Good afternoon, everyone. This is Pınar Saatçioğlu , IR Manager of Enerjisa Enerji. Welcome to our quarterly earnings call, and thank you for attending. The call will be presented by our CFO, Dr. Philipp Ulbrich, and Treasury, Risk, IR, and Tax Director, Cem Gökkaya. Following the presentation, we will open the floor to Q&A. Philipp, the floor is yours.
Thank you, Pınar. Good afternoon. This is Philipp Ulbrich, CFO of Enerjisa Enerji, and I also welcome you to our quarterly performance call. Being more than five months in office now, my view on the company and on the market Enerjisa Enerji is operating in have sharpened. This is allowing me to see many meaningful opportunities for profitable growth. Let me come back to this positive outlook after guiding you through the key financials as of Q3 2023. In the last quarter, Enerjisa Enerji showed once more a strong operational and financial performance and is delivering on its targets despite a challenging environment. Let me explain how this translates into the measure of financial KPIs. Cumulative operational earnings of Enerjisa Enerji compared to last year's same period, are up by 53% and stand now at close to TRY 16 billion.
Cumulative underlying net income compared to the same period of last year is even up by 69%, with now almost TRY 4.3 billion. The corresponding investments we made during the first nine months amount to almost TRY 9 billion. This is 268% up compared to the last year's same period, and already by far outperforming the overall investments in 2022, which accounted for TRY 4.6 billion. We will explain you in more details during this call the benefits that we expect from gearing our investments this year, even we are currently operating in a high interest environment. Our leverage, this is financial net debt over operational earnings, stands now at approximately 4.9x, compared to 1.1x at the end of Q3 last year, and 4.6x at the end of Q2. The significant increase since last quarter reflects our success in deploying profitable investments.
The continuously comparable low leverage on infrastructure business allows for far more investments that we are prepared to carry out if financial market conditions become more stable. When it comes to cash, first of all, with more than TRY 11 billion, a record high operating cash flow before interest in tax has been delivered, which is more than 200% up compared to Q3 of last year. This is showing our strong operational performance. Free cash flow after interest and tax is driven by profitable investments and the related interest costs. Thus lower compared to last year. This is TRY -5.2 billion compared to TRY -2.7 billion at Q3 2022. I would like to state very clearly that this free cash flow development is no point of concern for us, as spending is based on robust as well as profitable business cases.
We will explain this later in the call and also how diligently we are managing cash at Enerjisa Enerji. Overall, we are delivering strongly on our financial targets and we thus reconfirm our guidance for 2023. It is worthwhile to mention that Enerjisa Enerji is delivering on its targets, even the financial markets in Turkey remain to be challenging. Let me address how we manage these challenges from a financial point of view. Firstly, the still remaining scarcity of funding is not limiting us. We are managing this challenge by having broadened our funding sources well in advance. Besides entering or renewing loans, which are especially impacted by regulation, we take advantage of our good relations with multinational financial institutions like EBRD or IFC. Both offer funding in Turkish lira. Thus, we are not entering into unwanted FX risks.
Also, a very effective source of financing proved to be our access to the bond market. In the nine months until end of September 2023, we issued TRY 12 billion in bonds, and by this have become the most important issuer in the real sector in Turkey. This means other than banks. We just received the authorization for TRY 15 billion of additional green bond issuing, which is a very clear signal of the systematic support of our funding, and with this, also for our investment policies. There are three principles that apply here in our steering. First, maintaining multiple sources of funding that allows us to realize our investments plans by still being able to choose the most suitable funding in terms of interest rates and durations. Second, we only enter into funding when the profitability of the related investments is ensured.
Third, we only finance with durations that will allow us to take advantage of lower investment rates that we are expecting in the midterm, in line with the plan of Turkish government for fighting inflation. Let me add here that the management of Enerjisa Enerji is fully supporting these policies as they aim at achieving a stable financial framework with significantly lower interest rates and inflation. Both would provide us with the conditions to invest even more in the distribution networks of the three regions we are operating in, and also offering customer solutions to B2B customers. For this, we will be able to make use of our strong balance sheet, and by this, leverage our equity, thus increase also the return to our shareholders. For the time being, it is still too early to fully swing to a higher gearing.
Having been on an equity roadshow to London mid of October, we, however, took note of the positive outlook of many of the most important emerging market investors regarding the Turkish stock market, if orthodox policies prevail. It was highly appreciated that Enerjisa Enerji further reinforced relationships with the international investors as the company has a clear investor story, and especially with its distribution and its customer solutions business, is operating in two growth businesses, needing significant investments in Turkey's journey towards higher energy efficiency, while also our retail businesses offer many upsides when markets get deregulated. With this positive midterm outlook, let's now have a closer look at the Q3 financials. For this, I am glad to hand over to Cem Gökkaya, Enerjisa Enerji's Treasury, Risk, IR, and Tax Director.
