Enel SpA

MIL:ENEL

Earnings Call Transcript 2019-Q1

[Monica Girardi, executive]

Good evening, ladies and gentlemen, I'm Monica Girardi, head of group Investor Relations. Welcome to our First Quarter 2019 Results Presentation, which will be hosted by our CFO, Alberto de Paoli. In this presentation, Alberto will walk you through the highlights of the quarter as well as the operational and financial performance. Following the presentation, we will have the usual Q&A session, open to those connected both on the call and on the web. Before we start, let me remind you that media is listening to both the presentation and the Q&A session. Thank you, again, and now let me hand over to Alberto.

[Alberto de Paoli, executive]

Thank you, Monica. Good evening to you all. Let me start with the highlight of the period. I'm on Page 1. In the first quarter of 2019, ordinary EBITDA increased by 14%. And net income by 11%, supported by the ongoing delivery of our strategic plans. Overall investments increased by around 36% in line with planned targets, driven by developing CapEx, which reached EUR 1.2 billion in the period. Growth in EBITDA was supported by renewables, networks and thermal generation. Renewable capacity increased by 800 megawatts, while networks recorded the positive contribution of regulatory changes in the consolidation of Enel Distribuição Sao Paulo.

Despite growth and perimeter, changes on operating cost remain stable. In line with our strategic priorities, our group simplification, we settled the swap contract in Enel Américas shares to increase our stake in the company by up to 5%. And we further strengthen our position in the U.S. through the purchase of renewable assets. We will report on progresses on SDG's targets in the first half conference call.

Let's now move on Slide #2. On industrial growth, as you can see from the chart, the overall CapEx in the first quarter was equal to EUR 1.9 billion, around 40% higher versus last year, almost 90% of CapEx was devoted to networks and renewables. From a geographical perspective, CapEx was deployed mainly in Italy and South America. Asset development CapEx increased by 50% year-on-year and stood at EUR 1.2 billion, 60% of the total. On this amount, 2/3 was allocated to renewables, mainly in North, Central and South America as well as in Iberia, where we started the new investment cycle associated with the urbanization targets. And 30% on networks on the ongoing effort to digitalize our grids.

Looking to the 2019-2021 period, as of today, around 65% of asset development CapEx is already addressed, providing high visibility on the industrial targets for 2019 and beyond. Moving now to ordinary EBITDA, let's take a look on the main drivers on Slide #3. As already commented, ordinary EBITDA is up by around EUR 600 million, recording a 14% growth on a yearly basis. This growth supports our full-year targets and offers high visibility on the group's operating performance. According to the classification that we presented during the capital market day, the main drivers of the performance are as follows: Asset development, contributed by around EUR 200 million, mainly thanks to renewable project development in the U.S. And then allowed of the second generations smart meters in Italy.

Customer contribution is stable over the quarter and the asset management increased by around EUR 400 million, and this is due to higher electricity prices and margins recorded in South America and in Europe which offset the lower production, idle production record particularly low level during the period but is expected to normalize along the year. Then we had positive tariff adjustment in South America, particularly in Brazil and white certificates in Italy in the distribution business. Changes in perimeter mainly as a consequence of Eletropaulo acquisition. FX weighted negatively on our asset base in the period for around EUR 85 million. And additionally, we recorded around EUR 160 million from the yearly termination of our PPA contract in Chile, which was expected to start in 2021.

The group effort on operational efficiency continues. Now I am on Slide #4. As you can see from the chart, over the period our operating expenses increased by around 2% or EUR 40 million. Efficiencies have been recorded for EUR 40 million as well, mainly in thermal generation, networks and retail. The increase in OpEx is attributable to the growth of the operations and the full consolidation of Enel Distribuição Sao Paulo. New accounting principle of operating leases had a positive impact on costs in the quarter for around EUR 60 million.

Moving now to portfolio management and group simplification on Slide #5. Portfolio rotation for the period focused on renewables with a view to strengthen our consolidation -- consolidated presence in key market across strategic technologies and extract more value from assets full ownership. In particular, Enel Green Power North America purchased 7 fully operational plants, which include geothermal, solar and wind from the 50-50 joint venture with General Electric. In-store capacity of acquired assets is equal to 600 megawatts. The consideration of the transaction is equal to EUR 900 million, while the impact on EBITDA expected in 2019 will be equal to EUR 170 million out of which EUR 100 million in the quarter. We expect the consolidation of those asset to contribute at occurring EBITDA of around EUR 100 million from next year onwards.

