. Thanks to the integrated margin management, we have already locked in volumes in full for 2020. And so for the 2021 production of 70% in Italy and 90% in Spain, securing far higher prices than current levels are expressing. Foreign exchange was the only headwind we could not control. Alberto will show you later the impact at EBITDA level and, more importantly, how this translated into net income impact. This extraordinary environment has put in motion several initiatives to accelerate the economic recovery, both on national and supernational level. The European Green Deal has defined climate plans that stimulate the long-term data perspective. A EUR 1.1 trillion long-term budget, reinforced by the EUR 750 billion sources allocated through the Next Generation EU funding, will address promptly the economic and social damage brought by COVID-19 in Europe, and we think of a sustainable recovery in the Eurozone. Resources available could support the sector in achieving both short- and long-term goals. Thanks to stimulus and new investments made in power infrastructures, we've been bringing renovation in automotive and industrials, have sped up in the process of fighting climate change and reaching near zero emission by 2050. The Next Generation EU could be further used to support the green energy recovery and the more firepower in green investment. Furthermore, at country level, Italy, Spain and Brazil have already implemented different measures to offset financial distress arising from the pandemia. In particular, in Latin America, we expect a regulator to be constructive on the discussions regarding the measures to be taken to offset impact on these distribution companies coming from a sudden drop in volumes. If we move now to Slide #5, which covers investments, you could see that CapEx in the first half was equal to EUR 4.1 billion. This was in line -- this is in line with last year despite the negative situation. In light of currency devaluation and inflation, CapEx would have increased by 5% year-on-year in real terms. Similarly, the commitment and the capability of the company to deploy investment for the delivery of industrial targets. Around 90% of total investment was devoted to renewables in Infrastructure and Networks, in the effort -- in the accelerated effort to digitalize grid and reconsolidation of our generation fleet. From a geographical perspective, gross CapEx was deployed mainly in Latin America, Italy and North America. Development CapEx stood at EUR 2.5 billion, representing about 60% of total investments, out of which around 75% was allocated to renewables, mainly North America and Latin America. Looking at the 2020-'22 period, more than 80% of asset development CapEx is already addressed, providing high visibility on industrial targets for the period of the plan. If we focus on the decarbonization strategy, we can move to Chart #6, which covers Global Power Generation. Out of the installed capacity of 83,000 megawatts, renewables account for 46,400 megawatts, corresponding to more than 5 -- 55% of the total. This time, we see the surpassing of thermal capacity, which is down by 6,600 megawatts versus previous year. And unsurprisingly, production from renewable sources, which, at the end of 2019, overtook production from thermal generation for the first time in Enel history, is up 4 terawatt hours year-on-year, almost twice as much as the production from thermal generation. As a consequence of this significant shift in balance towards renewables, emission-free production is close to 70% of total production, up by 11 percentage points versus previous year. So we can say that we have reached 2 years in advance the target of emission-free production quota we had set in our 2020-2022 business plan. Looking more closely to the progress on the plan for renewables, you see that with around -- this is now Chart #8, with around 10 gigawatts of capacity built and addressed, we have secured 70% of the 14.1 gigawatts that we plan to add in the period 2022. It is worth to highlight that 1 year ago, we were at around 73% of the targeted addition for the '19-'21 business plan, which, I remind you, entailed the deployment of 11.6 gigawatts, almost 3 gigawatts less than current target. So what needs to happen is that we cover the remaining 4.2 gigawatts, and these are covered more than 3x by the portion of the mature pipeline with completion operation date by 2022. The mature pipeline is up by 4,000 megawatts versus Q1 and now stands at 44,000 megawatts. This provides ample comfort on the delivery of the residual target and offers significant leeway to increase the level of commission. In light of the progress achieved on the delivery as well as the size of our pipeline, we are in position to confirm our 14,100 megawatts commitment. And actually, we are certain that a renewable capacity that we will deploy by 2022 will exceed significantly this level. Actually, you can see from the slide that the gross pipeline is in excess of 100,000 megawatts. We have been working extensively on growing this pipeline to support future deployment targets. And larger diversified pipeline ensures a profitable growth, minimizing operating risks. So if we go now to the thermal generation, you see on Chart #9 that we are accelerating further our coal phase-out. In the first half of 2020, we have shut down 2,100 megawatts of capacity, bringing the group's total coal capacity below 10,000 megawatts for the first time ever. Production from coal stands at 6.1 terawatt hours in 2020, down by a remarkable 72% from 22.1 terawatt hours which we produced in the first half of 2019. So it's 6 now. It was 22 in 2019, first half. In terms of turnover, revenues from coal amount now to 2.6% of the total, which is half of what we had in June 2019. Over the past weeks, we have taken further steps ahead in our de-coal process. Enel Generación Chile obtained the authorization to terminate the operation at Bocamina by December 2020. This is 3 years earlier than original scheduled, as well as obtained the early closure of Bocamina II in May '22 versus the original deadline of 2040, so 18 years earlier. In Italy, the Ministry of Economic Development has given the green light for the early closure of Unit 2 of the Brindisi power plant, which it was expected to happen in January 2021. This progress solidifies our commitment to the decarbonization of our fleet by acceleration closure of around 1,000 of capacity ahead of plan and leading to a total coal capacity installed in 2022 that will be more than half than the level that we had in 2019. Time to move to networks, so Chart #10. Volumes distributed are down 8% overall and across all countries of operation, with the decrease strictly correlated with the timing and magnitude of the COVID-19 outbreak. This operating parameter does not, I repeat, does not translate into an economic effect in Europe, as revenue cap regulatory frameworks typically of European countries are not sensitive to volume distributed, but it does affect Latin American countries. In Brazil, our biggest operation in Latin America, we reckon that the regulator acted promptly to ensure that the financial sustainability of the sector, and we are currently engaging the discussion on how the economic effects also can be absorbed. Throughout the period, despite operating difficulties, our efforts for the digitalization of the grid remains unchanged, bringing the number of second generation of smart meters installed to 14.9 million, up year-on-year by an outstanding 48%. Out of the 74 million end users we have in our network perimeter, 60% are now fully digitized. As a result of the investment in quality, the SAIDI and SAIFI indexes have decreased by 10% and 7%, respectively. A decrease of these indexes means an increase in quality of service. Let's now take a closer look at customers. This is Chart #11. Customers' positioning continued to strengthen via a retail traditional operation as well as on new services and infrastructures. Progress on customers will allow us to tap the value pool associated with the uptake in unitary consumption, which is expected to accelerate further in Europe on the back of the green recovery and electrification of the economy designed for the company. Customers in the free market, now at 17.3 million, are up by 600,000, with an increase in the customer base in free markets concentrated in Italy. Energy sold in the free market is down by 9% due to the COVID-19 and lockdown measures in countries where we operate. Alberto will give you details later on the economic performance of the retail business. Looking at Enel X. The division performed extremely well despite COVID-19 and recorded significant progresses in the deployment of charging infrastructure, which is up 41% year-on-year, with almost 90,000 charging points installed; extended its leadership on demand response with 6.1 gigawatts of capacity offered globally. Battery installed increased by 36% during the year, reaching up a capacity of around 110 megawatts. Fiber deployment reached 8.7 million households passed, up 45% year-on-year. I now hand over to Alberto for the analysis of the results. So Alberto, up to you.

