Letter to shareholders and other stakeholders

Lettera agli azionisti e agli altri stakeholder

Dear shareholders and stakeholders,

Our industrial model fully integrates sustainability into our business strategy. In 2019, this enabled us to continue our growth, confirming us as a leader in the main facets of the energy transition.
We are the largest private distributor of electricity in the world, with 73 million end users in a variety of the planet’s large urban areas, and we are the leading private operator in renewable energy globally, with 46 GW of managed capacity(1).
Among private companies, we have the largest customer base in the world in the retail segment as well, with around 70 million customers, and we are well positioned to seize the opportunities created by the trend towards electrification.
Our solid performance in recent years has strengthened the market’s confidence in us. During the year, Enel’s stock price posted a gain of 40%, exceeding 7 euros, outperforming the Italian index (FTSE-MIB: +28%) and the sector index (Euro STOXX Utilities: +22%), and has also been included in the STOXX Europe 50 index, which brings together the fifty largest companies in Europe.

The macroeconomic environment

The global economic growth was sluggish last year, continuing the slowdown that had already begun in the 2nd Half of 2018. Trade tensions between the United States and China, together with geo-political strains and the persistent climate of uncertainty about the outcome of the Brexit negotiations, impacted investment decisions until the final months of the year. Responding to the deteriorating global environment, central banks altered their monetary policy stances, with the Fed and the ECB aggressively cutting interest rates and restoring their quantitative easing policies.
2019 was also marked by a further deceleration in the Chinese economy, while in the United States the economy continued to be supported by resilient domestic demand, with private consumption still strong.
Growth in the euro area was modest, averaging +1.2%. This performance mainly reflected the decline in output attributable to the weakness of non-European demand, partially offset by a relatively healthy domestic market.
In Latin America, economic conditions in 2019 were weaker than 2018 but the picture was mixed, with countries such as Colombia demonstrating a solid foundation, while others were more exposed to the volatility of the macroeconomic and political context, including Argentina. Brazil posted a strong recovery in economic activity in the last two quarters of 2019, but the slowdown in the Chinese economy and pressures on commodity prices curbed GDP growth.
During 2019, the oil market was buffeted by volatility, with the price of Brent fluctuating up and down. In general, prices were lower than last year, indicating a structural weakness in global demand.
The gas market was characterized by a global surplus of LNG demand, which diverted flows to Europe, causing stocks to rise to record levels and a sharp drop in prices.
The decrease in the price of gas in combination with strains on the price of CO2, which was especially volatile in 2019, led to a weakening of the competitiveness of coal, especially in the thermal generation sector, which was reflected in a drop in demand and the price of fuel.
At the end of 2019, the initial cases of the coronavirus pandemic (COVID-19) were registered in Wuhan (China), placing great strain on the social and economic systems of many countries around the world.


In 2019, the Enel Group continued its growth, hitting all the targets we had set ourselves, despite the deterioration in the competitiveness of conventional generation. This prompted us to write down almost all the Group’s coal-fired plants and contributed to the continuing instability in some Latin American economies.
More specifically, the Group ended the year with ordinary EBITDA of €17.9 billion, an increase of 10.8% compared with €16.2 billion in 2018, outperforming our guidance to investors. Net ordinary income, the aggregated on which the dividend is calculated, reached €4.8 billion, an increase of 17% compared with the previous year. The dividend for 2019 is about 33 cents per share, an increase of 17% compared with the 28 cents paid in 2018 and the minimum dividend guaranteed to shareholders. The ratio of FFO to net debt, an indicator of our financial strength, reached 26% at the end of the year, exceeding the target set for 2019. Net debt amounted to €45.2 billion, lower than the forecast announced to the market, although higher than the previous year due to the application of new accounting standards, the extraordinary transactions completed during the period and the increase in investment for growth.