Thank you, Philipp. Dear investors and analysts, I extend a warm hello to each of you. As it was mentioned in the last earnings call, I have assumed the responsibility of investor relations at Enerjisa after Ravan's departure, bringing with me 25 years of experience in finance. Throughout these years, I've had the opportunity to explore various financial domains, including planning, controlling, treasury, corporate finance, enterprise risk management, internal control, and now investor relations and tax. I spent the last 15 years with Enerjisa, not only in electricity, retail, and distribution, but also in generation, providing me a good understanding of our industry and developing in me a big appreciation for the role it plays in sustainability. I want to express my gratitude to all of you for joining us today and for your continued interest in our company.
I'm pleased that we will witness Enerjisa's story going forward together and looking forward to our interactions in the future. Now, I'd like to move on to the details of the financial. As you can see on page five, operational earnings increased by 53% year-over-year to almost TRY 16 billion. The year-on-year increase breakdown per segment of the first nine months of 2023 operational earnings is TRY 4.3 billion from our distribution segment's contribution, TRY 1 billion generated from our retail business growth gross profit, and TRY 0.2 billion from our customer solutions gross profit. Per segment basis, our distribution business generated a segment growth of 48% year-over-year, with the three main components highlighted in the bridge as follows.
Financial income increased by TRY 2.7 billion on the back of high inflation and investments, as well as the IFRIC methodology change initiated on July 1st, 2022, aimed at more fair presentation of financial income, which contributed with TRY 1.5 billion of higher earnings. CapEx reimbursement, which is a part of our operational earnings but not included in the underlying net income, increased by TRY 1.5 billion, reflecting our profitable growth investment policies in past years. Our retail segment also contributed to increased earnings with a growth rate of 41% year-over-year, generated mainly from our regulated portfolio as well as liberalized portfolio. Here, the regulated gross profit increased TRY 632 million year-over-year, thanks to higher retail service revenues. These are mainly due to increasing doubtful receivable compensation impacted by the earthquake. Also on top, operational expense compensation increased, driven by mid-year inflation escalation.
The liberalized segment also contributed to the growth with an increase in gross profit of TRY 405 million in the first nine months of 2023, mainly due to effective sales price and cost management, as well as our strong brand value attracting customers to the liberalized segment, even in a challenging environment. Moreover, our customer solutions segment generated an increase in gross profit of TRY 216 million on the back of growth observed in the solar PV and e-mobility businesses. Now, let me elaborate on the bottom line development on page six. Our underlying net income increased by 69% and reached TRY 4.3 billion in the first nine months of the year. Our operational FX losses increased by TRY 513 million year-over-year due to a revaluation effect of procurement contracts in our distribution business, which are denominated in FX prices.
Please note that here active hedging mechanisms are offsetting almost all of this effect. Relevant FX hedges are reported under operational earnings. Further on, net interest expenses of loans and bonds, including the impact of cash and derivatives, increased year-over-year by TRY 357 million due to increasing interest rates. Our average financing rates for loans and bonds increased from 24% in the first nine months of 2022 to 27.7% at the same period of this year due to increasing funding rates in the market. Despite challenging financial market conditions, our average financing rates were well below market averages, thanks to our professional debt management. The reasons for this limited hike on Enerjisa's financing rates are that our average interest rate also includes some loans from the last year, which have yet not fully reached maturity.
Another driver is that our bonds rates decreased substantially due to the phasing out of CPI-linked bonds, which were very expensive in the high inflation environment and included in the comparison base of last year. We don't have any CPI-linked bonds anymore. Let's now have a look at our operations on page seven, starting with distribution. CapEx came in at TRY 7.4 billion in the first nine months of 2023, up from the TRY 2.3 billion during the same period of last year. The main drivers for the TRY 5.1 billion increase are ramped-up investments, as well as higher inflation that increases the prices of the respective materials and services that get capitalized.
As a consequence, our regulated asset base increased by 60% year-over-year, reaching TRY 30.2 billion in the first nine months of 2023, compared to TRY 18.9 billion in the same period of last year. Efficiency and quality earnings in the first nine months of 2023 increased by 16% compared to the same period of last year and reached TRY 576 million, mainly driven by CapEx outperformance turning to positive following the upward adjustment related to material prices by the regulator, as well as higher contribution from theft and loss accrual and collection performance. Now over to retail and customer solutions segment. Regulated volumes increased by 11% year-over-year, while liberalized volumes increased 4% year-over-year, driven by higher consumption caused by high temperatures, especially in Toroslar region in Q3 2023, already more than compensating for the impact coming from earth.