We also purchase Tradewind. It is a development platform comprising of 13 gigawatts of wind, solar and storage project located throughout the U.S. Out of the total, 6 gigawatts will be sold, retaining ownership of a strategic pipeline of around 7 gigawatts of wind projects. As per the continued effort on group simplification, we have increased the stake in Enel Américas to 56.42% from previous 51.8% by settling 2 share swap transaction on both common stock and ADS. Price paid for the shares and ADS totals EUR 412 million in aggregate and it is not included in the first quarter results. The swap transaction in respect of Enel Américas common stock remains in place in consideration of the initial targets stake increase of up to 5%. Let me also remind that last week Enel Américas shareholders approved USD 3 billion capital increase, which will be finalized in the forthcoming months. We think this transaction will unlock additional future growth opportunities to be captured in the region, strengthening the financial position of Américas while improving significantly cash movements within the group.

Let's now move to the financial summary. And I am now on Page 7. As already commented, ordinary EBITDA up 14% to EUR 4.5 billion, net of FX and [ IFRS ]inflation in Argentina, ordinary EBITDA would have increased by 16%. Net ordinary income came in at EUR 1.2 billion, 11% higher versus last year. FFO stood at EUR 2.5 billion, up 31%, driven by higher EBITDA. Group net debt reached EUR 45.1 billion increasing 10% versus year end 2018; the change is driven by the restatement related to IFRS 16 acquisition completed in the period and negative FX impact.

Moving now to the detailed analysis of the quarter, let's take a look at the 2 -- the main global business line drivers for ordinary EBITDA on Slide #8. In the slide, you can see a performance summary of our business. It is worth highlighting that renewables and networks accounted for 70% of overall ordinary EBITDA, confirming the well-balanced risk/return profile of our business model.

Deep diving on the business lines, I'm now on global renewable energy results on Page #9. As said, ordinary EBITDA came in at EUR 1.2 billion, 21% higher versus last year. Asset development contributed with around EUR 120 million, mainly in North, Central and South America, thanks to around EUR 100 million from the full consolidation of our North American assets as we've mentioned in the active portfolio management slide. As for asset management, the main impacts have been higher prices that impacted for EUR 120 million mainly in Italy, Iberia and South America; lower production volumes that accounted for negative EUR 90 million mainly due to lower resources availability and perimeter changes. And lastly, it was recorded out of the positive one-off contribution totaling EUR 160 million, associated with the early termination of a PPA contracted in Chile. The remaining half is accounted into the global Thermal Generation and Trading business line. And I will explain later why in the Q&A session.

I will now go into the analysis for infrastructure and network on Page #10. We reported an ordinary EBITDA of EUR 1.8 billion, 7% higher versus last year. Net of the negative FX and [ IFRS ]inflation in Argentina, EBITDA would have increased by 9%. Asset development added EUR 32 million, mainly in Italy where total installed second generation smart meters are up by 20%, thanks to the installation in the last 12 months of around 1.5 million of new smart meters and in South America on quality of service and lower network losses. Customers contributed with roughly EUR 20 million, related to higher connections fees in Italy and Iberia. And asset management contributed for around EUR 70 million.

In this we alight a positive contribution of regulatory changes of around EUR 19 million recorded in South America especially in Brazil for new regulatory framework in Rio, in Goiás and in Argentina. These positive adjustments were partially offset by lower margins due to previous year adjustments in Argentina and Brazil. Then we have a neutral impact of operating cost whereby operating efficiencies of roughly EUR 30 million were totally offset by a negative CPI impact for the same amount the vast majority in Argentina. The full consolidation of Enel Distribuição São Paulo impacted for roughly EUR 90 million in the quarter. Then we have a negative impact of FX and [ IFRS ]inflation for EUR 35 million.

