Fulvio Conti, Enel Group CEO and General Manager, stated: “In 2012 the Group’s results were in line with the targets previously announced to investors, both in terms of EBITDA and net financial debt, despite continuing to operate in a challenging macroeconomic scenario, mainly in Italy and Spain. In the latter country future cash flows deterioration following all regulatory measures introduced by the Spanish government in 2012, together with the worsening of the economic situation, made it necessary the write-down of goodwill mainly related to Endesa’s activities in Iberia.
For the next five years, we confirm our current strategy, which is focused on protecting margins and cash flows in mature markets as well as development in growth markets and renewables. All of this will be done while we accelerate cost cutting measures and efficiency enhancement initiatives across the Group and implement measures to simplify corporate structure, by paying close attention to reducing debt and defending our current rating category. These actions are expected to enable the Group to seize the moment when mature economies, mainly Italy and Spain, will return to growth”.
STRATEGY AND OBJECTIVES FOR 2013-2017
The following strategic priorities, consistent with those of previous years, have been confirmed in the 2013-2017 Business Plan:
Protecting margins and cash flow generation in mature markets;
Increasing investments in the growth markets of Eastern Europe and Latin America, as
well as in renewables;
Strengthening the financial structure and optimising asset portfolio;
Progress on Group’s reorganization, also including minorities buy-out;
Continued focus on financial stability.
ANALYSIS OF STRATEGIC PRIORITIES
1. Protecting margins and cash flow generation in mature markets
Given the macroeconomic scenario, which remains a challenging one, the plan to reduce costs and increase efficiency set out in the Business Plan becomes highly significant.
The plan, envisages a cumulative cost reduction of around 4 billion euros (based on 2012 controllable costs) for the 2013-2017 period in the Group’s different geographic areas and sectors and mostly on the Italian and Spanish mature markets.
Also with respect to mature markets, the new plan provides for total investments of about 11 billion euros. More specifically, investments in generation assets will decline to 4.6 billion under the current plan from approximately 5.3 billion euros under the previous plan. Installed capacity will go from 59 GW in 2012 to 52 GW in 2017. Investments in distribution assets will increase to approximately 6.5 billion euros under the current plan from around 6.2 billion euros under the previous plan.
2. Increasing investments in growth markets of Eastern Europe and Latin America, as well as in renewables;
With respect to growth markets, the new plan envisages a 2.5% increase in total capital expenditure compared with the 2012-2016 plan. More specifically, investment in development will increase to around 9.4 billion under the current plan from approximately 8.7 billion euros under the previous plan. Installed capacity will rise from 38 GW in 2012 to 43 GW in 2017.
3. Strengthening the financial structure and asset portfolio optimization;
In order to strengthen the Group’s financial structure and optimise its asset portfolio, the plan provides for:
- a plan of disposals of around 6 billion euros.
- a programme of hybrid bond issues amounting to about 5 billion to be completed by the end of 2015;
4. Progress on Group’s reorganization, also including minorities buy-out;
During the plan period, the Group will pursue a structure-simplification strategy that will include minorities buy-out operations, which, once completed, are expected to increase the consolidated net income ownership at Parent Company level to 78% in 2017 from 65% in 2013.
5. Continued focus on financials
Thanks to the aforementioned actions, the Group is expected to generate cash flow from operations totalling around 59 billion euros over the plan period, which will finance capital expenditure of around 27 billion euros, reimburse financial charges for approximately 12.5 billion euros, and distribute dividends for approximately 11 billion euros.
Moreover, the implementation of the aforementioned disposal programme (around 6 billion euros) should contribute to the remaining Group total cash (around 14.5 billion euros), which will mainly be used to reduce consolidated net debt and finance minorities buy-out.
2012 OPERATIONAL HIGHLIGHTS
Electricity and gas sales
Electricity sold by the Enel Group to end users in 2012 increased by 5.0 TWh, or +1.6%, to316.8 TWh compared to 2011.
