Dear investors and analysts, this is Rawand speaking. Welcome to Enerjisa Enerji's Q1 2023 earnings results call. The call will be presented by our CFO, Michael Moser, and myself for 30 minutes, and thereafter, we will open the line for Q&A. Before starting our presentation, I would like to remind you about our disclaimer on the forward-looking statements and highlight that you can already now find all the presented material on our investor relations homepage, in addition to this recording of the call, which will be uploaded within the next coming days. Now, without further ado, I would like to give the floor to our CFO, Michael.
Hello, everyone. Thank you very much, Rawand. This is Michael. A warm welcome to our first quarter 2023 financial results call. I hope everyone is healthy and doing well. I would like to start today's call by again pointing out that my heart and thoughts go out to the many thousands of people still suffering from the consequences of the terrible events that happened in southeast of Turkey at February this year. While time has passed and for most people, daily lives are continuing, our focus and energy still is with all affected people. I am proud to see that our organization is working tirelessly with rebuilding the region as quick as possible. Yet again, I state that Enerjisa is the company dedicated towards the people and future of Turkey, and therefore, you can always expect our company to serve all people, employees, and families.
During my four years at Enerjisa, I have seen tremendous efforts within our company. Whether it is breaking new grounds in product offerings, investment execution, sustainability activities, coping with natural disasters and material macroeconomic developments. Yet, the efforts I have seen in the last months as our employees have put in sweat, blood, and tears to help to rebuild the affected region surpasses anything observed previously, and sets for me, personally, the benchmark in how a company can overcome challenges. I start this call as I ended the last one, with a huge thank you to our employees, customers, and partners for their support and loyalty. Now, let us move to our presentation. Please let me provide you with a summary of the key developments of our Q1 2023 financial results on Page 2.
First and foremost, the key development is that the first initial earthquake-related regulation has been officially communicated by the regulator, with concrete short-term solutions to ease the situation for our customers in these times of need. Likewise, related measures have been introduced to support energy companies in order to ensure the sustainability of the system. We are today sharing the details of these measures and will elaborate its financial impact in our Q1 financials. As more legislative actions are being introduced, we expect to see, among other things, further compensation measures in the coming months. In the wake of these terrible events, Enerjisa's robust business model with its diversified geographical footprint throughout Turkey delivered a strong set of results as underlying net income grew by 159% year-over-year.
Free cash flow started positively and generated TL 3 billion due to lower energy costs and continued support mechanism in our regulated businesses. Our deleveraging journey continued successfully as our leverage ratio decreased to an all-time low, which is 0.5 times. Further on, we reiterate our newly introduced midterm outlook for 2022 to 2025 and further enhance transparency for our investors as we also provide you today with a 2023 guidance. Operational earnings for 2023 is expected to come in at between TL 20 billion to TL 24 billion , and underlying net income is expected to land in between TL 4.5 billion to TL 6.0 billion . Now I hand over to you, Rawand, for the Page 3 .
Thank you, Michael. Before elaborating on the financial highlights, let me show you the impact of the earthquake in our Q1 2023 financials on Page 3 . Starting with customers. Customers who are heavily affected by the earthquake do not need to pay their outstanding old unpaid energy bills. This will instead be paid by the government to the energy companies, including the relevant interest charges. Moreover, any consumption for customers in dedicated cities from the time of the earthquake up until the 31st of May will be invoiced first on the 1st of June and paid by these customers in six installments without any interest charges. Such cities are Adıyaman, Hatay, Kahramanmaraş, Malatya, as well as İslahiye and Nurdağı districts of Gaziantep. Hatay, İslahiye and Nurdağı are cities all within Enerjisa's Toroslar region.
As a countermeasure to not burden the energy companies for these postponements in invoice collections, a delay of all energy procurement costs for spot market purchases have been introduced until at least May 7th without any interest charges. This is relevant for the energy purchases of all volumes for customers in the whole of our Toroslar region, and covering both the regulated and liberalized volumes for both our retail and distribution business. Further on, Enerjisa has conducted several acute activities in order to safeguard people's lives. As, for example, providing backup generation of electricity to critical locations, and not the least, provide continuous accommodation and food for our employees and their family who have lost their home in these terrible events.