And I'm moving on Slide 11 on retail. Asset ordinary EBITDA came in at EUR 850 million in line with last year. In margin market, Italy and Iberia, higher free market margin, many thanks to higher prices and partially offset by lower regulated Italian margin due to lower price and volume. Then we had higher efficiencies for around EUR 20 million mainly in Italy, while in Romania, we reported lower margins both in the free and in the regulated markets due to an increasing cost of sourcing coupled with a decline in regulated tariff. A negative performance that we expect to recover by next year due to regulatory rules in Romania. South America recorded a positive contribution, mainly due to the consolidation of Enel Distribuição Sao Paulo. In the gas business, Italy recorded higher margins and improved sales mix, while Iberia performance was affected by lower margins due to price reduction despite volumes remained stable.

And now move to thermal generation, where the ordinary EBITDA increase by 79% and came in at EUR 511 million. This remarkable performance is mainly attributable to higher availability of the Iberia nuclear fleet coupled with higher prices and temporary elimination of the 7% generation tax. Then on Fortaleza in Brazil that this quarter was fully operational and for prices in South America that have been improved, thanks to better hedging strategy. Efficiency came for around EUR 25 million and as commented before, we accounted here that out of the early termination of PPA in Chile, FX impacted for roughly EUR 60 million.

Now on Page 13. We can now move to the financial management section. As you can see from the chart, D&A increased by about EUR 70 million due to a higher depreciation for EUR 150 million, following the implementation of the new accounting principle 455, the consolidation of Enel Distribuçao Sao Paulo and as a consequence of our investment activity. And then we have accounted lower bad debt, thanks to the normalization of this item in Italy after the crash program performed in 2018. Financial expenses grew by EUR 80 million, mainly due to the following: Net financial expenses on debt rose by EUR 27 million due to higher average net debt in the period, partially compensated by lower cost of financing. Other financial expenses increased by EUR 50 million, mainly due to the consolidation of Enel Distribuçao Sao Paulo. Equity investments stood at minus 63 due to the North America JV unwinding, taxes increased by EUR 145 million, mainly due to higher earning before taxes, positive one-off accounted in 2018 related to 3Sun, partially offset by the positive one-off related to the deferred tax asset recognition in Argentina. The group net ordinary income came at EUR 1.2 billion as said or plus 11% versus previous year.

Moving now in the cash flow on Slide #14, FFO as said stood at EUR 2.5 billion, over EUR 500 million higher than last year or plus 31%. This is driven by higher EBITDA after provision for around EUR 700 million, net working capital at minus 1.1, broadly in line with last year and affected by the negative impact coming from the seasonal profile of Capex dynamics, which will be reabsorbed by year end. And higher taxes paid mainly due to the advanced settlement tax payment dynamics. Free cash flow stood at EUR 600 million despite a huge acceleration in investments made in the period and marks an 14% increase versus last year.

Moving now on the debt. As said, our net debt stood at EUR 45.1 billion. At the end of the quarter our opening debt was EUR 42.5 billion, reflecting the EUR 1.4 billion impact of the new accounting principle, which is worth highlighting does not impact on credit metrics. Furthermore, net debt changes are driven by increase of EUR 600 million in free cash flow as commented and dividends paid for EUR 1.8 billion. Free cash flow after dividend was broadly in line versus last year, then we had EUR 700 million negative FX impact from evaluation of local currencies against euro, mainly dollar. The impact from currencies is almost entirely neutralized, thanks to our hedging derivatives. And EUR 800 million associated with our active portfolio management of the period, mainly impacted by the unwinding of the North America joint venture.

Our gross debt increased by about EUR 5.6 billion versus December 2018 due to the abovementioned dynamics of net debt evolution and a temporary increase of cash available pending the allocation of proceeds of the green bond issued in January and which will be reabsorbed in the coming months.

And now some closing remarks. Result achieved during the first quarter of the year demonstrate Enel's commitment to deliver on the strategic plan that we had presented during our Capital Market Day. The operating growth, the focus of efficiencies, the simplification of corporate structure and the commitment to sustainable development goals will continue to drive results in next quarters. We anticipate free cash flow generation to remain solid despite an acceleration of CapEx. The remarkable increase in ordinary EBITDA and net income paved the way to full year targets, which we confirm.

Thank you for your attention and let's now open the Q&A session.

[Monica Girardi, executive]

The first question comes from line of Harry Wyburd from Bank of America Merrill Lynch.

