Enel (BIT:ENEI) (ENEL.MI) has demonstrated a strong financial performance in the full year 2023, with a 20% increase in net income to €6.5 billion and EBITDA reaching €22 billion. The company has nearly completed its disposal plan, achieving around 90% of its target.
A dividend proposal of €0.43 per share is set for the next Annual General Meeting (AGM). Enel has successfully disposed of a 49% stake in an Italian generation capacity project, contributing to its target credit metrics and a reduction in absolute emissions. The company expects to continue maximizing returns and shareholder remuneration starting from 2024.
Key Takeaways
- Enel's EBITDA reached €22 billion, with net income up by 20% to €6.5 billion compared to the previous year.
- Cash from operations (FFO) increased by over 60%, with a significant improvement in the second half of the year.
- The company is close to completing its disposal plan, with 90% already addressed.
- A dividend of €0.43 per share will be proposed at the next AGM.
- Over 50% of investments were in long-term assets, with stable and visible returns.
- Improved regulatory frameworks in Italy, LatAm, and Spain support future investments.
- Net debt stands at just above €60 billion; guidance for 2024 is between €53 billion and €54 billion.
- The company has pre-hedged more than 100% of its revenues for 2024 at higher prices.
Company Outlook
- Enel plans to focus on maximizing returns on investment capital and remain mindful of market opportunities.
- Expectations for 2024 include growth in the grids and generation segments, a declining impact from retail activity, and improvement in the gas business.
- The company aims to achieve free cash flow neutrality in 2024.
Bearish Highlights
- There was an increase in net financial charges due to an unfavorable interest rate environment.
- Income taxes increased, reflecting better economic results.
- The retail segment in Italy is expected to decline in 2024 due to normalization of margins.
Bullish Highlights
- The company's earning mix shifted towards Europe, contributing to a significant expansion of the post-minorities net results.
- Enel has a successful partnership business model, evident in the recent disposal of a 49% stake in a generation capacity project.
- Positive contributions from the U.S. market and normalization of hydro availability in Italy have supported EBITDA growth.
Misses
- Enel has not yet matched 100% of its renewable production in Italy with customers, but coverage is improving.
- The company experienced churn in the customer base due to price increases in the second quarter of 2023.
Q&A Highlights
- The CFO discussed the extraordinary FFO improvement in 2023 and the expected return to a normal range of 60-65% in 2024.
- Net debt guidance for 2024 is set between €53 billion and €54 billion, with a focus on reducing current levels.
- The company has pre-hedged revenues for 2024 at prices higher than current ones, providing a strong financial backup.
- Enel anticipates a consistent recovery in the retail business in Italy in 2024, supported by acquisitions and sales reorganization efforts.
InvestingPro Insights
Enel (ENLAY) has shown resilience and strategic financial management as reflected in its latest full-year performance. With a market capitalization of $66.96 billion, the company's stability and growth potential are further underscored by a P/E ratio of 15.26, which is considered low compared to near-term earnings growth. This indicates that the company's stock might be undervalued, offering a potentially attractive entry point for investors.
From an income perspective, Enel's commitment to shareholders is evident through its dividend track record. The company has not only raised its dividend for 9 consecutive years but has maintained dividend payments for an impressive 25 consecutive years. This consistency is paired with a substantial dividend yield of 3.71%, highlighting Enel's position as a significant income-generating investment.
Investors looking for steady returns may also find comfort in Enel's low price volatility, reinforcing its profile as a stable investment in the Electric Utilities industry. However, it's important to note that analysts anticipate a sales decline in the current year, which is a factor to consider when evaluating the company's future revenue streams.
For those interested in further insights and a deeper analysis of Enel's financials, InvestingPro offers a range of additional tips to guide investment decisions. Currently, there are 10 more InvestingPro Tips available for Enel, which can be accessed by visiting https://www.investing.com/pro/ENLAY. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing a comprehensive toolkit for informed investing decisions.
Full transcript - ENEL Societa per Azioni (ENLAY) Q4 2023:
Operator: Good day and thank you for standing by. Welcome to the Enel Full Year 2023 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Monica Girardi. Please go ahead.
Monica Girardi: 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 e-mail 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.