These costs are presented in our Q1 2023 financial results as a negative pre-tax contribution to our OPEX outperformance of roughly TL 780 million , but is, to the best of our expectations, to be recovered by the regulator via the tariff compensation structure. On the next page, you will see the details around our assets and operational activities, which we conclude to be in a relative good financial health, thanks to the supportive regulation, as well as our conducted insurances for any force majeure disaster events. Elaborating on the energy infrastructure, we conclude there is no impairment performed, nor do we estimate that there are any identified risks of write-offs related to the earthquake. All insurances have been made to a maximum in line with the regulatory criteria, and we deem these and the regulatory support mechanisms to be enough to compensate for the damages to our grid.
How this technically will be handled and when compensation will be paid with interest is yet to be determined by the regulator. The normal tariff mechanism for occurred costs, namely the price equalization mechanism of two years, sets a maximum horizon. An earlier repayment would not be unlikely, with the possibility of compensation already this year or the next. Let me elaborate on the earning structure of our regulation that might provide you some comfort on how earnings are technically generated. While some portion of the asset base might be damaged, in the regulatory earnings account, these are fully eligible for income generation. This is because the assets are leased to us by a concession's agreement, and as we have upheld all responsibilities of technically sound investment and have an insured asset base, the criteria for future income remuneration have already been achieved.
Going forward, we do not right now see any alteration to our CapEx plans, as the need for rebuilding the grid will be executed within the set investment lot, where these new rebuild activities will replace other investment projects in the Toroslar region, which will be delayed to a future point of time. With these activities, Enerjisa is doing all in its power to rebuild the areas as fast as possible, with material and workforce resources being the pacesetter, as these are currently the limiting factor for going beyond the outlined activity level. In case of a natural decision to redistribute material and resources from other cities, industries, and sectors in Turkey to the earthquake-impacted cities, there might be a possibility for increased investment activities, and we will inform our investors if such a case emerges.
Now, lastly, speaking about our operations, as we have already communicated, activities return to normal business operations mode in all of our large cities, except the Hatay region, where the damages of the earthquake are the heaviest. Out of our 12 million customers, roughly 800,000 customers were located in Hatay. Only a portion of these were without energy weeks after the earthquake, as houses have collapsed beyond repair and a high degree of casualties are represented in this area. Today, it is hard to estimate the numbers of customers without energy as people have moved outside the region, and single connection point households now are consuming energy in accommodations where multiple people are sharing one connection point, as done in, for example, temporary shelter facilities. However, we can see from our grid surveillance system that all demands for electricity are being connected to the main grid.
In the temporary transition toward rebuilding these areas, there will be a period of lower electricity consumption. Lower commerce, residential consumption, and overall activity will translate to approximately 1 TWH to 2 TWh of lower energy consumption in our Toroslar grid. During 2023, according to our estimations, with recovery of volumes either in 2024 or 2025, as it looks right now. This means lower consumptions by our customers, but also lower energy procurement costs to a like-for-like basis, and thus only translates to a loss of regulated margin to an immaterial degree. Other related areas that are impacted, like regulated tariff correction as well as theft and loss activities, require further clarification from the regulator and how they will be treated. Depending on the adaption to current regulatory metrics, the impact can be partially or fully recovered.
We see, therefore, all in all, that the total financial impact of the earthquake for Enerjisa is the roundabout magnitude of the expense booked in Q1 2023's earnings result, with the possibility of a compensation up to the full amount. Let me also add some reassurance about our long-term future, that this impact, limited to the magnitude just mentioned, is not and expected to be a hit on reoccurring basis. This is predominantly a one-time expense. While we would like to provide you with all the details around this right now, we have constantly mentioned that the proper channel and sequence is first a decision communicated from the regulator.
We are continuously querying for an early decision on these matters in order to provide clarity for our investors as soon as possible but are also realistic of the fact that we are currently in the middle of an eventful year, and this might delay certain action in the upcoming period. Now, let's turn to Page 5, where I will walk you through the highlights and key developments of our financial results in the first quarter. Despite the impact of the earthquake, operational earnings were up 41% year-over-year, reaching TL 3.8 billion , driven by higher inflation in regard to increased CapEx reimbursement and financial income in our distribution segment. Please note that the Q1 2023 includes also the positive contribution of the updated IFRIC methodology introduced earlier in Q3 last year, which thus was absent in the Q1 2022 comparison base.