[Harry Wyburd, analyst]

Whereabouts in terms of the equity commitments and the seen net debt on that transaction. And then you're going to get EUR 100 million of EBITDA in first quarter 2019, EUR 170 million of EBITDA in full year 2019. And then EUR 100 million annually from 2020 and beyond. Firstly, if you could just let me know whether I got -- read those figures off correctly. And second, that seems like a very good deal for operating renewables assets, quite a lot of implied EBITDA multiples. And what was it that allowed you to get such a good optical multiple on that transaction? And then second one, can I take you up on your offer to clarify this Chile PPA contract early termination? So firstly, that is, I presume, a single one-off effect, non-recurring effect? And can you explain what it is and why you split between generation and renewable?

[Monica Girardi, executive]

Harry, apologies but your lines was open late. So can you just repeat the first question that we couldn't hear?

[Harry Wyburd, analyst]

Sure. Yes. So it was on the GE transaction. So if I understood correctly, you paid EUR 800 million in total. So the equity commitment and you assume net debt. And then that's getting you EUR 100 million of EBITDA in the first quarter of 2019, EUR 170 million EBITDA in 2019 and EUR 100 million in 2020 and beyond. Have I got those figures right? And that looks obviously like a pretty good implied EBITDA multiple. And I don't know if you could tell us to why that transaction seems to be very favorable.

[Alberto de Paoli, executive]

Harry, so for the first question on the unwinding of joint venture. Yes. The run rate as said is EUR 100 million. That is, say, roughly EUR 25 million each quarter. In 2019 the EUR 170 million is because we saw close transaction at the end of first quarter so we know we have this EUR 25 million for the rest of the year. And then we accounted this one-off of EUR 100 million that is related to RBS or TVT. That's why, it is because, so we do, we did a very good business in dealing with this asset. This is part of the activity on unwinding the joint venture that we have with General Electric that is asking to exit the joint venture and so because they're in a hurry for several reasons as the overall price paid is good to us. So the multiple as said is very good and so we are very happy with this transaction.

Well, on the PPA contract. So first of all, so the one-off effect -- so this is a contract that is due to start in 2021. So our customers asked us to exit before the beginning of the contract. And that's why so this is one-off effect and during the plan you will see only this one-off effect because the plan is to take this contract in place starting from 2021. The effect is split between thermal generation and renewables because it's due that the PPA will be served by thermal generation and renewables in equal parts, so that's why we split the result in 2. Looking at what will happen after, we have reached an agreement on the same customer to participate to the tender that the customer will launch in the short term to have a different contract with different prices. So this is more or less what is happening. Or so in this case, we will try to go in this tender or to then go another way to cover this production. But in production it will be uncovered starting from 2021.

[Monica Girardi, executive]

Okay. We move to next, Javier Suarez from Mediobanca.

[Javier Suarez Hernandez, analyst]

The first one is on the guidance. I send out that during your presentation, you have been mentioning the confirmation of targets for 2019. Is your plan, please specify to what target are you referring to. If that is including also the target on debt that may be affected by a new accounting principle in reference to IFRS 16 if this maybe affecting your net-debt target for 2019. That is the first question. The second one -- the second question is on the cash flow generation on Slide #14. On the working capital obviously, there is a negative seasonal effect corresponding to the first quarter but it is lower than the one that we see during the first -- at year ago, the year-on-year despite the changing perimeter.

So am I reading correctly that the company's managing to reduce the working capital absorption during the first quarter despite the changing perimeter and if so, you can help me to understand the managerial accent that you had been taking to reduce the weight of negative working capital. And then the third question that I have is on the changing perimeter and the contribution to the EBITDA on Slide #3. Again, you are mentioning something like EUR 80 million of positive contribution related to perimeter changes, you can help us to understand and to give us a breakdown of that contribution by companies or activities. That would be helpful.

[Alberto de Paoli, executive]

So Javier, first question guidance. So guidance is that way. On EBITDA, what we say, so the IFRS impact for the whole here is roughly EUR 200 million. So we had a target of 17.4, so we do confirm 17.6. So 17.4 plus the IFRS impact. Relating to debt, what is the guidance? So first of all, we have the guidance plus the impact of IFRS 16, the impact is at 14 -- 1.4. So if we take -- this is something that we can only try to understand, if we take this -- the level of FX as of today so without changes, adding the IFRS impact, the overall value is roughly 44. And 44 is absolutely in line with our target for 2 main reasons; one is, that the IFRS impact is an accounting impact not impacting the rating because it's something already included in the rating level and because everything that is up of the value of the debt in terms of FX of the closing 2018 is only an accounting effect.