The increase is essentially attributable to the increase in volumes sold abroad (+6.9 TWh), mainly relating to operations in Latin America (+3.5 TWh), Russia (+2.9 TWh) and France (+1.7 TWh), partially offset by a decline in volumes sold in Iberia (-2.2 TWh) and in Italy (-1.9 TWh).
Gas sold to end users amounted to 8.7 billion cubic meters in 2012, up 0.2 billion cubic metres or +2.4% on the previous year. Volumes sold in Italy diminished by 0.3 billion cubic metres, while sales abroad, entirely accounted for by Endesa, increased by 0.5 billion cubic metres.
Power generation
Net electricity generated by the Enel Group in 2012 totalled 295.8 TWh (+0.6% on the 293.9 TWh generated the previous year), of which 74.5 TWh in Italy and 221.3 TWh abroad.
Enel Group power plants in Italy generated 74.5 TWh, down 4.5 TWh compared with 2011.
This was mainly due to the decline in hydroelectric generation (-2.5 TWh) as a result of less favourable water conditions recorded in 2012 compared with 2011, in addition to lower thermal generation and a slight increase in generation from other renewable resources.
In 2012 electricity demand in Italy decreased by 2.8% compared with 2011, reaching 325.3 TWh, coupled with a reduction in net electricity imports, which fell by 2.6 TWh (-5.8%). Net electricity generated abroad by the Enel Group in 2012 came to 221.3 TWh, up 6.4 TWh (+3.0%) from the previous year. The increase was mainly attributable to the greater volumes generated by Endesa in Iberia and in Latin America (+2.7 TWh) and the increase in the output of the companies of the Renewable Energy Division (+2.8 TWh).
Of the electricity generated by Enel Group power plants in Italy and the rest of the world, 57.6% came from thermal generation, 28.4% from renewables and 14.0% from nuclear power.
Electricity distribution
Electricity distributed by the Enel Group network totalled 413.9 TWh in 2012, of which 238.2 TWh was in Italy and 175.7 TWh abroad.
The volume of electricity distributed in Italy declined by 8.2 TWh (-3.3%) compared with the previous year.
Electricity distributed abroad increased by 2.6 TWh (+1.5%) to 175.7 TWh compared with the previous year, mainly due to higher volumes of electricity distributed by Endesa in Latin America (+2.3 TWh).
2012 CONSOLIDATED FINANCIAL HIGHLIGHTS
Revenues in 2012 were 84,889 million euros, an increase of 5,375 million euros (+6.8%) on 2011 levels. The increase is essentially attributable to higher revenues from the sale and transport of electricity to wholesalers and end users, higher revenues from fuel trading, as well as greater revenues from the sale and transport of natural gas to end users. These factors were only partially offset by the decrease in revenues from electricity trading.
EBITDA amounted to 16,738 million euros in 2012, down 867 million euros (-4.9%) from 2011. The decline is largely attributable to the decrease in the generation margin in Italy and to the change in the scope of consolidation following the disposals in the two years under review (including the disposals of Enel Maritza East 3, Deval and Endesa Ireland). These effects were partially offset by the positive performance of the Sales, Renewable Energy and International Divisions.
EBIT was 7,735 million euros in 2012, a 31.4% decrease compared with 2011 (11,278 million euros), taking into account a 2,676 million euro-increase in depreciation, amortization and impairment losses. Excluding the impairment losses recognised in 2012 on the goodwill allocated to certain Cash-Generating Units (totalling 2,584 million euros), EBIT declined by 959 illion euros (-8.5%). The effect of these impairments essentially refers to the partial writedown in the goodwill allocated to the “Endesa – Iberia” Cash Generating Unit in the amount of 2,392 million euros. More specifically, this relates to measures adopted by the Spanish government in the energy field throughout 2012 (mainly in the fourth quarter), leading to the downward revision in the expected cash flow from the assets belonging to the Cash Generating Unit and reflected in the 2013-2017 Business Plan. Moreover, the quantification of the value in use, with reference to the recoverable book value of the Cash Generating Unit, was further negatively affected by the increase in country risk, which is factored into the discount rate used.