Flavio Cattaneo: Sorry, I started, but the phone – thank you. Thank you. Sorry for this delay. Thank you, Monica. And welcome to everybody. Group delivery in 2023 was strong. All the targets revised upwards in November ‘23 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 delay later confirms the potential value creation of our capital allocation and provide support to the ‘24-’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 results achieved, we’ll propose to the next AGM a dividend per share of €0.43. Let’s now have a look at ‘23 delivery on the next slide. Last year, the group recorded an outstanding financial performance across all businesses. EBITDA reached €22 billion on the back of less volatile environment that restored the full growth potential. Net income came in at €6.5 billion, increasing by a remarkable 20% versus 2022. FFO grew almost at €6 million versus last year. Due to the EBITDA growth, the recovery in working capital and the managerial actions already implemented. Let’s now have a look at the progresses of each key pillar of our strategy, starting with the capital allocation on the next slide. Our capital allocation was selective and maximize the returns while minimize 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 in asset 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 will support investment in regulated activities in futures. As you know, we concentrate investment into stable, visible and remunerative regulatory frameworks and geographies. Over the past couple of months, we recorded notable improvement. Italy, the implementation of the ROS mechanism is progressing as planned and includes a specific remuneration for special project in resiliency. LatAm, we welcome constructive discussion around the regulatory frameworks and clear rules for target adjustment will, on one side, to 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 supported from investment into energy transition. In generation, we kicked off our partnership business model with a successful transaction. At the Capital Market Day, we announced 3 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 recent announced disposal of a 49% stake in BESS and the generation capacity project in Italy at around €1.1 billion is an example of our partnership creates value for the growth. 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. And more will come as we expect to create further value, leveraging our portfolio rotation. Now I will move to the second pillar of our action. Last year, we focused on CapEx generation benefit. FFO reached almost €15 billion on 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. Therefore, down cost reduction is visible across the board, and it’s progressing better than expected. In just 6 months, we were able to save around €500 million compared to the 2023 budget and €200 million year-on-year, a pace of reduction in adjustable cash cost, in line with our target shown in November. The disposal plan is progressing at sound multiple. As you can see in this slide – is eight slide. As you can see, we have now closed our – announced around 90% of the planned M&A deals aimed at deleveraging the group. The reengineered disposal plan has been executed at strong multiples and in some cases, even better than comparable transactions. The latest example of our overdelivery is the sale of a 90% stake in Grids located in peripheral areas of Milan and executed at rich multiples as Stefano will detail later. For now on, we focus the M&A would be on portfolio optimization to unlock resources that can be deployed at higher returns. Moving on the third pillar of our strategy. Credit metrics improved strongly, even not considering in full the cash proceed from the M&A activities. FFO net debt increased 10 percentage points, landing at 25%. And net debt on EBITDA was well below 3x, not yet included from announced disposal. The group not only achieved the target metrics, but is well on track on its leverage. On environmental sustainability absolute emission continue to decrease versus the base year 2017, in line with our 2030 goal. Finally, shareholder remuneration on Slide 10. The resiliency of our business model, the operating performance and all the managerial actions we put in place allowed us to delivery sound results. We will, therefore, propose to the AGM a dividend per share of €0.43, up by more 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.
Stefano De Angelis: 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 ‘23 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 into constructing frameworks for Grids. On the integrated margin, additional renewable capacity and medium 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 basis, 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. 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 led to a rebase of our ordinary performance whose impacts were anticipated at the Capital Market Day in November. On a full year basis, disposal we carry a €1.3 billion like-for-like adjustment on 2023 EBITDA baseline and around €0.5 billion on net income, mainly as a consequence of the deconsolidation of Peru and Romania. Want 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 line with what originally projected and presented last year. I will now move to the results analysis by business, starting from the Grids. This performance once excluding the impact of assets disposed in 2022 grew flattish year-on-year with organic performance offsetting the stewardship contribution regarded 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 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 represent the back 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 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 contract in Chile in the fourth quarter ‘22 and the negative comparison on tax partnership impacts in the U.S. Finally, stewardship contributed positively for around €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 expectation. Looking at the different geographies, in Europe, 100% of the renewable production is backed by sales to the B2C a small medium-term prices. And on top of this, pre-hedges protect generation margins from backward 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 lever 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 €6.5 billion, increasing by more than 20% versus last year, driven by the EBITDA performance already commented. D&A slightly increased versus 2022 reflected the organic expansion of our asset base, while the net financial charges were impacted by an unfavorable interest rate environment, which affected the 20% tonnage portion of our debt. Income taxes increased on better economic results. And finally, the improved earning 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 €6 billion, thanks to a strong improvement in cash generation in the second half of the year. Working capital and provisions impact after recovered in Q3, the negative impact of 2022 continue to improve also in Q4, totaling a positive contribution of €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 6 months of 2022 included a lump sum payment of the solidarity contribution in Italy for around €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 €60 billion with FFO generated in the period that not then cover investment needs. Active portfolio management landed at €3.5 billion on the back of the disposal of Romania and for the voltaic 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 €300 million. And we have already signed this more than €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 43 point – 53, sorry, €53.5 billion, reaching already the target announced for the full year. And now I hand over to the CEO for his final remarks.