So already the EUR 700 million that we have in the first quarter is only an accounting effect. Our hedging derivatives said that EUR 700 million before -- below, sorry, below the level I said. Everything that will now change the level of 2018, up or down, is only an accounting effect; it's not related with the level of the debt hedged. So to resume, 17.6, there's is the target plus IFRS effect, 44 if the level of changes will remain, the level of today plus the IFRS. These are the target for the full year. And for the perimeter effect, the perimeter is only Electropaulo because in the first quarter, it's a full perimeter effect because we added Eletropaulo in the first quarter 2018.

And last on cash-flow generation, so the point is well more or less the cash absorption in the quarter is quite in line with the previous year. What I can say that is, the lowest level we have reached in the up or down class flow during the year. So in the first quarter of previous years we had deeply impacted in the average that we are having after having done a lot of activities to stabilize the working capital. In fact, what we say ever is that we foresee a neutral impact of working capital that we are also pursuing this neutral impact at the here level and at the plan level.

[Monica Girardi, executive]

Okay. We move to next question that comes from the line of Alberto Gandolfi from Goldman Sachs.

[Alberto Gandolfi, analyst]

I have 3 but hopefully very brief. The first one is Enel Américas has -- you just increased your stake, the rights issues is a pretty sizable chunk of the market caps. So would you be willing to be like almost a lender of last resort for Enel Américas and potentially increase your stake further in the process if there were to be a bit of oversupply of rights out there. And where would you like to be by the end of the summer? The second question is I think you gave that number so forgive me if I misunderstood it, but did you just provide and if not could you provide please the impact in Q1 from below average hydro production or maybe the Torrevaldaliga, one of the hedge prices activity. And the third one is that could you maybe elaborate a little bit on project IRRs you think you are now reaching on your renewables portfolio? So if we look at this in a blended basis, what is or maybe you can provide invested capital so we can do the EBIT report?

[Alberto de Paoli, executive]

Alberto, Américas first of all, so we're happy that Enel Américas got the approval. It's a good move. The reduction in -- of the debt and avoiding double taxation that we have in different part of the corporate structure in Enel Américas and the possibility to reduce the pension fund liability is something that is going to complete the Electropaulo acquisition creating the entire value that we're seeking for. For the increase, so we have expressly said that we're happy to cover our stake. As you know, as said, our stake has been already increased 4.62 but so we've just -- so we are now closing the 5% so we will present Enel with roughly 57% in the capital increase. The reason -- the capital increase will stay in the phase of opted shares that will be offered in proportional part to the shareholders that have subscribed the first phase in this case so we will be -- so we will say -- we will see if some -- actual we will say -- we will cover also this to not leave uncovered the receivable part of the capital increase. This will be our behavior in the capital increase.

For hydro production, in -- we have roughly 1.3 terawatt tower less versus previous year. The value is roughly EUR 70 million, EUR 80 million. Second quarter, so April has been in line with the first quarter. May is going to be completely different because of weather mainly in Italy, Spain and -- that is so it was very rainy and the early city is coming up.

On IRR, well, say, now we are -- I will say we are now had in -- we are in the phase to add the projects of the new way of develop renewables as said in the Capital Market Day, so looking at the carbonization effort mainly Spain and Chile, and also following the direct PPA with customers. What I can say is that, so the asset already done before is in line what we said, so we are working roughly in 150 basis point over WACC. And for the new projects, we are in the phase of having been approved, so approved means that the PPA has been signed and the cost of CapEx is set. But now we have -- we are on the delivery side. And if everything will go the way of the approval, we will stay up 150 basis points. So we will stay between 150 to 220 basis points.

[Monica Girardi, executive]

Okay. Next question comes from the line of Enrico Bartoli from MainFirst.