Thank you, Francesco. Good afternoon to you all. So now I am on Page 13, and now let's move on the financial summary for the first half. As said, EBITDA stood at EUR 8.8 billion, in line versus previous year. Group net ordinary income grew by 6% year-on-year, it came in at EUR 2.4 billion. This financial performance was achieved despite a strong devaluation of currencies and the impact of the pandemic on both volumes and bad debt that I will detail later. FFO reached EUR 2.1 billion, down 58% versus last year. The decrease is mainly attributable to movements in working capital due to COVID-19 crisis and some differences in timing versus previous year. Group net debt increased to EUR 50.4 billion. I will be back on this in a few slides. Before moving to the detailed analysis of the semester, let's take a look at what FX and COVID-19 means in the semester for our financial results. I'm now on Slide 14. As you can see, the group EBITDA was mainly affected by 2 negative impacts: EUR 370 million from the devaluation of currencies; and EUR 300 million associated with the sharp contraction of volumes, impacting retail activities worldwide and metrics in LatAm. As you probably know, there is a discussion ongoing with regulators to find a way to offset mechanism to this situation. Net of both COVID-19 and FX, EBITDA would have been up by around 8% year-on-year. And down the profit and loss, we recorded a negative impact on D&A worth EUR 150 million, driven by bad debt provisioning accelerating in the second quarter, as foreseen. On the group's ordinary net income, the COVID-19 crisis translated into around a burden of EUR 200 million, topped up by a negative FX impact of around EUR 800 million, bringing the overall impact in the range of EUR 300 million. Notwithstanding these major headwinds, our integrated and sustainable business model hovered the resilient financial performance, and I'm now on Slide 15. As already commented, we reported EBITDA -- ordinary EBITDA at EUR 8.8 billion, broadly flat, showing a solid improvement of the underlying operating performance despite the adverse scenario. Resiliency of our European network has been supported by solid regulatory frameworks, like in LatAm, volumes dynamics have impacted this operating performance as well, as we will see later in the presentation. We require a coordinated and decisive action to be taken by the LatAm regulators in order to tackle the current emergency. On the generation and retail business, here, the integrated margin management has protected the economic results against the market situations. On the next slide, I will focus on the main global business line drivers. And now I am on Page 16. So before talking about the single business line, I will comment around our progress in efficiencies. As you can see from the chart, in the first semester, operating expenses decreased by 7% or more than EUR 300 million, mainly thanks to the efficiencies registered in the period. We recorded efficiencies for more than EUR 170 million, well balanced between the retail conventional generation and networks. Thanks to an acceleration of the efficiency plan, we are now well on track to reach our target of EUR 1.2 billion accumulated in 2020-2022 plan. Finally, we recall that, as already commented during the first quarter results call, the current level of OpEx, which amounts to EUR 3.6 billion, has been positively impacted also by the provision released in Spain for EUR 356 million. And now we will go through the details of the operating performance for the semester. We are now on Page 17, where we take a look at the performance of the Global Power Generation business line, while in the following 2 slides, we will go more in detail through the performance of Enel Green Power and the conventional generation. The ordinary EBITDA of the Global Power Generation increased by 9% and reached EUR 3.4 billion. Excluding the impact of FX devaluation in LatAm, performance was up by 15% versus the previous year. The improved profitability of Global Power Generation with a higher share of renewables is highlighted by the 10% increase in unitary margin. Worth to remember that last year, performance included around EUR 100 million capital gain associated with the full consolidation of our North American assets as well as EUR 160 million positive contribution associated with the early termination of a PPA contract in Chile. As already highlighted during the first quarter call, this year -- in this year, we had -- the result has been positively impacted by a provision reversal in Spain of around EUR 170 million. Last year, EUR 270 million of one-off; this year, EUR 170 million, EUR 100 million less. In the next 2 slides, we begin to Enel Green Power and conventional generation. I will analyze the main components of the performance, and now we can move on Page 18. For renewables, ordinary EBITDA came in at EUR 2.3 billion, a 1% increase versus last year. Net of negative FX impact, EBITDA would have increased by 7%. As mentioned in the previous slide, during the first half 2019, we recorded a net capital gain and the -- an early termination of a PPA contract in Chile for a total amount of EUR 180 million. No impact -- one-off impact has been reflected this year. So the operating performance was mainly impacted by the following dynamics: EUR 100 million coming from the additional capacity installed in 2019; EUR 150 million of increase from the positive contribution of hydro plants performance, mainly in Italy and Colombia; EUR 70 million of increase as a result of higher prices, fully hedged, driven mainly by Italy and Latin America; and EUR 20 million coming from efficiencies. The overall impact of the FX devaluation of LatAm currencies is in the range of EUR 130 million. Now we can move to the conventional generation, and I am on Page 19, where you can see that ordinary EBITDA increased by 32% and came in at EUR 1.1 billion. As already said, the semester was positively impacted by the provision reversal in Spain that accounts EUR 170 million for this specific business for the conventional generation business; while last year, the ordinary EBITDA included the positive contribution associated with the early termination of a PPA contract in Chile for around EUR 80 million. Net of these items, the underlying operating performance has recorded an improvement of 23% year-on-year or around EUR 170 million. And this is mainly due to EUR 150 million as a positive result coming from the group's short position; plus EUR 60 million resulting from higher prices, fully hedged, mainly in Italy; around EUR 55 million coming from efficiencies, mainly in Italy and Spain; the FX depreciation impacted by around EUR 60 million of decrease in this business. Moving now on Page 20, you can have a look on the Infrastructure and Networks. Here, ordinary EBITDA came in at EUR 3.8 billion, almost flat year-on-year. Net of the EUR 170 million negative impact from currencies devaluation, EBITDA would have increased by 3%. Reversal provision in Spain impacted the ordinary EBITDA for around EUR 180 million; while last year, EBITDA was positively impacted by the regulatory settlement in Argentina for around EUR 200 million. So also here, the net effect of the one-off, 2019 and 2020, is almost the same. As a result, the underlying operating performance has been broadly stable, demonstrating the resiliency of the business, particularly in the European countries. In Latin America, the business performance was impacted negatively for around EUR 80 million, mainly in Brazil, by the 7% drop in volumes of electricity distributed. As said before, discussion with regulators are ongoing. And we expect, further to what has already been done to offset the financial impact, other actions to be taken to offset the economic impact. In addition to the volume impact, the main moving parts of the period has been the following: we added EUR 100 million related to the investments in digitalization and improved the service quality; we added EUR 40 million for efficient systems; we got the tariff indexation in Latin America for EUR 80 million that has partially compensated the decrease in volumes; and then the currency devaluation impacted negatively for around EUR 220 million. And