Flavio Cattaneo: Thank you, Stefano. Well, the strong results achieved are a clear evidence of our focus on improvements and delivery. Ongoing progresses on disposal as said 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 shareholders. We reiterate our commitment on the target set during the Capital Market 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.
A - Monica Girardi: Thank you. Thank you to all of the analysts that send their questions over. Let me start with a few questions, which might be answered by our CEO. Set of questions around the disposal activities. So 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?
Flavio Cattaneo: All the most relevant authorization have been obtained. I think you will shortly have an update on this, is not long waiting for define and closed the deal.
Monica Girardi: The second question is about a recent deal. At the beginning of March, you’ve 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?
Flavio Cattaneo: Let me say regarding the strategic rationale, in Capital Market Day, we have defined our attention 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 is quite impossible, 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. And this is – this asset – this deal, it has been part of this strategy. Regarding the special dividend, I don’t think now is time to discuss about it. But what I can say is that the value of this transaction support, let me say, the total shareholder return. By the end of the year, as I said in the presentation, we think we have the create – the environment for the evolution of our dividend in-line as promised in the Capital Market Day, starting from – even starting from 2024.
Monica Girardi: 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?
Flavio Cattaneo: But this is an example where – at the beginning, this transaction was into the list for the disposal and consider as a stewardship. Indeed, the first idea was to sell 80% of that. And the first offer for 80% were €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 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 €1.1 billion for 49%, while we were close to sign for 80% of up to €1 billion.
Monica Girardi: And then 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?
Flavio Cattaneo: 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 value accretive for the group without jeopardizing our business profile. What we have done so far demonstrated that we can create value with asset rotation, and asset rotation is accretive only if investments are profitable. For this reason, in light of what we said in the Capital Market Day, we fixed a minimum 300 basis point return over WACC calculated in each geographies and by technology.
Monica Girardi: We move to – 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 to bid 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 transitionary contract.
Flavio Cattaneo: Let me say, first of all, we have selected the areas based on the opportunity to increase our market share. Indeed, we have 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 we – where we now is not the incumbent in a power, but is neither the second player in gas, there is many possibility for the cross-selling. And this is – the return of this cross-selling mitigate totally what we have spent for the acquired this client. We have improved our competitive positioning because we are acquiring a portfolio of customers with no acquisition cost and at the price lower than similar transaction in the market have done in the past, the other player. The discount, we’ll pay monthly, and it’s not due if the customer move to the liberalized segment. While instead, if we buy from the other company, we pay upfront, even though the client choose other player. And I don’t think this – I think that allow us to address our action in a good way. The impact is not relevant for this year for this – for our balance sheet for this year. And I – my expectation is a positive at the end of the story.
Monica Girardi: Okay. I think we ended with the question had to be answered by our CEO. Thank you, Mr. Cattaneo. We moved to the – a set of questions on financials. So moving into the CFO area. The first one is on the EBITDA ‘23 that came in line with the midpoint of the guidance 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?
Stefano De Angelis: Yes. Let’s say that it’s core to say that the main impact was the – at our Qatar arbitration, then you had the volatile of this business, but 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 the impact in order to reach our expected starting point for the CMD industrial plan EBITDA guidance.
Monica Girardi: Second popular question is about the guidance for ‘24. So midpoint of the guidance is €22.4 billion. Can you walk us through the moving parts to get there from full year 2023?
Stefano De Angelis: Yes. I start from 20–21 or 21.2. So this means that I’m not considering into the bridge, the Qatar because it’s already adjusted
Flavio Cattaneo: Sorry, sorry.