Underlying net income, i.e., our adjusted net income figure, grew by 159% from TL 213 million in Q1 2022 to TL 551 million in Q1 2023, mainly on back of the high inflation in combination with the decrease in net debt, thanks to the positive cash generations in the first months. This includes already the pre-tax TL 780 million OPEX for the earthquake-related spending, which is expected to be recovered within the year upon additional announcement from the regulator in due time. Free cash flow performed strongly in the tune of TL 3 billion, generated both from our distribution and retail segments, where the latter experienced an elevated cash generation on back of the lower energy costs and continuous support mechanisms observed in the first quarter of this year.
This isolated quarterly free cash flow generation is predominantly a temporary gain, especially in the light of the tariff decrease announced by the regulator as of April 1st and should thus not be seen as a metric of extrapolation in the coming quarters. Our strong earnings development, together with our positive cash generation, also translates into a decrease in leverage, further strengthening our balance sheet as earnings trajectory outpace our accumulated debt level. Thus, our leverage ratio net financial debt over operational earnings decreased from 1.5 times in Q1 2022 to 0.5 in Q1 2023. This is a further decrease from the already low leverage achieved in December last year, which was 0.7. Let's now have a look at our operations on Page 6, starting with distribution.
CapEx increased to TL 976 million in Q1 2023 compared to TL 380 million in the same period of last year, mainly due to higher inflation and the low activity level at the start of 2022, due to the supply chain related topics, not the least, the increased material prices compared to the regulated prices compensation. The increase is also driven by our higher investment levels this year compared to the previous year, and we will later elaborate on the expected investment level for 2023. Our regulated asset base reached TL 29.4 billion in Q1 2023, compared to TL 16.4 billion in Q1 last year, leading to an 80% yearly growth rate. Efficiency and quality earnings were negative to the tune of TL 702 million, mainly due to the negative OPEX outperformance as a result of the already mentioned higher spending in the Toroslar region due to the earthquake.
Besides this direct earthquake effects, the negative OPEX outperformance in Q1 is partially also reflecting the increased price levels for material, wages, and fuel costs. These are currently, in the current regulatory calculation methodology, compensated with inflation, which is not enough to cover certain baskets of expenses that are increasing beyond CPI. The total impact of these negative effects are TL 258 million in our Q1 2023 results. We are currently in discussions to find a more granular indexation methodology that compensates for this beyond inflation increasing expenses. Now over to our retail and customer solutions segment. In our regulated retail segment, the gross profit margin increased to 7.9% in Q1 2023 compared to 6.1% in Q1 2022, predominantly due to working capital compensation by the regulator for spot market energy purchases.
Regulated volumes increased by 3% year-over-year, mainly due to an inflow of liberalized customers on back of lower regulated tariffs, which incentivize a shift for the eligible customers who are free to choose energy providers outside the incumbent regional player. The opposite effect is seen in our liberalized volumes, which decreased due to the same reason, leaving Enerjisa's total combined volumes for both segments at a parallel level with Q1 2022. In our liberalized segment, margin reached 4.8% compared to 2.4% in the same period of last year, mainly due to the base effect of a low comparison base in Q1 2022, where the liberalized margin was suppressed due to the then-introduced feed-in tariff mechanism. Now to our customer solutions segment. Our customer solutions segment experienced delays in installations due to shifts of construction resources from several areas across Turkey to the earthquake region.
This meant that our projects that were planned to be finalized in Q1 now are delayed to the coming quarters, thereof a decline in gross profit instead of a substantial increase as previously envisaged. Accordingly, our solar capacity for customers increased from 22.6 MW peak in Q1 2022 and reached now 24.1 MW in Q1 this year. Rest assured that this does not mean any lack of capabilities or reduced growth in earnings going forward in our customer solutions business, as these projects are not lost, but only delayed, and we therefore envisage to see a substantial growth as expected during 2023.
Our e-mobility business at large took a substantial leap forward in the last 12 months, as the charging plug base increased more than twofold from 501 to 1,030 plugs, to be exact, on back of the fast growth delivered, not the least, thanks to tender agreements secured in the second half of 2022. Operational earnings on Page 7 increased by 41% to TL 3.8 billion. Our distribution business generated growth both from its return on assets and investment activities, resulting in a segment growth of 40% on back of its contribution of TL 861 million, with the breakdown as follows. Financial income increased by TL 1 billion and TL 160 million on back of higher inflation and investments. CapEx reimbursement, which is a part of our operational earnings but not included in the underlying net income, increased by TL 822 million.