Group net income was 865 million euros in 2012, compared with 4,113 million euros in 2011 (-79.0%). Excluding the effect of the impairment losses on goodwill noted above (amounting to 2,575 million euros attributable to the Group), net income fell by 673 million euros (- 16.4%), mainly due to the decline in the results of operations.
Group net ordinary income amounted to 3,455 million euros in 2012, down 606 million euros (-14.9%) from the 4,061 million euros reported in 2011.
Net capital employed, including net assets held for sale of 309 million euros, amounted to 96,106 million euros as of December 31st, 2012, and was financed by total shareholders’ equity of 53,158 million euros and net financial debt of 42,948 million euros.
Net financial debt as of December 31st, 2012 came to 42,948 million euros, down 1,681 million euros from December 31st, 2011. More specifically, cash flow from operations and the disposal of a number of non-strategic assets were partially offset by capital expenditure in the period and the payment of dividends. As of December 31st, 2012, the debt/equity ratio came to 0.81 (0.82 as of December 31st, 2011), while the debt/EBITDA ratio was 2.6 (2.5 as of December 31st, 2011).
Capital expenditure amounted to 7,075 million euros in 2012 (of which 6,436 million regarded property, plant and equipment), a decrease of 409 million euros from 2011.
As of December 31st, 2012, Enel Group employees numbered 73,702 (75,360 at the end of 2011). The workforce declined by 1,658 employees, essentially as a result of a change in the scope of consolidation relating to disposals of companies during 2012 (-131) and the net balance of new hires and terminations (-1,527). As of December 31st, 2012, the personnel of Group companies headquartered abroad were 51% of the total workforce.
PARENT COMPANY’S 2012 RESULTS
In its capacity as an industrial holding company, Enel defines strategic targets for the Group and coordinates the activities of its subsidiaries. Moreover, Enel manages central treasury operations and insurance risk coverage, as well as providing assistance and guidelines on organisation, human resource management and labour relations, accounting, administrative, fiscal, legal, and corporate matters. Until December 31st, 2011, Enel also held a long-term contract for the import of electricity on the Swiss border.
Revenues of the Parent Company in 2012 were 335 million euros, a decrease of 427 million euros from 2011 (-56.0%), mainly attributable to the loss of revenues from the sale of electricity due to the expiry of the long-term import contract on December 31st, 2011 (374 million euros), lower revenues for services provided to Enel Group companies (30 million euros), and the proceeds of the sale of the stake in Deval SpA (21 million euros) that had been recognised in 2011.
EBITDA was a negative 84 million euros, a decline of 21 million euros on the previous year (a negative 63 million euros). This decrease mainly reflected the impact of the recognition of the net gain on the sale of the stake held in Deval SpA.
EBIT amounted to a negative 97 million euros in 2012. Including depreciation, amortisation and impairment losses of 13 million euros (33 million euros in 2011), it was essentially in line with the previous year (a negative 96 million euros).
Net financial expense and income from equity investments totalled 3,329 million euros (2,351 million euros in 2011) and include: (i) dividends distributed in 2012 by subsidiaries and other investees in the amount of 3,940 million euros (3,223 million euros in 2011); (ii) the gain on the disposal of the equity stake held in Terna in the amount of 234 million euros; and (iii) net financial expense of 846 million euros (872 million euros in 2011). Specifically, the decline in net financial expense, equal to 26 million euros, was largely attributable to the decrease in net charges in respect of interest rate derivatives, partly offset by lower interest income on intercompany current accounts, as well as the recognition in 2011 of the net income on the exercise of the bonus shares granted in the global offering of Enel Green Power SpA shares.
Net income for 2012 amounted to 3,420 million euros, compared with 2,467 million euros in 2011.
Net financial debt as of December 31st, 2012 totalled 12,438 million euros, down 1,156 million euros compared with December 31st, 2011, mainly due to repayments made during the year, partly offset by the effects of the issuance of a bond for retail investors.
Shareholders’ equity as of December 31st, 2012 amounted to 25,828 million euros, up 1,638 million euros compared with December 31st, 2011. The change was attributable to the total net income for 2012 (3,143 million euros), partly offset by distribution of the balance of the dividend for 2011 (1,505 million euros).