lastly, on Page 21, I'm on the retail side. As you can see, EBITDA evolution reflects a really challenging environment, which has seen drastic shift in Enel's customer base consumption. Notwithstanding this, at the end of a period that we consider the worst of the year being affected by severe lockdowns, in particular, in Italy and Spain, retail operations continued to work properly. And while in Spain, the customer base remained stable, in Italy, we added 500,000 new customers in the liberalized market. Additionally, around EUR 70 million cost reduction has been did, both in free and regulated markets, out of which EUR 40 million in Italy. Looking closely at the free and regulated market, the free market EBITDA declined by around EUR 70 million or 5% year-on-year. The decline is mainly attributable to the following effects: in Italy, EBITDA declined 7% or around EUR 70 million due to a temporary longer position driven by a sharp contraction in volumes led by B2B customers; and also lower gas consumption, mainly as a consequence of a mild weather. The average unitary margin for both B2B and B2C markets were broadly unchanged versus last year. In Spain, EBITDA declined by 6% or around EUR 20 million on the same temporary longer position that I have observed for Italy driven by a decline in electricity sold. In Romania, retail EBITDA increased by more than EUR 20 million on the energy margins. Regulated market EBITDA decreased overall by 1.5% or EUR 10 million. And now that we have gone through business drivers, we can move to the financial section. I'm on Page 22, where you can see that ordinary group net income came in at EUR 2.4 billion or plus 6% versus last year, mainly thanks to lower financial expenses, a better result from equity investments and the reduction in minorities interest, which more than offset increase in D&A and higher tax rate. In particular, D&A increased by around EUR 130 million, mainly refers to the higher level of bad debt accruals related to COVID-19 scenario, for which discussions with regulators and material actions are ongoing to compensate the impact. The decrease in financial expenses reflects the continuous decrease of the cost of debt, which declined by around 30 basis points versus the end of 2019, with now an average cost of debt at 3.8%. Results from equity investments stood at EUR 35 million, while taxes increased by around EUR 165 million versus last year, mainly due to EUR 35 million for higher earning before taxes and others for recognition in 2019 of the federal tax in U.S. and in Argentina. And also, on the cost in 2019, we booked some positive one-off items such as the fiscal incentives on intellectual properties in Italy. Minorities decreased by 18%, reflecting operating dynamics, mainly in Spain and Latin America, and an increase in Enel Américas and Enel Chile stake followed by our share swap activity. Now moving to Page 23, we can have a look on the cash flow. As said before, FFO stands at EUR 2.1 billion, strongly impacted by COVID scenario, which reached its peak during the second quarter of the year. In more details, dynamics underlying the FFO compared to the previous year can be explained as follows: EBITDA came in line with 2019, considering also that the provision reversal in Spain has no cash impact; change in provision increased by around EUR 400 million, mainly attributable to increasing the debt of COVID dynamics already commented; and the Resolution #50 in Italy. Working capital was impacted for around EUR 2 billion by the lockdowns in different countries, as already anticipated during the first quarter result presentation. Payment of taxes last year has been moved to July, so this is the difference in practices, always a time difference. Out of the EUR 2 billion extraordinary impact, we expect to recover around EUR 1.2 billion in the second half of the year, on top of the usual working capital recovery as a consequence of the return to a stabilized situation worldwide and to the reabsorption of the CapEx curve, leading to a EUR 2.5 billion successful recovery from working capital management in the second half. Worth to mention that Enel in Brazil has already approved the measure that will support the reabsorption of around EUR 500 million by the year-end. Negative free cash flow is a consequence of the dynamics mentioned above, which we expect to partially recover in the second half of the year, bringing our cash generation to cover investments. And now let's move to take a look at net debt on Slide 24. Net debt stood at EUR 50.4 billion. Changes are driven mainly by an increase of EUR 200 million related to new leasing on IFRS 16; the negative free cash flow impact of EUR 2.1 billion already commented; and dividend already paid for EUR 2.6 billion; and cash outflows related to the further increase in the share of Enel Americás and Enel Chile through the equities swap; and then we recorded EUR 700 million positive FX impact from devaluation of local currencies against the euro. It's worth to highlight that net debt at strike price of hedging is EUR 500 million lower. We have already around EUR 4.5 billion of hybrid still full accounted as debt. And in Brazil, we will shortly receive EUR 350 million from the financial relief program for the distribution companies. Our gross debt increased by around EUR 2 billion as a result of the evolution of net debt, which has increased by around 5.2%; and the reduction of cash deriving from the liability management activities performed at the end of 2019 to finance 2020, which helped us also in reducing cost of debt by 30 basis points compared to the end of 2019. In the following slide, you will appreciate our strong liquidity position and credit metrics. As you can see, our total liquidity as of the end of June stood at EUR 26.5 billion, of which EUR 5.9 billion in cash on hand and the remaining EUR 20.6 billion in available committed credit lines. This level of liquidity covers 1.5x the debt maturing by 2023 amounting to EUR 18 billion, net of short-term debt that is -- will be rolled over. Our credit metrics show a stable level of leverage, notwithstanding the extremely adverse impact on cash dynamics derived from COVID-19 with a net debt/EBITDA ratio at 2.8 in the last 12 months. The solidity of our credit metrics is further testified by current rating levels and outlooks expressed by rating agencies, which acknowledge the sustainability of our credit metrics even in the current depressed scenario. And now let me conclude this part of the presentation, driving you through our new financial target for the year, as you can see shown in the slide. Over the course of the presentation, we have commented in detail the main factors that have come into play. In the past month, all these variables contributed to the creation of the extraordinary circumstances we are operating in and that will remain with us for the foreseeable future. Looking ahead, we are extremely confident on the long-term performance of the group as the solidity of our business model provides itself once again, showing resiliency against turbulences and in extreme scenarios. There is an ongoing expansive effort to offset the impact of this crisis through discussions with local authorities and regulators as well as through managerial actions. Not all factors can be offset with FX being an exogenous variable and bad debt dynamics associated with broader economic condition and regulatory intervention. We do not expect a recovery of currencies by year-end, and we must reflect this new scenario into our 2020 guidance. Based on the updated currency projections, EBITDA is expected to come in at around EUR 18 billion, while net income is expected to be in the range of EUR 5 billion, EUR 5.2 billion for 2020. Net debt, starting from EUR 50 billion we have just commented, is projected to fall in the EUR 48 billion, EUR 49 billion range, depending mainly to the completion of active portfolio management opportunities that we are exploring. Shareholder remuneration, backed by the EUR 0.35 per share minimum guaranteed dividend set for 2020, will yield a mid- to high-single-digit year-on-year growth comprised in the range between 7% and 9%. I finish here. Francesco, I hand over to you for closing remarks.

