Investor presentation October 2004
Disclaimer 1 autionary statement: his presentation does not constitute an offer of, or an invitation to make an offer for or purchase, any securities f Enel S.p.A. ( Enel ) in the United States or to any person in any other jurisdiction where such offer or nvitation would be unlawful. No securities may be offered or sold in the United States absent registration or an xemption from registration under the U.S. Securities Act of 1933, as amended (the Securities Act ). Neither nel nor the Italian Ministry of Economy and Finance intends to register any portion of the planned offer in the nited States or to conduct a public offering of securities in the United States or in any other jurisdiction where uch offer would be unlawful. The securities described are being offered and sold only outside the United States ursuant to Regulation S under the Securities Act and to qualified institutional buyers in the United States in eliance on Rule 144A under the Securities Act. he information provided during the presentation is strictly confidential and may not be communicated to third arties, in whole or in part, for any reason. preliminary offering memorandum dated October _, 2004 (the Preliminary Offering Memorandum ), has een furnished to each person authorized to attend this presentation. You should refer to the Preliminary ffering Memorandum for more complete information about the offering. Any investment decision with respect o the proposed offering should be based on the information contained in the Preliminary Offering Memorandum nd, when available, in the final offering memorandum relating to the proposed offering. o representation or warranty, whether express or implied, is being made with respect to the accuracy or ompleteness of the information, opinions or forecasts disclosed during the presentation. orward looking statements: his presentation contains certain forward-looking statements within the meaning of the safe-harbor rovisions of the U.S. federal securities laws. These forward-looking statements are based on Enel s current xpectations and projections about future events. Because these forward-looking statements are subject to risks nd uncertainties, actual future results may differ materially from those expressed in or implied by these tatements due to any number of different factors, many of which are beyond the ability of Enel to control or stimate precisely, including changes in the regulatory environment, future market developments, fluctuations in he price and availability of fuel and other risks. No representation is being made with respect to such tatements. For more information regarding risk factors relevant to Enel, please see the Preliminary Offering emorandum, and Enel s filings with the U.S. Securities and Exchange Commission. Enel does not undertake ny obligation to publicly release any revisions to these forward-looking statements to reflect events or ircumstances after the date of this presentation.
Overview of Enel Italy s leading electricity generator, over 44% market share (1) in H1 04 Italy s leading distributor and retailer of electricity, 30mn customers Italy s fastest growing gas retailer, #2 player,1.8mn customers in H1 04 International leadership in renewables (16.7GW 2 ), #1 in geothermal 50% shareholding in Terna, the national transmission business 100% ownership of Wind, Italy s #3 mobile operator One of the two largest public utilities by market cap Domestic production including almost 13 GW large hydro 2
Agenda 3 Enel strategy Financial highlights Regulation, businesses and targets Investment case Offer details and timetable Questions & answers
Enel strategy evolution 4 Multi-utility diversification Focus on energy No growth for growth s sake Safe haven for shareholders 999 2002 2004 Generation & Energy Management Networks & Sales
Results achieved so far Focus on energy Strong performance in core business Outperforming all efficiency targets Conversion program being implemented 1bn investment plan in renewables in Italy, almost 1/3 completed Successful growth of gas business, #2 player in Italy Portfolio Divested 50% of Terna Sold Real Estate, Waste to Energy and other, exiting Water Wind cash flow positive in 2004 Selective international expansion A safe haven for shareholders Attractive dividend flow Maintained a strong A credit rating Delivering on our promises 5
1st Half ordinary net income (1) 1,237 mn 859 367 H1 02 H1 03 H1 04 Turnaround in underlying profitability excluding extraordinary and non recurring regulatory items 6
2004 2006 Strategic agenda Focus on energy Continue to focus on core business Be the most efficient generator of electricity and distributor of electricity and gas in Italy Additional savings through three major efficiency programs Reduce power generation costs below that of new entrants Continue to grow in renewables and Italian gas business Portfolio Further reduce stake in Terna to 5% Divest from Wind Review selective international growth opportunities with sound industrial and financial criteria A safe haven for shareholders Maintain a strong A credit rating Continue to deliver an attractive dividend flow Focus on cash generation 7
Agenda 8 Enel strategy Financial highlights Regulation, businesses and targets Investment case Offer details and timetable Questions & answers
Income statement ( mn) 1H2004 1H2003 % change Revenues 16,948 15,421 9.9% Operating Costs 11,599 10,736 8.0% EBITDA 5,349 4,685 14.2% % of Revenues 35% (1) 30% EBIT 3,047 2,231 36.6% % of Revenues 18% 14% EBT 3,197 1,913 67.1% Group Net Income 2,047 1,200 70.6% EPS (Euro) 0.34 0.20 70.0% Net Ordinary Income (2) 1,237 859 44.0% (1) Calculated on revenues net of the Single Buyer effect (2) Net income less non recurring items 9
