Good day, and thank you for standing by. Welcome to the Enel full year 2023 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will 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.
Thank you. Good evening to all the people connected. Welcome to the full year 2023 results presentation, which will be hosted by Enel CEO Flavio Cattaneo and the CFO Stefano De Angelis. Following the presentation, we will have the usual Q&A session. 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. Thank you, and now let me hand over to the CEO.
Sorry. I started but with the phone closed. Thank you. Thank you, Bill. Sorry, sorry for this delay. Thank you, Monica. Welcome to everybody. Group delivery in 2023 was strong. All the targets revised upwards in November 2023 were met. Financials are up double-digit year-on-year, and we recorded an outstanding improvement of cash generation with FFO up more than 60%. The positive evolution of regulatory frameworks that I will detail later confirms the potential value creation of our capital allocation and provides support to the 2024/26 plan delivery. On the M&A side, as promised, we are close to complete the disposal plan announced with around 90% of the target already addressed. Lastly, in light of the strong result achieved, we'll propose to the next AGM a dividend per share of EUR 0.43. Let's now have a look at 2023 delivery on the next slide.
Last year, the group recorded an outstanding financial performance across all businesses. EBITDA reached EUR 22 billion on the back of a less volatile environment that restored the full growth potential. Net income came in at EUR 6.5 billion, increasing by a remarkable 20% versus 2022. FFO grew almost EUR 6 million versus last year due to the EBITDA growth, the recovery in working capital, and the managerial action already implemented. Let's now have a look at the progress of each key pillar of our strategy, starting with the capital allocation on the next slide. Our capital allocation was selective and maximized returns while minimized risk, as promised. Europe took the lion's share, absorbing 60% of our total CapEx 20% more than last year. The shift into our capital allocation strategy was already visible in 2023.
I want to highlight that more than 50% of our investment have been invested with long-term, stable, and visible returns. Looking at the business KPIs, we delivered a sound growth in RAB, in renewable capacity, and repositioning into the B2C segment. Our advocacy will support investment in regulated activities and futures. As you know, we concentrate investment into stable, visible, and remunerative regulatory frameworks and geographies. Over the past couple of months, we recorded a notable improvement. Italy: the implementation of the ROSS mechanism is progressing as planned and includes a specific remuneration for special projects in resiliency. LATAM: we welcome constructive discussion around the regulatory frameworks, and clear rules for tariff adjustment will, on the one side, restore business profitability and, on the other, allow for a recovery in asset value.
In Spain: we'll continue to work to ensure the regulatory framework will be supportive from investment into energy transition. In generation: we kicked off our partnership business model with a successful transaction. At the Capital Markets Day, we announced three different business models: ownership, partnership, and stewardship. In the partnership business model, investments are shared with third parties to foster capacity growth and to accelerate paybacks and returns. The recently announced disposal of a 49% stake in BESS and the generation capacity project in Italy at around EUR 1.1 billion is an example of how our partnership creates value for the group. We inherited the project from the past M&A plan, but we revised the structures of the deal to maintain the control of the asset. Additionally, we closed it at much better financial and contractual conditions.
More will come, as we expect to create further value leveraging our portfolio rotation. Now we'll move to the second pillar of our action. Last year, we focused on CapEx generation benefit. FFO reached almost EUR 15 billion, and EBITDA conversion close to 70%. This result was possible due to a more effective and cost-disciplined organization, leading the ratio above 80% in the second half of 2023. The effort on cost reduction is visible across the board, and it's progressing better than expected. In just six months, we were able to save around EUR 500 million compared to the 2023 budget and EUR 200 million year-over-year, at pace of reduction in addressable cash costs, in line with the target shown in November. The disposal plan is progressing at a sound multiple. As you can see in this slide is the eighth slide.