Thank you, Alberto. So as you have all heard, we've been experiencing an extreme, quite unforeseeable scenario with headwinds ranging from all sides, from macro variables to operating dynamics. So I should say that if there was to be a proof of the resilience and validity of our integrated business model, this is the proof. Despite this very challenging environment, we have been able to deliver a solid operating performance on the back of this very resilient business model that we were talking about, coupled with our efforts to ensure business continuity across all segments and countries, leveraging heavily on the digitalization of our asset base and processes. Our long-term strategy is confirmed and is accelerating driven by the structural changes in the market, further enhanced by the economic stimulus under definition. The increased support on a green recovery will drive investment upwards and will open up new value pools that we are more than ready to capture. Earnings are set to grow mid- to high-single digit, underpinning an increase in the shareholder remuneration of at least 7%, which is further supported by the minimum guarantee of the dividend per share policy. It is worth to highlight that our dividend policy has not changed, and we will continue to pay the highest dividend per share between the 70% payout mechanism and the minimum guarantee, which has remained unchanged for all the years of the plan. So thanks for your attention, and let's now open to the Q&A session, Monica.

Okay. Great. I hope the line is getting better from now on as we have some weird noise on the line. So we're now ready for our Q&A session. We'll kickoff, as usual, with questions we received so far from Emanuele Oggioni, Banca Akros; Harry Wyburd, Bank of America Merrill Lynch; José Ruiz, Barclays; Lawson Steele, Berenberg; Meike Becker, Bernstein; Antonella Bianchessi, Citi; Andrew Moulder of CreditSights; Stefano Bezzato, Crédit Suisse; Roberto Letizia, Equita; Alberto Gandolfi from Goldman Sachs; Javier Garrido, JPMorgan; [ Claudia Thome ], Helvea; Enrico Bartoli, MainFirst; Javier Suarez, Mediobanca; Rob Pulleyn, Morgan Stanley; and Oscar Nájar, Santander. So the first question is for you, Francesco, and it's on the full year guidance that has been revised that take into account the FX impact. Do you see any further risk to that?