Stefano De Angelis: So taking the two different pieces of our business, we have the grids that have, as I underlined in my presentation, that a very positive growth looking forward. It’s in the range of €400 million, €500 million net of FX that we have included in our project and especially CPI. This is – give us a high visibility because, as I said before, the 5% grow in RAB, they’re already in place tariff adjustment and the new laws regulation, 100% in line with our industrial plan projection. So we have a very strong visibility on this piece of the expected growth. When moving into generation, we have 1.5% approximately 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 strongly – still strongly affected by the hydro availability. So we have a normalization of the existing capacity that generate – that transform into production. We have the code of the BESS. They 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 For the first 6 months, we’re in the range of €60 per megawatt. Now as we said before, we have already 100% pre-hedge this energy and the related revenue to more than €100. In Americas, we will took benefit from an organic growth of capacity that is driven by the investment that we already booked in 2023 that we are finalizing the – 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 order – in terms of the tax partnership year-on-year impact on comparing 2024 to 2023. Finally, and I think this is important, especially in this market because 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 €0.5 billion because we were 100% aware that the level of margins that was generated alone 2022 was not possible to be projected in the structural long-term. So we have already included in our project, let me say, a normalization. After the dramatic 2022 result, the extra 2023, we have now projected a normalized EBITDA contribution from the retail activity, especially in Italy. One 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’ll [indiscernible]
Monica Girardi: Thank you and 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 3 years?
Stefano De Angelis: 2023 was an extraordinary year, but have also a very – a normal comparison in 2022. So in the fourth quarter, we start to see a normalized. If you see the evolution of the net working capital and provision, the cash flow, you see that also in the fourth quarter, we have a positive contribution of €0.5 billion summing up to the two components. So, we expect to move back to NI, let me say, normal or standard range of 60%, 65% in 2024.
Monica Girardi: Next question is on the net debt guidance for 2024, which is based on a range between €53 billion and €54 billion, if you can detail the moving parts starting from the €60.1 billion of 2023.
Stefano De Angelis: But it just says, could be quite simple if we consider that we will enter into the 3 years’ industrial plan with our guidelines that is not to generate additional debt to finance the dividend payments. So, if we took the impact that we are expecting to cash in from the M&A that is more than €6 billion, as I already stated, that we have also another €1 billion that is in the, let me say, very short list to be finalized, and this will represent, let me say, the last piece of the that parcel that compound the €11.5 billion of M&A disposal plan that we described in the Capital Markets Day. So, 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. And you – and if you sum the €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 €53.5 billion. That means the 2.4 ratio in terms of net debt on EBITDA.
Monica Girardi: I think the explanation of the bridge is actually covering the next – the next one, which was about the projected FFO level. Considering the CapEx and dividend commitments, you envisage ‘24 to be already free cash flow neutral, you does that basically?
Stefano De Angelis: Also reminded that you have to consider the M&A cash-in of the deal already signed along 2023 and the beginning of 2024.
Monica Girardi: The next one is about retail. Retail EBITDA in Italy reached an unprecedented level of €4 billion in 2023. Do you expect to achieve the same result also in ‘24? Is this level of EBITDA sustainable in the long run?
Stefano De Angelis: I think that I have 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 extra BII [ph] price scenario. That’s why we have prudently decreased the contribution of the 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 will allow us to restart from the normalized 2024 contribution and considering this not reducing part of our EBITDA also from 2025 and 2026.
Monica Girardi: A question on working capital, which I believe you answered during the presentation. But 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?
Stefano De Angelis: 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, let me say, a positive net working capital plus 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 half is paid in the first quarter of the year. But this is a structural trend that now is visible that along the 2022 and 2023 will dramatically offset by the regulatory issues that generate, if I am not wrong, €5 billion of negative impacts in Enel working capital change.
Monica Girardi: 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 he is asking, if we can share a sensitivity of our financials to declining power prices for 2025 and ‘26, looking at the open position?
Stefano De Angelis: So and starting from the presentation, as I have said before, the consumer and the small/medium enterprises is something that back up our production. What does it mean that we are not considering this an edge 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 cure. 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 hedged – 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 that the backup represented by the consumer segment is very levered 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 give us the best price condition into the market in terms of integrated margin. In the past part, significant portion also, I would say, of the matching and the hedging was did with top clients that do not grant the best price condition today and looking forward.
Monica Girardi: Okay. Talking about retail, and I think if I am 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 clients and the churn of the clients?
Stefano De Angelis: Yes, in Italy, it’s clear that in the last 18 months, 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 ‘23 price increase that transformed into invoices starting from the second half of ‘23 and this generate 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 reorganization. The last one is the migration from the regulated customers where Enel was to gain a significant portion of the share of the incumbent operator that is Enel. This migration impact as progress will be 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 the retention that in acquisition areas, so a consistent recovery is expected along 2024.
Monica Girardi: Okay. I think we have answered all of the questions that came through. So, thank you, Mr. Cattaneo. Thank you, Mr. De Angelis. Thank you to all of the people that were connected and we will see in a month at the first quarter results.
Flavio Cattaneo: Okay. Bye.
Stefano De Angelis: Bye-bye everybody. See you.
Operator: Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.
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