As you can see, we have now closed around 90% of the announced planned M&A deals aimed at deleveraging the group. The re-engineered disposal plan has been executed at strong multiples and, in some cases, even better than comparable transactions. The latest example of our over-delivery is the sale of a 90% stake in grids located in peripheral areas of Milan and Brescia, executed at rich multiples as Stefano will detail later. From now on, our focus on the M&A would be on portfolio optimization to unlock resources that can be deployed at higher returns. Moving on to the third pillar of our strategy: credit metrics improved strongly, even not considering in full the cash proceeds from the M&A activities. FFO on net debt increased 10 basis points, landing at 25%, and net debt on EBITDA will be below 3x, not yet including the cash-in from announced disposal.
The group not only achieved the target metrics but is well on track on its leverage. On environmental sustainability: absolute emissions continue to decrease versus the base year 2017, in line with our 2030 goal. Finally, shareholder remunerations, slide 10: the resiliency of our business model, the operating performance, and all the managerial action we put in place allowed us to deliver a sound result. We'll therefore propose to the AGM a dividend per share of EUR 0.43, up by more than 7% versus previous year, and implying a 7% dividend yield at the current share price. Now I leave the floor to Stefano, who will dive into the detail on the financial performance. Please, Stefano.
Thanks, Flavio. Good evening, everybody. In this slide, you see all the action we put in place since May last year. What we did in the second half of 2023 and what we will do in the near future fully supports our plan ambitions. But I'd like to add some other supportive pieces on this. As the CEO mentioned, our advocacy will result in constructive frameworks for grids. On the integrated margin, additional renewable capacity and medium- and long-term hedges on production will couple with commercial policies and bundle offering, improving customers' loyalties and securing margins. We will also benefit from the elimination of different extraordinary energy taxes in Europe, introduced during the energy crisis. Lastly, we are working to implement additional and structural changes to further reduce areas of potential volatility, lowering our exposure to commodities and turning around unprofitable assets.
From the next slide, I deep dive into financials evolution. I'm on page 13. In order to allow a clean comparison of the main drivers of growth, we have highlighted in 2022 EBITDA the contribution of disposals. On a clean base, EBITDA is up by 15% compared to last year. This operating growth resulted from a good performance of grids due to regulatory updates that more than offset the negative effect of the CPI on costs, and a strong increase in the integrated business, whose positive performances came also on the back of a normalizing environment that drove the rebounding of the negative dynamics affecting last year, as I will also detail later. From a geographical perspective, European countries were almost 70% of the total EBITDA for the period. In the next slide, you can see the reconciliation between the ordinary EBITDA of 2023 and its baseline into 2024.
Disposal announced so far that in part will be finalized in 2024 will lead to a rebase of our ordinary performance, whose impacts were anticipated at the Capital Markets Day in November. On a full-year basis, disposal will carry a EUR 1.3 billion like-for-like adjustment on 2023 EBITDA baseline and around EUR 0.5 billion on net income, mainly as a consequence of the deconsolidation of Peru and Romania. Worth to remind that in 2023, we account for the non-recurring impact from the gas arbitration that will not repeat itself this year. Both EBITDA and net income baselines came in in line with what was originally projected and presented last year. I will now move to the results analysis by business, starting from the grids. Grids' performance, once excluding the impact of assets disposed in 2022, proved flattish year-on-year, with the organic performance offsetting the stewardship contribution recorded in 2022.
On top of the resilient performance of the business, it is worth mentioning that the 5% growth in RAB, the positive expected outcome of our continuous advocacy activity and our investment plan, gives high visibility to our ambition to expand the EBITDA contribution of this business line. Let's now continue with the evolution of integrated business on slide 16. The integrated business is strongly up year-on-year. Italy represents the bulk of this growth, driven by the rebound in the retail segment, the recovery of the hydro production, and power prices normalization. In Spain, the positive evolution of the retail business was offset by the negative performance of the gas business, including the one-off impact of the Qatar arbitration.