Of course, at the very moment, we should say no. It is heavily depending on the COVID-19 evolution across geographies in the next months. If things remain in the direction which we are seeing, both in Europe and the evolution in the U.S. and Latin America, the answer is this is it. Should there be further combustions of this epidemic or pandemic, then this has to be assessed probably during the fall. See, as we stand, I think the FX effect, which is fully accounted in our projection at the year-end, is the problem, without which we would not be having any change in our policy.

Okay. Second question. Starting from this new level of 2020, what can we expect for 2021 and 2022 for both EBITDA and net income?

So as you know, we are working now on the new plan, and we know that this is the plan that we present in November, typically. So this November will also be the one. This plan will take into account the view that we have of the evolution of the COVID-19 through the end of the year and, of course, the spillover in '21, also the actions that we have to put in place to offset any longer-term trends that we can probably extrapolate at the end of the year. It will also take into account the positives that we started to seep in due to the actions, in particular in Europe, that will be put on the market by the new recovery fund. So this is something that we are studying and we're factoring in the '21-'22. And we will be able to appreciate this fully in November. I cannot anticipate much. You should also know that because this is 2020, we have a 2020-2030, 10-years positioning for the company that we have developed, and it will be also important to give some perspective on the longer term and the typical 3-year cycle that we used to give all the people. So I know this is a kind of long-winded answer to say nothing, but basically, we don't expect much more than what we have seen in 2020 at this point in the negatives.

Okay. We move to the CFO. Net debt guidance changed as well. What are the main moving parts on the evolution of net debt?

Well, as said, so we expect to close in the EUR 48 billion, EUR 49 billion range. It's clear that we have some moving parts already. And the main is the banning processes, the suspension in all the countries in which we are. So the very point depends on the deal suspension or if there will be a prolongation of the banning processes. If everything will go the way we are -- we foresee, we will also recover this EUR 1.2 billion of working capital, leaving EUR 800 million of working capital to be recovered in the next year. The second point, it's clear that we have increased our debt in the first half also because we saw a window of opportunity in buyback, Latin America shares in Chile and in the Americas, and we did it. So the overall plan foresees some coverage through some disposals that we have in the second half. This clearly depends on the fact that there will be the possibility to close some deals in the second half. If not this -- in this time period, we will have some delays recovering this retail portion and we will do in the first quarter 2021. It depends on how the economic scenario will recover and also the deal-making that will be a big part.

Okay. There are a couple of questions that I will split in 2 on the dynamics related with the working capital. The first one said, "Can you provide more color on the extraordinary components of the working capital, I assume, in the first half?"

Well, as said, so the working capital has been mainly affected by leasing correction. So what we did is, on one side, we worked to try to reduce the impact of the mix in collection because of the impossibility to get cash directly. Remember that it depends mainly on the -- how all the -- in the single countries are accustomed to pay. So we have countries with 80% of bank payments that suffered very little, other countries that are based on big percentage of physical payments that structure the most. As said, so now the situation is easing up in all the countries in July. June-July will be very better in terms of cash-in. So that -- so this is the way which we have -- we see our forecast further. In this way, we will recover the amount I said.

Another one on working capital, which is about the future. What is the level of recurring working capital that we should expect in a normalized year? What are the main drivers?

Well, in a normalized year, as said, what we said, we work with 0 impact on working capital. So this year, as said, we think that we will end in having an impact of roughly EUR 800 million, not 0. And this EUR 800 million will be fully recovered in 2021.

Okay. Now we go back to the semester, Alberto, and it's again for you. Can you provide a breakdown of COVID-19 impact on each business segment in the first semester?