In terms of margin, regulated margins remained stable at 7.2%, while liberalized margins increased from 3.4% - 4.2%, driven by effective sales price and cost management even during challenging environments. Our customer solutions gross profit increased significantly from TRY 104 million in the first nine months of this year to TRY 320 million. This equals to a growth rate of 208% year-over-year, driven by increased installed capacity in solar power projects where we install solar panels on our customers' facilities, providing them with access to green energy, as well as continuous growth in e-mobility business. Our e-mobility business took a substantial leap forward as the charging plug base increased more than twofold from 603 - 1,278 plugs on the back of the fast growth delivered based on the public tender agreement secured in the second half of 2022.
On page eight, you can see the breakdown of our investments and FCF free cash flow development. Majority of our investments are coming from distribution segment, while customer solutions and Eşarj business are also contributing at an increasing pace. Accordingly, our profitable investments more than tripled compared to the same period of last year and reached TRY 8.7 billion . I would like to highlight that free cash flow management is an integral part of our business, and we have significant expertise and strength in managing different phases of free cash flow moments. First of all, as Philipp mentioned in the beginning of the call, our OCF, operational cash flow before interest and tax, reached TRY 11 billion , a record high level in the first nine months of this year, fully compensating for overall investment. CapEx overspending in distribution is a conscious strategy to deploy capital in profitable investments.
Our return on these investments are calculated based on mid-year inflation plus currently 12.3 %, and our additional cost is driven by borrowing interest. Since a high mid-year inflation is expected in 2024, we ramped up our investments to benefit from next year's potentially high margin. As stated in the beginning of the call, our FCF after tax and interest is at TRY -5.2 billion as of end of September 2023. Due to these profitable investments and related interest costs, we would have had a far higher FCF this year without this investment. This negative FCF was already expected and signaled at the end of last quarter earnings call. Going forward, by year-end 2023, we plan to continue CapEx overspending and expect current retail tariff burden, which is the negative gap between end-user tariff and power sourcing costs, to continue accumulating.
Please note that the tariff burden is also increasing the financing cost, which, however, is being compensated. By Q2 2024, we expect retail tariff burden problem to be addressed by expected tariff increases and support from the regulator via various mechanisms as realized in the past. I would like to highlight that FCF is not a short-term KPI for us, as this is the nature of this business: to raise financing and deploy the capital to profitable investments. In addition, in the usual course of business, there may be short-term fluctuations in FCF due to regulatory changes, but in the long run, they are sufficiently compensated over time, including the respective financing costs. Lastly, turning to page nine, I want to walk you through the major changes in our net debt position.
Our economic net debt increased 68% year- to- date, going from TRY 15.2 billion in December 2022 to TRY 25.6 billion at nine months 2023. I would like to highlight once again that the increase in borrowings is a result of our CapEx overspending on profitable investments. Without these investments, our operational cash flow is covering the items you see on the economic net debt development graph on the left side of the slide. Our leverage ratio decreased from 1.1 x- 0.9 x, thanks to the relatively higher operational earnings growth. Current low gearing level allows us to continue profitable investments if we consider the combined regulated and market conditions as sufficiently advantageous. I now hand over to Philipp for providing you with our latest guidance.
Thank you, Cem. Let me now finally walk you through our outlook and comment on our guidance. Certainly, as at the end of Q2, we reiterate our mid-term outlook for the period 2022 to 2025. We confirm a compounded average growth rate of 30%-40% for all operational earnings and of 25%-35% for our bottom line, namely underlying net income. In addition, we reiterate our 2023 guidance, which positions as follows. Operational earnings in 2023 are expected to be in the range of TRY 20 billion-TRY 24 billion. 2023 underlying net income is expected to reach TRY 5.0 billion-TRY 6.0 billion. Our 2023 regulated asset base is expected to be standing at TRY 30 billion-TRY 35 billion by end of year, and so is our investment guidance of TRY 11 billion-TRY 15 billion.
We aim to end the year around upper end of this investment guidance. Please note that roughly 80%-90% of this figure is dedicated towards our distribution business, while the rest are investments into the fast-growing customer solutions segment. These investments are shown in OpEx as the assets are handed over to the customers at the time of commissioning. The main parameters that impact our outlook remain the key energy and financial regulation routes as tariff levels and energy procurement costs, as well as the inflation and interest rate environment subject to monetary policies decided by the Central Bank. While Enerjisa is on a long-term basis well protected from increasing inflation rates, the rapid change of interest can translate into temporary deviation from our unit growth rate. At the end of the presentation, let me come back to my positive outlook I presented to you in the beginning.