The operating growth in the rest of the world was negative, as the growth from renewable development and the hydro recovery in Chile were more than compensated by the one-off gain recorded last year from the one-off sale of gas contracts in Chile in the fourth quarter of 2022, and the negative comparison on tax partnership impacts in the U.S. Finally, stewardship contributed positively for around EUR 200 million year on year. Focusing on future, I want to stress that the integrated business model will support margins across the plan, in line with expectations. Looking at the different geographies: in Europe, 100% of the renewable production is backed by sales to the B2C and small-medium enterprises. On top of this, hedges protect generation margins from downward trends. In countries outside Europe, renewables are fully covered by long-term PPAs, eliminating in full any risk associated with falling power prices.
Additionally, in countries like Colombia and Chile, we may leverage on our flexible capacity to reduce short-term volatility in the energy markets. I will now dive into the earnings evolution, page 17. Ordinary group net income came in at EUR 6.5 billion, increasing by more than 20% versus last year, driven by the EBITDA performance already commented. D&A slight increase versus 2022 reflected the organic expansion of our asset base, while the net financial charges were impacted by an unfavorable interest rates environment, which affected the 20% unhedged portion of our debt. Income taxes increased on better economic results, and finally, the improved earnings mix shift towards Europe contributed to the significant expansion of the post-minorities net results. Cash flow is on the next slide. FFO increased almost EUR 6 billion thanks to a strong improvement in cash generation in the second half of the year.
Working capital and provisions impact, updating every recovery in Q3 the negative impact of 2022 continued to improve also in Q4, totaling a positive contribution of EUR 1.3 billion in the full-year cash flow. Looking at the other moving parts in the second half, cash out for taxes was in line with the scheduled tax due installments. It's worth to remind that, as commented during first half results, the first six months of 2022 included the lump sum payment of the solidarity contribution in Italy for around EUR 0.6 billion. Finally, financial charges were affected by the increase in interest rates, as already commented. Let's now move to net debt evolution on slide 19. Net debt came in just above EUR 60 billion, with FFO generated in the period that more than covered investment needs.
Active portfolio management landed at EUR 3.5 billion on the back of the disposal of Romania and photovoltaic assets in Chile, as well as the sale of the 50% stake in Greece. I want to stress that, on top of what already cashed in during 2023, at the beginning of January, we announced the closing of the U.S. solar and geothermal deal for approximately EUR 300 million, and we have already signed these more than EUR 6 billion that are still to be cashed in in 2024. Taking into account the contribution of these deals, the pro forma net debt stood at around EUR 53.55 billion, reaching already the target announced for the full year. Now I hand over to the CEO for his final remarks.
Thank you, Stefano. Well, the strong results achieved are clear evidence of our focus on improvements and delivery. Ongoing progress on disposal is set to: first, simplify the group's asset base. Second, improve efficiency and accountability. Third, reduce risk. And lastly, support our goals of returns maximization. All these will be a net positive also for our shareholder. We reiterate our commitment on the target set during the Capital Markets Day, confirming our effort on the execution of the plan. The continued focus on cash generation and strict financial discipline point to potential upside in shareholder remuneration starting from 2024. Thank you for your attention, and let's now move to Q&A session.
Thank you. Thank you to all of the analysts that sent the questions over. Let me start with a few questions which might be answered by our CEO. A set of questions around the disposal activities. The first one is about Peru. Currently, you have not disclosed any update on the closing of the Peruvian asset. What is missing to get the final approval?
All the most relevant authorizations have been obtained. I think you will shortly have an update on this. It's not long, the waiting for the final and closing the deal.
The second question is about a recent deal. At the beginning of March, you have announced the sale of a distribution asset in north of Italy. What is the strategic rationale behind this transaction? Will you account the gain for the sale in the ordinary figure? And if that's the case, are you envisaging the payment of an extraordinary dividend?
Let me say, regarding the strategic rationale, in Capital Markets Day , we have defined our intention, in some cases also in Italy, for in this case, we have discussed about the swap, but the swap is in terms of sell the grid where it is quite impossible to obtain the new remuneration with the new incentive, like in the north of Italy where the grid is updated many times, and invest in the south of Italy where we can obtain an extraordinary premium for resiliency. This asset, this deal, it has been part of this strategy. Regarding the special dividend, I don't think now it's time to discuss about it. What I can say is that the value of this transaction supports, let me say, the total shareholder return.