Well, first of all, I think it's relevant to say that, so we are working around an impact of EUR 300 million out of the tax impact. So the tax impact is 100% of the Latin American business. And so we work with roughly EUR 300 million operating impact. If you split for the first -- the impact in Europe or impact in LatAm, I would say that 70%, 80% of the impact comes from Latin America. So Europe has an overall impact of near 0. This is because the different business performed in different way, but giving the sense that the integrated position is offering a relief in terms of risk of the business. Going through the different business line, I would say that the distribution business is impacted by around EUR 100 million, 100% Latin America. Retail business is impacted around EUR 200 million, almost 100% in Europe. And I remember that this impact is for the over contraction in that retail as -- is having in this year because they covered the power consumption and now has to resell the part that is [ accident ], the selling part. And the price -- the spot prices are also 50% lower than the acquisition price. Generation is up, mainly up in Europe. So all in all, the impact on generation of COVID is almost 0 with -- so Europe up for trading and short position and LatAm down mainly for volumes, and this is more or less the overall impact. Then we have this EUR 130 million of net debt impact. This is equally split between Europe and Latin America, so 50-50, roughly EUR 70 million in Europe and EUR 70 million in Latin America.

Okay. CEO, we go back to you with Open Fiber. What is the latest on the Macquarie deal for Enel stake in Open Fiber? Is the EUR 7 billion figure for the whole entity correct?

We did receive non-solicited, nonbinding offer from Macquarie, and that was discussed in the Board of Directors on June 10. After that. We did issue a statement, which is everything we can say at this point. So we -- I'm sorry, but we cannot give much more -- give many more information than what I just said.

Okay. Another one still linked with Open Fiber. Is Enel interested in selling? And what could be possible uses for the proceeds?

Look, we are not particularly interested in selling at this stage. We have commitments to pursue the industrial mission of Open Fiber, which is progressing extremely well. And thanks to the Open Fiber efforts that Italy has regained position in the disgraced, laggard situation in which it was when Open Fiber started these activities. So we think we are committed to continue the cabling activities of Open Fiber, which, by the way, creates significant value. And I think the value has been particularly underscored by the COVID crisis. So we're not particularly keen on selling. Should we -- that is valid not only for Open Fiber but basically anything we have. It depends very much on what kind of offers are put on the table and also on the fact that sooner or later, our mission industrially in Open Fiber will be considered complete. And at that point, in any case, it will be a time -- the right time to monetize. So it's early to say about that. It's early to say that we have decided to sell. We have not requested offer. We received unsolicited offers, as I said before. So we're looking at all kind of value creation alternatives. The use of proceeds is not particularly earmarked because, as I said, we don't have a decision to sell at this stage.

Okay. Another one on nonorganic activities. Any update on M&A outlook strategy now that you are well into 2020? There has been some activity on renewables. Would you consider acquisition in the renewable space? I would add another question. It just came through the web, which is, if you might consider a higher share of disposals in renewable in -- for coming years?

Okay. So on M&A, our view is the following. We don't think that the COVID crisis will pass unnoticed, so there will be some casualties during this fall and this end of the year. Small players and developers of mid to small size will be caught out of breath and probably will have to sell either projects or sell themselves outright. So we might be interested in some of these opportunities, selectively and depending on geography and opportunity mix. As you know, we remain interested in great acquisitions, so we consider networks to be a very important part of our industrial story. We are skeptical about launching any schemes, and particularly at this point in time and given the situation. So on the selling side, let's put it this way. We have, as you might have seen in the presentation, an incredibly large pipeline of development, and we have been successful in increasing value-selling projects after we have developed and built them. So this might be opportunistically or strategically an avenue of value creation going forward, given the appetite for renewable portfolios that we observe in the market and given the depth of our pipeline. So this is something we are assessing and will be clearly addressed during the -- later in the presentation.

Okay. Now there is a question on offshore. With considerable opportunities opening up in offshore yield, the recurring one, the U.S. is batch 1. Do you see yourself opening up your horizon to include offshore? If so, how would you go about that in terms of gaining or acquiring the technical expertise?

Frankly speaking, I don't think you should invest into something just to learn about that something. This is a very strange way of doing things. But because we have 100,000-plus megawatts pipeline that does not include offshore, we really don't need it. And the reasons why we have been and remain skeptical about the offshore is because, mainly, we don't need the pain, the lengthy processes, the incredible density of CapEx and the risks associated with it. So we respect those companies that focus on that only. We do understand both that do everything, including offshore, because we think it's really beyond a different world. We don't think we should get involved at least until it remains so expensive, so risky and so lengthy in terms of construction time.

Okay. Very clear. Again, Francesco, for you. You are now at 65% in Enel Chile and have an outstanding share swap on Enel Americas. There are 2 questions here. Are you expecting to get 65% in Americas soon? And the second question is, what would be the endgame once you get to that threshold?

We are progressing well on the swap. Of course, we will be able to give you the news as soon as this is completed, which is not going to happen in a long time. So pretty soon, there would be an announcement of when we are getting to a position that we consider proper in that. So it's not a long time, but you have to wait for that. In Chile, we think we have a limit of shareholder ownership, which is in line with our policy for countries that have a liquid and working and sanctioning stock exchange like Chile. So we think that is the right position to have for Enel Chile. For Enel Americas, we think we should go beyond that threshold, but we can only do that once we get to the 65%, and that we will discuss with the other shareholders once we have reached that point in order for them and us to do the best to maximize the value of the asset.

Okay. We move now to Alberto. There is a second question which are specifically focusing on Brazil. So the first one is on the regulatory measure called Cuenta COVID. And the question is, how much you are expecting to get out of the regulatory measures, and we -- when this fund will be available to the company?

Okay. So we will get up around EUR 500 million by the Cuenta COVID. 70% will be available to the company end of July in this stage. And the difference will be paid after December 2020 progressively along the second half.

