Enel: boosting value creation through a lean, flexible and resilient organization

The past year was characterized by high inflation that triggered the most aggressive interest rate hike cycle in decades, leading to tighter financial conditions and exacerbating debt vulnerabilities.

This context has negatively impacted global GDP growth and power demand in the European Union, which does not appear to recover in the near term. As a result of these uncertainties felt around the world, the importance for companies to be as flexible as possible to remain competitive has become increasingly clear.

Despite the current scenario, things look encouraging for the utility sector in the medium-term; with power demand set to increase as consumers increasingly shift towards electricity for energy use and renewable energy continuing to match high power demand, while boosting independence from fossil fuels.

An integrated strategy

Italian utility giant the Enel Group addressed this challenging and complex scenario in the presentation of its new 2024-2026 Strategic Plan during its 2023 Capital Markets Day, on Nov. 22.

The main objective of the new strategy is “to reshape the Group into a leaner, more flexible and resilient organization, well positioned to face the challenges and seize the opportunities that may arise in the future” explained Enel Group CEO Flavio Cattaneo at Enel’s Capital Markets Day. “In the next three years, we will adopt a more selective approach towards investments in order to maximize profitability while minimizing risks. We will focus on our core countries by implementing integrated strategies, targeting networks, renewables as well as value creation in the customer segment through bundled commercial offers”.

Profitability, flexibility and resiliency

Over the next three years Enel plans to invest around €36 ($39) billion, mainly in grids, as well as in renewables and customers. In order to achieve a less capital intensive and risky model the Group will leverage on European grants for investments in grids and on new partnerships for those in renewables.

The investments in grids - €18.6 ($20.3) billion, which become €15.2 ($16.6) billion net of grants – will be mainly concentrated in Italy where the Group plans to spend 49% of its overall gross capex. The objective is to ensure high service quality for all of its customers, reducing energy losses, improving resiliency and digitalization as well as enhancing new connections.

As for renewables, the Group will invest €12.1 ($13.2) billion (around €6 ($7) billion net of partnerships), concentrating on onshore wind, solar as well as battery storage by boosting innovation while leveraging on repowering to increase plant efficiency and reduce generation costs. The renewable additional capacity will grow by more than 13 GW over the plan horizon.

Enel will also invest in the customer’s segment to improve client engagement and satisfaction, actively managing the Group’s customer portfolio through multi-play bundled offers, which encompass commodities and services within an integrated portfolio provided through a single touchpoint. The aim is to maximize the value of the customer portfolio while actively pushing towards an electrification of consumption.

Efficiency and effectiveness

“Financial discipline will be at the cornerstone of our Strategy, boosting cash generation and efficiencies, with sustainability continuing to guide our business decisions. By carrying out these actions and reaching our targets, we will be able to further strengthen Group financial position and enhance value creation, ensuring sound returns to our shareholders,” said Flavio Cattaneo, CEO of Enel.

Compared with the cost baseline for 2022, the Group plans to achieve a total cost reduction of around €1.2 ($1.3) billion in 2026, by simplifying processes and further developing clear accountability, optimizing the mix between insourcing and outsourcing, as well as adopting standards and leveraging on technological improvements to be adapted in each country.

Financial and environmental sustainability

Enel’s Plan aims to achieve financial equilibrium, fully covering its net investments and dividends between 2024 and 2026, with Ordinary EBITDA and Net Ordinary Income expected to grow respectively to between €23.6-€24.3 ($25.7-$26.5) and €7.1-€7.3 ($7.8-$8.0) in 2026.

Cash flow generation, cost discipline and the streamlining of processes are expected to result in a more solid credit standing for the Group. Sustainable finance sources are set to reach around 70% of total gross debt by 2026.

As for environmental sustainability, the Group maintains its commitment to reducing its direct and indirect greenhouse gas emissions, in line with the Paris Agreement and compliant with the 1.5°C pathway, with an ambition to reach zero emissions across all scopes by 2040.

Looking ahead, value creation for all will remain at the core of Enel’s strategy and a simple and clear policy is envisaged for dividends: shareholders will receive a fixed minimum of €0.43 ($0.47) throughout 2026 with an upside, a payout up to 70% on ordinary net income if Funds From Operations (FFO) fully cover Group net capex and dividends on top of the minimum fixed DPS.

Together, financial and sustainable value creation will drive the Group over the next three years, as it navigates the complex global scenario. Through its new Plan, the Group underscores how it will address the challenges, meet the needs and seize the opportunities that may arise in the future, while continuing to create value for all its stakeholders by embracing financial and economic stability.