By the end of the year, as I said in the presentation, we think we have created the environment for the evolution of our dividend in line, as promised, in Capital Markets Day , even starting from 2024.
Okay. We move to another question about a recent transaction. What is the strategic driver of the sale of the battery storage system in Italy?
But this is an example where, at the beginning, this transaction was into the list for the disposal and considered as stewardship. Indeed, the first idea was to sell 80% of that. And the first offer for 80% was EUR 1 billion. That we have transformed this deal. In this case, we have changed the deal into partnership. In this case, we consolidated the deal, even because it's a very visible and regulated business, at least in the major part. And we have obtained more than the amount linked to the 80%. Indeed, we have obtained EUR 1.1 billion for 49% while we were close to sign for 80% of up to EUR 1 billion.
Last one on the M&A side. Are you happy with the current portfolio, or is there more asset rotation to be expected? What regions or activities would you consider for an asset rotation strategy?
We intend anyway to maximize returns on investment capital. We are happy. However, we remain mindful of market opportunities. Let me say, we keep an eye on what we can be able to create value creatively for the group without jeopardizing our business profile. What we have done so far demonstrates that we can create value with asset rotation, and asset rotation is creative only if investments are profitable. For this reason, in line with what we said in Capital Markets Day, we fixed a minimum 300 basis points return over WACC calculated in each geography and by technology.
We stay with the CEO for a question around the retail business. So, tenders in Italy. What's the strategy behind the participation into the auctions? How much are you going to get in terms of marginality in light of the discount we had to pay for those clients? And was the impact from tenders included in the plan or no? And will you be able to replace customers before the expiry of the transitional contract?
Let me say, first of all, we have selected the areas based on the opportunity to increase our market share. Indeed, we see the area where we are not incumbent, not only in power but also in gas, and then I explain why. Potential value of the customers, because we have selected areas also where there is a lower churn and higher income per capita. And as I said for the first one, where we are, the areas where Enel is not the incumbent in power, but is neither the second player in gas, there is many possibilities for the cross-selling. And this is the return of this cross-selling mitigates totally what we have spent for the acquiring this client. We have improved our competitive positioning because we are acquiring a portfolio of customers.
We know acquisition costs, and at the price lower than similar transactions in the market have done in the past, the other players. The discount will be monthly, and it's not due if the customer moves on to the liberalized segment, while instead if we buy from the other company, we pay upfront even though the client chooses another player. And I don't think this, I think that allows us to address our action in a good way. The impact is not relevant for this year, for our balance sheet for this year. And my expectation is a positive at the end of the story.
Okay. I think we ended with the question that had to be answered by our CEO. Thank you, Mr. Cattaneo. We move to a set of questions on financials. So moving into the CFO area. The first one is on the EBITDA 2023 that came in line with the midpoint of the guided range. Is this a consequence of the lost arbitration on LNG in Spain, or was there any different upside, downside versus expectations we set in November?
Yeah. Let's say that it's correct to say that the main impact was the Qatar arbitration, then you had the volatility of this business, a lot of moving pieces. But to summarize, the impact is 100% related to the Qatar arbitration. So as we adjusted the 2023 baseline, and you can see we have re-summed up the Qatar impact in order to reach our expected starting point for the CMD Industrial Plan EBITDA guidance.
Second popular question is about the guidance for 2024. So midpoint of the guidance is EUR 22.4 billion. Can you walk us through the moving part to get there from full year 2023?
Yeah. I start from 2021 or 21.2. So this means that I'm not considering into the bridge the Qatar because it's already adjusted differently.
Sorry, sorry.
Taking the two different pieces of our business, we have the grids that have, as I underlined in my presentation, that have a very positive growth looking forward. It's in the range of EUR 400 million-EUR 500 million net of FX or FX that we have included in our project and especially CPI. This gives us a high visibility because, as I stated before, the 5% growing RAB, the already in place tariff adjustment and the new ROSS regulation are 100% in line with our Industrial Plan projection. We have a very strong visibility on this piece of the expected growth. When moving into generation, we have approximately 1.5 expected growth in terms of EBITDA. This comes from basically Italy where we have higher production because don't forget that in 2023, we have a first part of the year that was still strongly affected by the hydro availability.