Main developments

On the generation front, Enel reached a new record in 2019, building 3,029 MW of new renewable capacity globally, thanks to a solid, well-diversified and continuously expanding project pipeline. Consolidated installed renewable capacity reached 42 GW and exceeded thermal generation capacity, which declined to 39 GW. This is an important step in the Group’s journey towards a cleaner and more sustainable energy mix, which is also underscored by the rapid reduction in specific CO2 emissions, which fell to 296 g/kWheq (-11% compared with 2018). The target set in 2015 to reduce direct emissions below 350 g/kWheq was thus achieved a year in advance.
The Group continued digitalizing its grids, with an increase of 5.9 million in the number of second generation smart meters installed (for a total of 13.1 million) and the development of innovative projects such as the Puglia Active Network (Italy) and Urban Futurability (São Paulo, Brazil). These projects are aimed at improving the quality and resilience of power grids, thanks to the use of technologies such as distributed sensors, artificial intelligence and 3D modeling.
During the year, the installation of public charging infrastructure for electric vehicles continued in Italy, Spain and Romania and interoperability agreements were reached, giving Enel X customers access to a network of 79,565 charging points. The Group also confirmed its leadership in the energy transition, supporting the electrification of public transport with the supply of charging stations for electric buses in Chile and Colombia. We have also confirmed our ability to assist customers in using energy more efficiently, bringing the capacity of active demand management services to 6.3 GW and the total capacity of batteries installed with industrial customers or directly connected to distribution and transmission grids to 110 MW.
An important milestone in the digital transformation was reached in April 2019 with the completion of the migration of the Group’s data and applications to the cloud. Enel is the first of the world’s major utilities to have achieved this goal, with enormous advantages in terms of flexibility, speed, safety, resilience as well as efficiency. This step is also crucial as a technological enabler of new business approaches, such as platform models, which will be increasingly relevant in Enel’s near future.
Among extraordinary operations, the sale of the Reftinskaya coal-fired plant in Russia (3.8 GW) by the subsidiary Enel Russia to JSC Kuzbassenergo, a subsidiary of the Siberian Generating Company, was completed.
Enel Green Power North America restructured the joint venture with General Electric in the United States through the acquisition of 100% of seven geothermal, wind and solar generation plants, for a total of 650 MW, and the sale of 80% of a 785 MW portfolio of US wind farms to CalPERS.
In Brazil, acting through our subsidiary Enel Green Power Brasil Participações Ltda, the Group finalized the sale of 100% of three fully operational renewable plants with a total capacity of 540 MW to the Chinese company CGN Energy International Holdings Co. Limited.
In Italy, the Mercure biomass plant was sold to F2i SGR, an operation that was part of an agreement between the Enel Group and F2i SGR for the sale of the entire portfolio of biomass plants in Italy.
Finally, in the 1st Half of 2019, using a total return swap (TRS) transaction on Enel Américas shares, the Group increased its stake in that company by 5% and now holds an interest of about 60%.
With regard to finance, after the third €1 billion green bond issued in January, the year culminated with the issue of two SDG-Linked bonds, the first bonds in the world linked directly to the Sustainable Development Goals (SDGs) set by the United Nations with its 2030 Agenda. The two operations raised a total of €3.9 billion on the American and European markets, attracting great interest from the international financial community. Oversubscribed by an average of 3.6 times supply and a cost discount of up to 20% compared with conventional financing instruments, the operation led to Enel winning the “ESG Issuer of the Year” award from International Financing Review.

Strategy and forecasts for 2020-2022

The world of utilities is experiencing an era of profound transformation, mainly driven by the challenge of decarbonizing the energy sector. The progressive shift of generation from fossil fuels to renewable sources, together with the acceleration in the electrification of final consumption, will be the main trends in the energy transition. Energy infrastructures and digital platforms will be key factors in enabling this transition and achieving the United Nations’ Sustainable Development Goals. The sustainable strategy and the integrated business model developed in recent years have allowed the Group to constantly create value and will allow us to benefit from the opportunities emerging from this transition, while limiting the related risks.
Thanks to a development model based on the organic build-out of renewable generation assets that gives us great flexibility in the use of capital, the Group is capable of responding swiftly to any unexpected scenario changes that could be triggered by the pandemic that has been spreading around the world in these last few months.
In November 2019, Enel presented the 2020-2022 Strategic Plan, which, while confirming the strategic direction already set, explicitly integrates the SDG objectives into our financial strategy.
The growth path outlined in the Plan shows a steady acceleration in performance, with a target for the Group’s ordinary EBITDA of €20.1 billion in 2022, compared with €17.9 billion in 2019 (+12%).
In the next three years, the Group expects total gross organic capex of around €28.7 billion (an increase of 11% compared with the previous plan), of which over 90% is attributable to the four SDGs on which the strategy is based: SDG 7 - Affordable and Clean Energy; SDG 9 - Industry, Innovation and Infrastructure; SDG 11 - Sustainable Cities and Communities; and SDG 13 - Climate Action.
Of total organic investment, more than €12.5 billion will be dedicated to the construction and maintenance of renewable generation plants, with renewable capacity to reach 60 GW by 2022. At the same time, the Group will continue to progressively eliminate coal-fired generation, with a 74% decrease in such output as early as 2022.
This strategy is consistent with Enel’s commitment to the fight against climate change, which was further strengthened in September 2019 with the setting of a new target: reducing direct CO2 emissions per kWheq by 70% by 2030, compared with 2017 levels. This target has been certified by the Science Based Targets initiative, the world’s most authoritative initiative to support the definition of science-based targets that encourage companies to support the transition towards a zero-emission economy, in line with the objectives of the Paris Agreement. In parallel, Enel has set another new target, also certified by the Science Based Targets initiative, namely to reduce indirect emissions associated with the consumption of gas by Enel end users by 16% by 2030.
With regard to grids, investments of around €11.8 billion are planned, with the aim of further improving their resilience, quality and efficiency, thanks in part to the use of the new generation of smart meters, which in 2022 will number almost 29 million, and the adoption of a platform business model that will make operations in all the countries in which we operate more effective.
Finally, the Group will invest a total of €2.3 billion in the retail segment and in Enel X to strengthen the central role of the customer, gaining an advantageous position in view of the growing electrification of energy consumption. The development of global platforms and ecosystems will allow us to make new services available to customers, enabling further creation of value for the Group. By 2022, there will be around 35 million customers in the free market, with 10.1 GW of active demand management capacity and 736 MW of installed electricity storage.
The soundness of our business model and the flexibility noted above in the use of cash flows in organic investment enable us to confirm the dividend policy based on a pay-out of 70% of the Group’s net ordinary income and to extend the minimum dividend per share for the entire 2020-2022 period, with Enel expecting to use its profits in 2020-2022 to pay the greater between a) a dividend per share based on a pay-out of 70%; and b) a minimum dividend per share of €0.35, €0.37 and €0.40 respectively.
At a moment of great instability in the global scenario, we face the future with confidence, drawing strength from what we have built and the value of our people.

[1] In addition to installed capacity, this includes that managed by associates or joint ventures (about 3.7 GW).