We expect that a stable financial and regulatory framework in Türkiye offers significant growth opportunities for Enerjisa Enerji, and we are well prepared in sizing these opportunities. This will add profitable business to Enerjisa Enerji and thus create additional returns and leverage to our shareholders.
Thank you, Philipp. Now we are initiating Q&A session. If you have any questions, please click raise your hand button, or you may also use the chat box for written. Okay, so we have a first question coming from Yunus Emre Yenikalaycı from Gedik Investment. That's a written question. Hi, this is Yunus from Gedik Investment. Can you elaborate a bit on the reimbursement for earthquake-related OpEx outperformance? Do we have a clear cut outlay for fourth quarter of this year, or are we waiting on a regulatory action? How much of a reimbursement should we expect for year-round?
Thank you for the question. I think the last number we provided was from our half one earnings call, around TRY 700+ million spending until that time. We know that 25% of these expenditures until the end of June 2023 will be provided in cash back to us this year, and the rest will come next year. For the expenditures after half one this year, we expect them to also be reimbursed next year. I cannot provide you figures now about what the figure will be at the end of the year, but the plan is to get all of the expenditures latest next year.
Thank you, Cem. Next question comes from Umut Öztürk from Ata Yatırım. He has two questions. Thanks for the presentation. When do you expect the free cash flow to turn to positive again? The second one is how do you expect inflation accounting would affect your financials? Thank you, Umut.
This is Philipp again. The first question is clearly more a strategic one. Umut, you might not like the answer, but it depends. What is the background? As you have seen, the free cash flow that we are presenting is impacted by the CapEx that we are doing. These CapEx are, in the end, a signal if we do see a profitable business or if we see only limited opportunities for a profitable business. In other words, if we continue to have this very positive outlook on the return of our investments, we might see a free cash flow with a negative prefix prevailing. This is then also clearly reflecting that we are currently operating with a very low gearing. If you compare to other downstream power enterprises that are listed, you will see that they all are operating at far higher gearing.
This is what we meant that having these additional investments is in the end profitable due to the usage of the leverage for our investors. The road to getting to this higher gearing is clearly marked by a negative free cash flow.
For the second question, I can say that we have already announced our inflation accounting reports at the end of 2022 and half year 2023. You can follow the impacts and the differences between the financials with and without inflation accounting there, but I am not able to give you a guidance about that going forward now.
Thank you, Cem. Our next question comes from Cenk Orçan from HSBC. He has two questions. First one is, can you please explain to us what impact did the very low mid-year inflation this year have on your results? Has there been an adjustment for higher inflation? The second one is there a particular region receiving most of your accelerated CapEx or evenly distributed across your three regions? Thank you.
Okay. For the first question, our OpEx spendings increase more than the current inflation rate for 2022 and 2023. EMRA, in order to compensate this high increase, already increased our OpEx ceilings by 40% for 2022, and 30% for 2023, according to its official announcement. We know that they are following this closely. As they did also for CapEx unit prices, they are following this closely and taking actions if they see a big difference between the inflation basket of our expenditures and the general CPI. For the second question, it is not evenly distributed. I can say that 40% of the investments are in Karadeniz region, 35% for Başkent, and 25% for AYEDAŞ.
Thank you, Cem. Next question comes from Maruf Ceylan from QInvest. Thank you very much for the presentation. Do you expect any tariff change or any regulation change in the near term?
I take this. Always difficult to predict what can be regulatory changes. We see, however, that the system that is currently operated is creating a high financial burden for the Turkish government. This is one reason why we expect such a tariff change. The second one is also the announcement that are also made publicly in the market that point especially towards more cost-oriented tariffs in the industrial and the corporate segment.
Thank you, Philipp. I will again remind. Thank you for the question. If you have any questions, please click the raise your hand button, or you can also type your questions in the chat box. We have one more question from Umut from Ata Yatırım. Do you still maintain your dividend policy of distributing 60% per sample of your underlying net income?
This is Philipp again. Yes, we confirm this as part of our guidance. The reason also here is, once again, that we are currently having this very low gearing. Even if we are increasing our investments and we are increasing our gearing, we see also sufficient room for continuing with this high dividend distribution policy, which is also typical for a downstream infrastructure business in the power segment.
Thank you, Philipp. We don't have any questions in the pipeline, I assume. Thank you for participating to our earnings call. Last but not least, we advise all of our analysts to submit underlying net income forecast in earnings surveys, not the TFRS-reported net income forecast, as this is the base for our dividend, the underlying net. Thank you very much for participating once again.