We have a normalization of the existing capacity that transformed into production. We have the load of the BESS that start to have a growth contribution in terms of the EBITDA, and we have a normalization of the pricing because in 2023, the renewable energy in Italy that was still based on previous year contracts and also affected by the drawback for the first six months were in the range of EUR 60 per MW. Now, as we said before, we have already 100% hedged this energy and the related revenue to more than EUR 100. In Americas, we will take benefit from an organic growth of capacity that is driven by the investment that we already booked in 2023 and that we are finalizing along 2024.
We have a positive contribution from the U.S. that we take into account the results of the turnaround plan that we have put in place there and a better comparison also in terms of the tax partnership year-on-year impact comparing 2024 to 2023. Finally, and I think this is important, especially in this market context, in the retail segment in Italy, we were already projecting, let me say, a normalization in 2024. So we have a declining impact at group level of approximately EUR 500 million because we were 100% aware that the level of margins that was generated in 2023 was not possible to be projected in the structural long term. So we have already included in our projection, let me say, a normalization after the dramatic 2022 result. The exceptional 2023, we have now projected a normalized EBITDA contribution from the retail activity, especially in Italy.
While in Spain, we see, let me say, a normalized trend already in place in 2023 retail. Last but not least, also including in the starting point the Qatar arbitration in Spain, we expect the gas business to have a progressive improvement already in 2024 that will become stronger and stronger in 2025 and 2026. Lastly, we were, let me say, prudent also in terms of trading that was quite neutral in terms of changing direction in the plan and for what regards also the stewardship contribution to the EBITDA. So all this one could be positive upside in the next quarters of 2024. Sorry to be very long then, Monica, for sure we left too.
Thank you, Very clear. Detailed and clear. Okay. We move to the next one. FFO improvement extended in Q4, full year conversion really high. Can this be taken as a benchmark for the year or for the next three years?
2023 was an extraordinary year, but also a very abnormal comparison in 2022. So in the fourth quarter, we start to see a normalization. If you see the evolution of the net working capital and provisions, the cash flow, you see that also in the fourth quarter, we have a positive contribution of EUR 500 million summing up the two components. So we expect to move back to a high, let me say, normal or standard range of 60%-65% in 2024.
Next question is on the Net Debt guidance for 2024, which is based on a range between EUR 53 billion and EUR 54 billion. If you can detail the moving parts starting from the EUR 60.1 billion of 2023.
As I said, it could be quite simple if we consider that we will enter into the three-year Industrial Plan with our guidelines that is not to generate additional debt to finance the dividend payments. If we took the impact that we are expecting to cash in from the M&A, that is more than EUR 6 billion, as I already stated, that we have also another EUR 1 billion that is in the, let me say, very short list to be finalized. This will represent, let me say, the last piece of the puzzle that compounds the EUR 11.5 billion of M&A disposal plan that we described in the Capital Markets Day . If we consider the M&A activities, if we consider that the FFO generated by the EBITDA minus CapEx and minus the tax and financial charges will cover the capital expenditures.
If you sum the EUR 6.5 billion expected from M&As, you may see that we are in a neutral situation. That means that we are already there with the EUR 53.5 billion. That means the 2.4 ratio in terms of net debt on EBITDA.
I think the explanation of the bridge is actually covering the next one, which was about the projected FFO level. Considering the CapEx and dividend commitments, do you envisage a 2024 to be already free cash flow neutral? You just said, basically.
Also reminded that you have to consider the M&A cash-in of the deal already signed along 2023 and the beginning of 2024.
The next one is about retail. Retail EBITDA in Italy reached an unprecedented level of EUR 4 billion in 2023. Do you expect to achieve the same result also in 2024? Is this level of EBITDA sustainable in the long run?