Okay. The second one is, what is, on top of that, still under discussion?

As said, this move is the financial situation of distributors here in Brazil. Now what it is needed is to reach an economic equilibrium for concession, and so something that will recover the impacts of demand losses and bad debt. And we can foresee an extraordinary tariff review and a public bidding process that will start middle August.

Okay. Now there is, still, again another question on Brazil. Can you break down the potential impact of lower demand volumes that impacted from bad debts and working capital over contracting of power volumes?

Okay. On lower demand, the impact we've seen in the forecast for lower demand is about EUR 130 million. And so the full or partial recovery of this part is, what I said is, is this is part of the ongoing discussion with the regulator. On the bad debt and working capital, bad debt impact is seen at around EUR 30 million. And as said, the increase is driven by the freezes imposed on planning activities, and it depends on what the time will be until when the planning activities will be back. And on the other side, so we have a worsening performance in the credit collection. But -- so everything related to the financial impact has been reversed by the Cuenta COVID. So also, this is one item that is covered by the Cuenta COVID. And also the overcontracting, so the overcontracting in Brazil now is in the range of 6 terawatt hour, but it carries no economic impact because 58% of this overcontracting is covered by the current regulatory framework there, and that covers the distributors up to 105% of overcontracting. And the remaining part has been covered by the Cuenta COVID.

Okay. Again, on -- to Alberto. Alberto, another question on Brazil. Can you give us an update on the main operating parameters of your Brazilian grid?

Well, to -- I recap. Volumes are seeing a 7% decrease year-on-year. I mean [ national classes ] up around 1% and -- because of the suspension of inspection and [ state ] is detecting [ growth ] in meters reading. And quality, we are having and we will have a significant improve. We are -- so we see a 10 basis point improve in our quality in [ status ].

Okay. Francesco, we'll go back to you. Completely different subject. Analysts are asking if there is any risk on dividend payment.

Yes. Let me -- before I answer the question, I have another thing to add to the previous one, which is the one on the 55% ownership of Enel Americas. You should know and appreciate that having 65% or lower percentage of Enel Americas has shielded us somehow from what has happened in Latin America during the COVID-19. So when we will assess what to do next, we will also take that into account because this has been quite an interesting point of view which we have appreciated of having not 100% of consolidating the results in Enel Americas, not 100%. That said, on dividends, no, we don't have a policy change. So we will maintain the 70% payout ratio on earnings. We don't have any visibility or negatives that make us change that policy at all. And don't forget, we also have the new guarantee, which we restate, that covers the plan period, so it will extend until 2022, unchanged.

Okay. There is -- still for you, Francesco. There is a lot of interest around potential acceleration in investments, particularly in Europe. Questions around that, and specifically, on the EU recovery fund. And what else do you think is needed in order for Enel to increase the share of renewable investments towards Europe, and in Italy in particular?

I think I should add that if you look at where the funds are mostly going, they're going to Italy, Spain, Romania. So I mean those 3 countries are the ones where we are present, and therefore, we have a big opportunity in that sense. We think the investments will be along development of renewables, investments in networks that are fundamentally need to be reinforced in order to adjust to a growing number of renewables. Storage, which again needs to be there in order to adjust to the networks for renewables. So the whole networks renewable storage triangle is the core of the investments that we had already targeted is now there [indiscernible] change to accelerate, coupled with digital. So again, networks and fiber optics are also closely connected. Then we'd think there will be an additional boost from private funding, not necessarily European funding, provided that sustainable finance is clear into the direction in which Europe is going. So it's a very interesting and very important positive evolution. On the negative side, obviously, the question is, when the bureaucracies of the single member states be able to process the amount of work needed in this charge -- to use this fund in the time period that is allocated by the commission? So that's something where we have to work hard and support all governments of Europe, Spain, Italy, Greece, Romania, every one in which we are present and we want to grow, to really manage this properly.

Okay. There was actually a specific question on bureaucracy in Italy, but I think that you have just answered to that as well. So the next one is on something that we mentioned on the press release. In the press release, you mentioned a big transformation within generation activities. Can you explain what it means?

Well, it means that what we have been doing so far is now becoming extremely evident, and it's precipitated, if you want, in a spectacular way by the COVID-19 crunch on demand. So the term of squeeze is squeezing out faster than ever what was already going to be squeezed out. So mostly coal and somehow, gas. So what this means is that there will be the need to transition a lot of people into a new workforce that will no more deal with coal plants but with other kind of investments. And in that transition, we will need to address the needs to perhaps have some our colleagues upskill, re-skill and so others gradually being able to leave the working condition and going to retire. So we are talking about setting up schemes within the just transition mechanisms that will allow more senior colleagues, we're talking about 1,000, 1,300 people, to go into voluntary early retirement, covered by special mechanisms that we are setting up for this very particular situation. And we are talking about different time frames, because certain countries do it earlier so -- but this is going to be repeated across several countries, more or less, in the next few years.

Okay. Great. We have now a set of question on our global business lines, so I'll try to go through them quickly. So the first one, I think, is for you, Francesco. With the 800-megawatt shift to early 2021, how the shape of delivery of the 14.1 gigawatts for 2022 will change? Any impact on profitability?