[Enrico Bartoli, analyst]

First one is regarding the outlook for renewal capacity additions during the year if you can give us some figure and possibly, would reach out the areas what you expect that we contribute to capacity increase in this year. And if the addition will be linear during the quarter so you expect different phasing. The second one is related to the thermal power generation in Italy. There was a very significant increase in EBITDA from this business in the quarter. Actually the EBITDA in the quarter is already above, I guess, the guidance that you gave for the full year. Then you have a little bit on the margin evolution in the quarter with respect for the next year and also the impact on increase in Q2 prices that you expect on this business. The third one is regarding the retail business in Italy. You've mentioned certain improvement in the margins. Can you provide further details from this and also, I was wondering also what is going on with gas margins, which improved as well. If you can give us some hints on this business.

[Alberto de Paoli, executive]

So Enrico, first question on the outlook of risk capacity addition. First of all, Enel Green Power has a target this year to reach 3,000 megawatt deployed. Usually in the last years we had a very linear development. This year because it's ramping up, we have -- we will have a development mostly concentrated in the second part of the year. So you will see a huge ramp up in the last quarter. It's not something that we were used in the past. So after this ramp-up of this year, the next years will -- the growth would be linearized this year is the year of the change of speed and so this is technical reasons for this kind of development.

On the thermal generation, the main problem is -- so the main problem. The main increase, what is happening is this -- is a particular situation in Italy in which we have a decrease in production, mainly in coal production. And this because of reduction in the thermal gap, reduction in demand in the thermal gap on one side and the second because they increase the CO2 prices is putting pressure on the coal generation. And on the other side, we have very high prices because [indiscernible] so this is the situation and because of the situation, the thermal asset are working a lot in term of ancillary services. These 3 things together is bringing the vast majority of the results in thermal generation.

And related to retail Italy, I would say that more or less we have -- on the power side, we have sort of stability of margins. So we have unitary margins almost stable. And that is so you know what is our strategy is to keep margins stable. Coming on the gas side. More or less, we are also working at stable margin. So you see that the free market is going up for increasing in customers and volumes, keeping the level of margin stable. Taking account that because of our hedging strategy of generation to our customers, keeping the margin stable means that so the margin is absorbing the increase of cost of sourcing related to the increase of power prices that we account on the generation side.

[Monica Girardi, executive]

Okay. Next question comes from the line of José Ruiz from Macquarie.

[José Ruiz, analyst]

Just 2 questions. One, could you give us detail from the 39 million efficiencies, how much is attributable to Eletropaulo, a link to this, I mean, having almost 3 years behind. Would you say you are rather close to the upper guidance, USD 200 million, or the lower, the USD 100 million efficiency target between 2017 and '21?

[Alberto de Paoli, executive]

Okay, so on -- when we talk about the efficiencies here, the 39 million Eletropaulo is not in the efficiencies because we account everything in the first quarter in the perimeter. Looking at the efficiencies of Eletropaulo, we are better than the trend that we have set mainly because the reduction in cost mainly in the reduction of it counts is going very well. We have just closed the program for 2019. And so we think that we can address if an increase program, not really in our targets to anticipate the efficiencies in Eletropaulo. So I can confirm that we can stay in the upper side of the range you are mentioning.

[Monica Girardi, executive]

Okay. Next question comes from the line of Lueder Schumacher from SocGen.

[Lueder Schumacher, analyst]

Just 2 questions from my side. The first one is coming back to the net debt and the impact of IFRS 16. Are you essentially saying we can add the EUR 1.4 billion to your business plan targets from your Capital Markets Day? So through all the years but for 2019 we will end up at EUR 43.2 billion, I think you said EUR 44 billion in the presentation. So just the year-end 2019 net debt outlook. And also, how comfortable are with your business plan targets for Argentina? You mentioned Argentina a few times but usually in terms of how much better numbers would look without it? Or your views on the situation in the country will be quite interesting?

[Alberto de Paoli, executive]

So Lueder, on the net debt impact of IFRS 16, you have to add EUR 1.4 billion to business plan target, yes. So this is -- this leads to EUR 43.2 billion. My EUR 44 billion target is if the FX impact. So if the level of change is euro dollar mainly and other currencies will remain the level of we have today, you have to add another EUR 700 million to this EUR 43.2 billion, reaching roughly EUR 44 billion. So it's something that we cannot predict but at the level of today, the forecast is of EUR 44 billion. But it's correct to say EUR 1.4 billion on the target of the business plan is EUR 43.2 billion.