Partially offsetting this positive contribution in our distribution segment was the already mentioned effect of the increased OPEX cost, resulting in a TL 906 million year-over-year drop due to the earthquake expenses occurred in the first quarter, as well as the increasing commodity prices and employee-related wages and costs. Our retail segment also contributed with a significant growth of 55% year over year, resulting in TL 288 million increase generated equally from our regulated and liberalized portfolios. The gross profit contribution from the regulated segment was TL 340 million, on back of higher prices and volumes, as well as the working capital compensation for spot market purchases. The gross profit contribution from the liberalized segment was TL 308 million in Q1, due to the effective sales and cost management, as well as the lower comparison base in Q1 last year.
These positive operational earnings generations were partially offset by other costs totaling TL 544 million, whereof roughly three-quarters are related to the operational costs and bad debt expenses in our retail business, whereas one quarter is attributed to mark-to-market effects of investment-related hedges in our distribution segment. Now let me elaborate on the bottom-line developments on Page 8. Our underlying net income increased by 159% and reached TL 551 million in Q1 2023. Below the line-item operational earnings, which I just mentioned, the main effects were as follows. Financing net interest expenses, including FX and bonds, decreased by TL 162 million year over year due to lower average financial debt and slightly lower financing rates. Especially our loan interest expenses decreased significantly year over year due to a lower financial debt position, net of cash and derivatives. The average loan interest rates for Q1 were 28.5%.
Our average bond rate decreased significantly compared to last quarter, as the CPI-linked bonds acquired in the past matured in the last months leading up to Q1. As such, the average bond rate decreased from 60.1% down to 27.9%. Altogether , our total average financing rate in Q1, including bonds, loans, cash and derivatives, was around 29.3%, roughly 1.5% lower than the same period last year. This is something that we estimate to increase in the coming quarters, in line with market expectations of increased rates post-election. Further on, the deposit revaluation expenses of customer deposits were lower year over year, as this year, quarterly inflation increase was relatively lower than the increase observed in the same period last year. Please remember that the calculation metric for indexing our customer solution deposits is the two-month lagging inflation rate.
This means the Q1 2023 deposit revaluation are incorporating the quarterly inflation rate as of January 2023, which was 11%. Other financial expenses increased by 136 million, mainly due to the absence of the financial income generated in the retail business in Q1 2022, due to the negative situation of outstanding price equalization receivables from the regulator in the first month of last year. Lastly, before handing back to Michael, let me turn to Page 9 and present you our net debt development. Our economic net debt decreased from TL 15.2 billion in December 2022 to TL 12.7 billion at Q1 2023. Thus, our leverage ratio, as previously mentioned, decreased prudently to 0.5 times of our operational earnings. Free cash flow before interest and tax was strongly positive and reduced the net debt level by TL 4.2 billion. Net interest payments increased our debt with TL 1 billion.
Likewise, our tax payments increased by TL 207 million on back of our higher earnings base. Change in customer deposits were TL 641 million, mainly due to the revaluation of our customer deposits with inflation, as well as the addition of new deposits from customers. Lastly, our economic net debt decreased due to a mix of other various financial effects and thus contributed positively to our deleveraging with TL 136 million. Please note that the dividend related to the fiscal year of 2022 was approved and paid out to our shareholders in April and is thus not reflected in the first quarter's result net debt position. Before turning over to the next page, let me underline that we continue to target a diverse funding base and have since many years not financed our business in any other currency than Turkish lira.
This is a measure to eliminate risks and have a pure translation between our earnings capacity and financing expenses. With the low liquidity of available funds in the Turkish loan market, we have successfully conducted a handful of bonds in the last quarter. Overall, in line with our de-risking strategy, which we also observed in the financing transaction presented at the last quarter results back in February. As such, we have, in addition to the sustainable financing deals and new bonds already communicated in last quarter, issued several new financings in the last three months. In March this year, we issued a new bond of TL 1.4 billion with a fixed rate of 33% and a maturity of 24 months. Subsequently, on the 6th of April, we issued an additional new bond of TL 950 million with a fixed rate of 35% and a maturity of 24 months.
We also closed financing deals with banks, with maturities ranging from four months to one year, worth of TL 1.6 billion with quite attractive rates. This underpins and assists a prudent and professional financing strategy to continuously deleverage and reach attractive rates at an early stage, not the least during highly volatile times with heightened uncertainty ahead. Let me now please give back the floor to Michael to walk us through our guidance.