On the commitment, I think we have already commented during the presentation we are totally sure that we will reach or probably exceed this 14,100 megawatts of 2020-2022 additional installed capacity at the end of '22. So we don't have an issue there. Some megawatts that were planned to come online on 2020 -- end of 2020 will probably move to '21 because of COVID-19-related delays, but they will not impact the '21 installed capacity. So '21 will be an exceptional year in which we will keep working at the '21, let's say, originally scheduled plants. And probably, they will also get to the 800 that moved from '20 to '21. So we don't see a material impact at all on the 2022 target. Like we said before, we're confident in '20 it will exceed that once we look at the new strategy process that we are going to present at the end of the year.

Okay. Now stay with you, Francesco, for a really tough question. The Green Deal has kickstarted also the hydrogen technology. Are you interested into investing into this type of generation source? And what could be Enel's business model on hydrogen? And what level of returns do you see?

Look, in 2002, so about 18 years ago, Mr. Rifkin wrote a book called The Hydrogen Economy. Now 18 years later -- and then that book was fantastic, but nothing of the book happened, notwithstanding the fascinating logic behind it, okay? Why that -- it's a long story. But why this time is different? That's the question. There are 2 things that's happening. One is, in 2002, renewables did not exist the way they exist today. They didn't exist at all. And those that existed were a joke. Today, renewables are cheap, fast-growing, and they are displacing the rest of energy generation worldwide, bringing the cost of electricity to levels that were unthinkable at that time. That's #1 change. The #2 change is that it is now -- because of technological evolution, it is now possible to concede a reduction in the cost of electrolyzers so the plants that break up water to generate hydrogen and oxygen that will make the green hydrogen production competitive, coupled with adequate level of competitive renewable energy. So these 2 things were not there at that time when Mr. Rifkin wrote his book, but they are there today. So we think it's perhaps the right time for hydrogen to be green, not blue or other colors, which are a joke. But the green hydrogen, I think, has a real chance. We are going to, of course, work hard at making this economically convenient and competitive with normal hydrogen, which is very cost-effective, but extremely polluting in terms of CO2. And we are going to invest in trying to make this technology work in the next years. But it's not a time frame in which you can say, in the next 3 years, this will happen. It would probably happen in time frame between 5 to 10 years. We think this is something that we strongly believe can happen as we did strongly believe on the competitiveness of renewables when people didn't have a clue about it. We are not interested in do hydrogen and other stuff because we don't think CCS is the working economically technology. We don't think that already. But we are focusing on green, and I think it can be probably the success that we all need. In terms of returns, and of course, with industrial applications, it will have returns that are compatible with the -- in this kind of industry. So we're not talking about spectacular returns, but returns that are in the high double digits.

Okay. Next question is on -- for your rotational renewables for 2020. Alberto, do you want to answer to that?

I think, Alberto, you're on mute.

Alberto, you're on mute.

Yes, yes. Thanks for -- I was saying only minor operation are on the study toward 2022.

Okay. Hydro availability. How 2020 has been so far? And what is the expectation for the full year?

We had hydro production up 4% versus last year. And this has been driven particularly by the strong performance recorded on reservoirs during the first quarter of the year. Expectation is aligned with trends experienced in first half, with the general scarcity of resources all throughout the year. I think the hydro availability is aligned with the best historical performance.

Okay. Now Francesco, we go back to you. On a question about repowering potential for hydro and hydro plants in Italy, I guess, and concession update again in Italy.

Concessions, okay. Our concessions -- they weren't expiring at the end of the cycle, so we have a 2021 -- 2029, sorry, 2-9, made for the concession of our large hydro plants. However, other players have concessions that have already expired and not renewed on a day -- on a yearly basis. So this is a real problem for some of them. We think that there is a potential for investment on -- for repowering and enlarging hydro potential in the country. That potential is hampered to the lack of visibility on the concession date. Maybe that is not so much valid for us because we do have at least another 9 years. But don't forget, investment in hydros typically grow longer time. Today, we have a plan that covers about EUR 150 million for the 2022 of repowering activities that will take place regardless of concession expiration because, as I said, they go to '29, so it's long enough. It could be much more provided we have visibility over a longer time period. And this is also for all the other hydro players in the country which have shorter time to decide. So I think this is likely to be a case in which the Italian government might look into this and prolong concessions in order to give stability of time frame, time horizon for additional investment to be unlocked now in the light of the present meager investment phase. So I think it's positive, and I think it might happen.

Okay. Good. Last, on U.S. Francesco, again for you. Do you see a deceleration in ongoing negotiations for PPAs or options in these areas?

I think I should separate 2 things. There is not a lack of deceleration in the demand, so we see a lot of tenders still floating around. There have been, in the last 2 months, some, let's say, physical deceleration in the interspacing during the negotiations of PPAs because of lockdown constraints. But minor and totally manageable. So overall, the answer is no. We don't see change because of COVID-19 at this point. We see robust demand for PPAs on renewable energy basis across the Americas, North, Central, South, of course, with different time frames depending on the country. But overall, no flection there.

Okay. On conventional generation, we moved to conventional generation. Alberto, analysts are asking what has been the short position in the first half? How it has evolved compared to first quarter? And what are your expectations for the second half? Alberto, you're on mute.

In the share position, we got, in the first half 2020, around EUR 420 million there. This because -- so the sharp drop in prices opened these market opportunities. In the second half, it will depend on the evolution of electricity prices. What we see is that we might expect the benefits potentially will stay. So no major changes along the second half.

Okay. I think -- sorry, go ahead.