I think that I've already partially answered to this question. If we consider the starting point of 2023, no, because the EBITDA in the retail segment was also leveraging on an extraordinary price scenario. That's why we have prudently decreased the contribution of the retail business along 2024. In the medium and long term, we are building up a commercial strategy and a bundle offering, a loyalty actions and activities that we will allow us to restart from the normalized 2024 EBITDA contribution and considering this not a reducing part of our EBITDA also from 2025 and 2026.
Question on working capital. I believe you answered during the presentation. Just maybe to remind the main building blocks, can you please comment on the key drivers of the positive working capital evolution in the second half of the year?
Yes. As I said, in the third quarter, we have completed, let me say, the normalization in the nine months. If you remember, in the nine months, we finally reached the, let me say, positive networking capital price provision contribution. And in the fourth quarter, so we moved back to have the historical and traditional seasonality. So one of the main drivers, for example, was the CapEx, let me say, level accounted in the fourth quarter that is paid partially in the quarter, and more than a half is paid in the first quarter of the year. But this is a structural trend that now is visible along 2022 and 2023 will dramatically be offset by the regulatory measures that generate, if I'm not wrong, EUR 5 billion of negative impacts in the annual working capital change.
Next question. It's about a popular one, declining power prices. Basically, the market is assuming that for 2024, there are no major concerns, but is asking if we can share a sensitivity of our financials to declining power prices for 2025 and 2026, looking at the open position.
Yeah. So starting from the presentation, as I said before, the consumer and the small, medium enterprises is something that backs up our production. What does it mean? That we are not considering this a hedge anticipating, but we are pre-hedging the prices of the business plan, let me say, and this depends strongly on our expectation based on the forward curve. What does it mean? In 2024, we are still not matched 100% of our renewable production in Italy with our consumer customers, but we have already pre-hedged, let's say, more than 100% of our revenues, as I said before, with prices that were higher than the present one. If we look to 2025, this represents more or less 80% of our average production that, if you remember, our business plan was approximately 25 terawatt from renewable generation in Italy. In Iberia, this is approximately 70%.
Moving forward, this trend is continuing to improve in terms of coverage day by day. So it's not something that we will update in the next six months. If you will meet us in one month, probably the 70% has become 80%, or this may be stopped because of the trend in pricing. What is important is that the backup represented by the consumer segment is very level because we have to keep in mind that we are applying an integrated strategy, and then the backup represented by the consumer and the small, medium segment gives us the best price condition into the market in terms of integrated margin. In the past part, a significant portion, also I would say, of the matching and the edging was due with top clients that do not grant the best price condition today and looking forward.
Okay. Talking about retail, and I think if I'm not mistaken, it's the last question for tonight. Analysts are asking about competitive dynamics in the retail business in Italy, and if you can just share a bit of color around the clients and the churn of the clients.
Yes. In Italy, it's clear that in the last 18-24 months, there was a shock in the market in terms of pricing. What is important looking at our performance along 2023 is that the evolution of the free customer base in Italy is the result of three different dynamics. One is the churn rate that in 2023 was influenced by the second quarter 2023 price increase that transformed into invoices starting from the second half of 2023, and this generates a wave of churn that is still in place. We have responded starting from the second half with the acquisition that is the second wave. This is progressively ramping up, powered by the new offer portfolio and still in progress sales channel reorganization.
The last one is the migration from the regulated customers, where Enel was taking a significant portion of the share of the incumbent operator that it's Enel. This migration impact has progressively reduced for, let me say, a volume of this customer base, and especially due to the energy price dynamics that happened in the second half. As I said, the commercial actions are in the ramping up stages, both in retention that in acquisition areas. So a consistent recovery is expected along 2024.
Okay. I think we have answered all of the questions that came through. Thank you, Mr. Cattaneo. Thank you, Mr. De Angelis. Thank you to all of the people that were connected. We'll see in a month at the fourth quarter results.
Okay. Bye. Bye.
Bye-bye, everybody. See you soon.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.