Business target for Argentina. Taking account that Argentina now is leaving in a period in which some troubles on economies seems to look at the light at the end of the tunnel. But with the elections in October, it's clear that Argentina now is entering in a phase of pre-electoral mood. I can't now say nothing on very good news that is coming to Argentina and that would be public in the next days. And so only also to say that some positive outcome comes also from Argentina in this period. Remember that because of the volatility of the particular period of the country, we are working as said in cash flow manner in the sense that so we are financing investments in Argentina with the cash that Argentina is producing. And this is the way we think is the best way to keep on our options that so could have a big value if Argentina will stabilize. And it's clear that for the entire group today, Argentina is putting a big impact in terms of EPA inflation accounting and FX. But remember that the business within the country is fully hedged against CPI because the distribution business is fully hedged on CPI hedge in the sense that CPI is increasing tariff for 100% of the impact. And the generation business is fully dollarized.

[Monica Girardi, executive]

Okay. We move to the next question that comes from the line of Anna Maria Scaglia from Morgan Stanley.

[Anna Maria Scaglia, analyst]

Yes. Just 2 very quick questions. You mentioned the deferred tax -- deferred tax asset impact from Argentina in the tax line. If you can just quantify it? And the second question is, the EUR 160 million PPA, is it treated with the normal tax regime?

[Alberto de Paoli, executive]

Asset impact from Argentina that is a way that is offered by the tax flow of Argentina is roughly EUR 40 million, the overall impact. And the second is yes, that the tax regime in Chile obviously.

[Monica Girardi, executive]

Okay. We move to the next that comes from the line of Tancrède Fulop from Morningstar.

[Tancrède Fulop, analyst]

I have 3 questions. The first one is on renewable acquisition [indiscernible]. Does the 900 [indiscernible] include tax equity? Second question if you could provide us debts of your hedging in Italy in terms of power and at CO2 prices? And the last one is if you could give impacted tax rate for the year?

[Monica Girardi, executive]

Tancrède, sorry, the line was really disturbed. So if you could just briefly repeat the first and the last question and confirm that the second was on the hedging in Italy?

[Tancrède Fulop, analyst]

Yes. Sure. For the first one, is for the acquisition, the renewable acquisition in the U.S. the 900 million throughout, and intercost to you, does that include tax equity? And the last question was if you could give us the guidance of tax rate for the full year.

[Alberto de Paoli, executive]

So first of all, on the -- on your second question on the hedging in Italy on prices. One, to remember how we hedge our position in Italy, we hedge our position in Italy towards an integrated position between generation and retail. So we back our generation on our retail customers. And we look at the overall hedging of these 2 parts. Having taken it into consideration, this, I would say that related to 2019, we have in terms of volumes, we have roughly 10% of open position in volumes. And roughly, say, 5% of open position in retail. So we have just almost closed our position. And the overall mark-to-market of our position, the impact of hedging says that we have no impacts towards the -- our targets.

When it comes to 2020, we have already hedged a huge part of our production and also on the retail side. Today we are roughly at 50% of hedging. The mark-to-market today is quietly positive, we're talking about roughly EUR 20 million better today with the mark-to-market today that the value we have in the business plan. For the EUR 900 million of EV yes, include equity for EUR 200 million. And the full year guidance tax rate adjusted because we do think that we might have in the year other one-off effect coming from several items but adjusted is -- guidance is 29%.

[Tancrède Fulop, analyst]

For [indiscernible] I mean ex equity, no equity.

[Monica Girardi, executive]

We actually couldn't understand your question. Tancrède, I think the line is really, really disturbed. So if you don't mind, send IR an e-mail and we'll follow up.

We move to the next question that comes from the line of Roberto Letizia from Equita.

[Roberto Letizia, analyst]

Would like to go back to the termination of the contracts, of the PPA contracts. Just wondering if we should read these as a changing attitudes in the customers that may generate some troubles in managing future PPAs or you think additional changes may occur in the contract because you have signal of potential negotiation with clients. So wondering if there's any potential reading on that or if it is just really a one-off on a single contract?

[Alberto de Paoli, executive]

Well, I think it's clear that when you have a country that already has a structure of long-term PPAs like Chile has, it's clear that you have long-term pricing also very relevant. And the customers could do in different times. So their calculation of what is the best thing to do. Having said that, it's clear that the marginal cost coming in, in Chile is very low because is the marginal cost that renewables are putting in the last tenders. While the blended cost, so the cost that the distribution networks are offering to the regulated customer, is the blended coming out from several years of several tender made. When -- so this process is clear that with all the signals, every customers can decide whatever it want to do.