Thank you, Rawand. Let me now finally walk you through our reiterated and also enhanced guidance, which you can find on Page 10. Firstly, we reiterate our midterm outlook for 2022 to 2025. We confirm the compounded average growth rate of 30% to 40% for our operational earnings and 25% to 35% for our bottom line, namely underlying net income. In addition, we provide you now an absolute nominal range for our 2023 financials. Operational earnings in 2023 is expected to range between TL 20 billion to TL 24 billion. 2023 underlying net income, the adjusted bottom line is expected to reach TL 4.5 billion to TL 6.0 billion . Our regulated asset base guidance for 2023 is TL 30 billion to TL 35 billion .
Lastly, we provide you also with an investment guidance as we guide CapEx between TL 11 billion to TL 15 billion , where of roughly 80% are regulated asset base related investments in our distribution business, and the remaining 20% are related to our new fast-growing customer solutions business. Our new guidance shows that Enerjisa's equity story is intact, as we will continue to provide substantial growth going forward despite volatile conditions and temporary hardships. As we already demonstrated, the effect of the earthquake is a constant weight on our hearts. But thanks to constructive dialogue with our regulator and related authorities, we expect that the current expenses will be more or less fully compensated, despite details around timing and compensation framework still to be officially declared by the regulator at a later stage of time.
Before I close the call and hand over to the Q&As, I would like to extend a huge, big thank you to you, to our CEO, Murat Pınar, and his team, who have since day one managed the earthquake crisis with full empathy, highest professionalism and dedication, not the least in the regulatory relationships that requires tactical patience and communication in order to safeguard the best long-term outcome for our company. Thank you very much for listening, and now I hand over for the Q&A.
Thank you, Michael. We can now start the Q&A session. To all participants, for your verbal questions, please press the raise hand button at the bottom of your screen. You can also convey your written questions through Q&A section, which is located next to the raise hand button.
Hi. We have a written question coming from Cenk Orçan from HSBC. Does your 2023 profit guidance assume any recovery of earthquake expenses?
Thank you, Cenk, for your question. I hope everything is well on your side. The guidance that we have presented today includes all of the effects mentioned also today with our expectations as outlined. While we have been clear that we expect compensations, the magnitude and timing is still to be decided, the growth rate that we have presented, and the ranges are including the earthquake effect as well. Thank you.
Hi. We have other question, written, from Ondrej Slama , from Wood. Could you briefly describe what P&L drivers would have to change so your underlying income growth guidance, both 2023 and 2025, outpaces operational earnings growth guidance? In other words, what would be the ideal mix of WACC, interest costs, and inflation, among other factors?
Thank you Ondrej an thank you very much for your question. I think the question you are asking is a bit more detailed than the guidance we have provided. From a general perspective, of course, the combination is the growth of our earnings that is heavily dependent on energy prices, investments, and of course also growth in our new customer solution segment, which depends on our sales activities. How this is then reconciled to an outpaced underlying net income growth, of course, depends on the financial positions of our debts. We have currently stated that the debt in Q1 was lower, and we haven't provided any further net debt guidance. Interest rates and debt would be heavily dependent on cash generations and the economic situation in Turkey going forward in the coming nine months.
I hope this provides you with an answer and just reiterate that our guidance holds with the granularity of information provided there. Thank you.
Dear participants, as a reminder, if you have a question, you can raise the raise hand button on the bottom of your screen. Please go ahead.
Next question comes from Cenk Orçan from HSBC. Do you also retain your 2025 customer solutions targets, TL 4 billion to TL 6 billion of revenue and 10% margin?
Thank you, Cenk, again for the follow-up question.
What are key drivers for customer solution targets?
We reiterate again also this target. As we haven't mentioned anything else since our last earning calls, this stands. What the key drivers are, of course, as we're building up this new segment, is the pace of sales and execution of our new segments. We see great potential in all areas and have built a strong foundation for this. I think that as explicit we can be at this point of time. This will be also more visible in our full year earnings. We will see the customer solutions earning to a higher degree this year.
Dear participants, a last reminder to raise your hand at the raise hand button at the bottom of your screen, or you can write your questions through the chat section.
It seems like we don't have any further questions. Thank you for your participation.
Thank you all. I would like to thank you very much for your attendance. If you have any more questions, me, Pinar, and the investor relations team are available for your inquiries, or you may reach us through investorrelations@enerjisa.com. Good evening, thank you, and stay safe.