It's clear that you have to divide clearly a PPAs served by existing capacity with a PPA served with the new capacity. When the PPAs renew capacity, is the marginal cost, and in this case so you have usually something that could happen that the customer will decide to skip on another PPA but so you know in this case, the distance from the 2 prices is not so huge. In this case it depends on what will be the outcome of the new PPAs for this customer decided to terminate the contract. But the customer doesn't know what the next price will be because it's to get a marginal price, you have to get a new plant. And so that's why so everyone have all the possibility to try to understand what is happening in Chile.

I remember, that our strategy in Chile is clear. We say that if we have a marginal price that is fix in a certain period, sooner or later, this marginal price will become the price, the market price of that country. When you have a spread between the marginal price and the average price, we go into this market and we put in line new capacity because the extra spread will drive a payback that would be lower and lower. And we will be ready to have a full depreciated or repay the capacity at the time in which the price will go down. These activities of the customers, say, are triggering something is clear that the sense that the price will go down in a certain period is clear in this market. And this I think is triggering some behavior, some attempt to customers. I don't think that it's becoming a trend. But the more expert customers that can have capacity to calculate and to have effort on this field can try to get benefits, also terminating contracts and having new contracts at different prices.

[Monica Girardi, executive]

Okay. We move to the last question from the phone, which is coming from the line of Meike Becker from Bernstein.

[Meike Becker, analyst]

Only one brief clarification at this point. You've reported income expense from equity investments of minus EUR 63 million. Can you just guide us how much that was impacted by the equity -- the stake sale in the U.S. from the GE transaction? And what we should look at as a run rate going forward?

[Alberto de Paoli, executive]

I'll say, it's impacted, say, 100% is everything related to this unwinding. It's clear that on the EBITDA side, you get this profit because you are doing a good business in buying these assets. But because you're buying this asset from a joint venture in which you have 50%, you get the bad will of this transaction, 50% in terms of equity impact.

[Meike Becker, analyst]

So is that to mean that the EUR 100 million extra you have booked as a one-off in EBITDA. 50% of that net of the tax is a net negative one-off effect here or just asking the question, what is that -- is that number not going to be minus 63% every quarter going forward? So what should we think about the run rate?

[Alberto de Paoli, executive]

No it's the one-off effect. After this, every year, every quarter you will get EUR 25 million EBITDA and the relative impact on net income that is EBITDA less taxation.

[Monica Girardi, executive]

We are done with the question from the phone. We had a number of questions from the web coming from Oscar Nájar on PPA contract in Chile. Guidance on the debt in Argentina, which we have already addressed. We have also some questions coming from the web from Antonella Bianchessi, which is asking again on the PPA contract in Chile, which we have been addressed. I think the only left is on the impact of IFRS 16 where it says in terms of business lines.

[Alberto de Paoli, executive]

Well, first of all, I'd say before responding on the business line, I think it's useful to have the impact on the first quarter where it is in term of nature. And what is the final impact we see for the full year. So the impact on EBITDA that is roughly EUR 60 million this year is 100% on OpEx. So you see on the EBITDA the OpEx reduction. Then you have an increase in D&A that the first quarter is roughly EUR 50 million. And financial costs for roughly EUR 10 million. So net income impact is almost 0%. And debt is EUR 1.4 billion. This is the first quarter.

Looking at the full year, the EBITDA impact is in the range of EUR 200 million, 100% on OpEx reduction. Then we have roughly EUR 200 million, EUR 180 million on D&A, and roughly EUR 50 million, EUR 60 million on financial charges. Again, our group net income is almost 0, debt will remain EUR 1.4 billion. When it comes to the first quarter, where the IFRS 16 impact on OpEx is accounted, the EUR 60 million are accounting roughly EUR 50 million on distribution, EUR 50 million on Enel Green Power. And the rest EUR 30 million splitted in the other business line. And the service part of the countries that are not accounting -- accounted in the business line reporting.

[Monica Girardi, executive]

That's all, folks. We close the call on the first quarter. As usual, if you wish to have any follow-up, e-mail the IR department and we will be happy to assist. Thank you so much.