EBITDA (1) by business area ( mn) 5,349 +14.2% Telecom Services & holding (2) Terna 4,685 480 343 306 814 223 347 +69.6% -35.0% +13.4% Networks & sales 1,751 1,958 +11.8% Generation & energy mgmt 1,805 2,007 +11.2% 1H2003 1H2004 (1)!H 03 figures for International generation and distribution activities have been reclassified under GEM and N&S as appropriate (2) Net of intercompany 1
Balance sheet ( mn) 1 June 30, 2004 December 31, 2003 % Change Net Financial Debt 24,030 24,174-0.6% of which Wind (1) 6,757 6,743 0.2% Shareholders' Equity 22,260 21,315 4.4% of which minorities 1,095 191 Leverage 1.08 1.13 EBITDA/ Interest Coverage 9.6 8.7 Net Capital Employed 46,290 45,489 1.8% (1) Excluding debt to Treasury for UMTS license
Net debt evolution ( mn) Down 144 December 31st, 2003 Operating cash flow Capex Extraordinary activities Dividends, interests and taxes June 30th, 2004 ENEL -17,431-17,273 Net operating cash-flow 2,372 ENE ind -6,743 +3,919-6,757 Wind -24,174-1,547 +1,357-3,585 7bn net operating cash-flow in the last 18 months -24,030 1
Agenda 1 Enel strategy Financial highlights Regulation, businesses and targets Investment case Offer details and timetable Questions & answers
Regulation overview Generation New electricity pool and single buyer fully operational since April 1st 04 Finalized stranded costs definition, subject to EU approval Electricity distribution New tariffs for 2004-2007, stable regulatory framework Allowed return at 6.8% (7% with sales) RAB increased from 14.3bn to 20bn Price cap reduced to 3.5% Depreciation charges reduced, 302mn less in 1H 04 vs. 1H 03 Electricity transmission New tariffs for 2004-2007, stable regulatory framework Allowed return at 6.7% (8.7% for new development investments) RAB increased from 3.7bn to 4.9bn Price cap reduced to 2.5% Gas New tariffs for 2004-2008 Allowed return at 7.5% Positive new mechanism on RAB and new investments Price cap at 5% 1
Generation and energy management Targets O&M/MW 13.9 Thermal 11.4 10.8 13.1 Large hydro 11.7 11.5 keuro 2002 Actual LTM (1) 2006 2002 Actual LTM (1) 2006 Production mix 1% 25% 20% 45% 19% 9% 47% 27% 22% 24% 29% 32% Oil and Gas ST/OCG Gas CCGT Coal and orimulsio Renewables Fuel cost index reduction (2) Based on $23/bbl Brent 2002 1H 2004 Target 100 New entrant (2) = 87 87 60 2002 1H 2004 Target Last twelve months On track to reduce cost of MWh by 30% 1
Distribution and sales Targets Electricity Cash cost / Customer (2) 150 129 122 115mn Quality bonus > 150mn 2002 Actual LTM (1) 2006 2002 Actual 2003 Expected Gas Sales volumes (BCM) Distribution cash cost / Customer ( 5.3 5.0 100 3.9 92 105 2002 Actual LTM (1) 2006 2002 Actual LTM (1) 2006 (1) Last twelve months (2) Excluding digital meter, including sales (3) Excluding sales, distribution only 1
Terna 0.95 0.87 (1) OPEX/MWh Target 2002 Actual LTM (2) Reduction of interest in Terna to 5% in 2005 GRTN integration underway Sale structured to maximise shareholder value Interest from Cassa depositi and prestiti in acquiring a controlling stake Net gains from up to 45% sale of Terna distributed to shareholders (1) Excluding 9m for IPO (2) Last twelve months 1
Wind Target Actual mn 40% CAGR 480 814 (1) EBITDA 618 232 2002 2005 H1 02 H1 03 H1 04 Opex/ Revenues 31% 22% 34% 31% 27% 2002 2005 H1 02 H1 03 H1 04 2004 cash positive (1) Including 194mn turnover contribution 1
Exit from Wind 1 Equity story driven by broadband and fixed/mobile convergence CAPEX financed by operating cash-flow IPO opportunity within 24 months Primary/secondary offering Divest from Wind at the right price
Agenda 2 Enel strategy Financial highlights Regulation, businesses and targets Investment case Offer details and timetable Questions & answers
Investment case Leading player in the attractive Italian electricity market Stable and clear regulatory framework Strong financial performance, on track or ahead on all targets Increase in operating income and consolidated net income in FY 04 (1) Consistent and growing cash generation Focus on cash generation (1) FY 04 vs. FY 03 2
Dividend summary 2 33c dividends per share from Terna IPO paid in November 04 Not less than 36c dividends per share from 04 results Additional dividend from sale of Terna in 05 Dividends increasingly driven by growth in net ordinary income Attractive dividend flow in the next 15 months
Agenda 2 Enel strategy Financial highlights Regulation, businesses and targets Investment case Offer details and timetable Questions & answers
Offer details and timetable 2 Seller Ministero dell Economia e delle Finanze (secondary offering only) Global offering Retail Offering to the public in Italy Global Institutional Offering, including a US offering to QIB s pursuant to Rule 144A, an international private placement pursuant to Regulation S, a private placement in Canada Size Global Offering size to be publicly announced by October 13 Greenshoe up to a maximum of 15% of Global Offering Lock-up Key timetable dates Joint global coordinators 120 days for the Selling Shareholder and Enel Roadshow and Bookbuilding: October 4 October 22 Announcement of Global Offering size: by October 13 Announcement of maximum price of Retail Offering in Italy: October 17 Retail Offering to the public in Italy: October 18 October 22 Pricing: on or about October 22 Closing: on or about October 27 Mediobanca and Merrill Lynch International
Agenda 2 Enel strategy Financial highlights Regulation, businesses and targets Investment case Offer details and timetable Questions & answers
Appendices 2
1H 04 results 2
EBIT (1) by business area ( mn) Services & holding (2) Terna 2,231 206 175 3,047 90 252 1,515 Networks & sales 1,071 Generation & energy mgmt 1,175 1,399 Telecom -396 1H2003-209 1H2004 (1) International generation and distribution activities have been reclassified under GEM and N&S respectively (2) Net of intercompany 2
Generation & energy management ( mn) 1H04 1H03 % change Revenues 6,029 6,193-2.6% EBITDA 2,007 1,805 11.2% EBIT 1,399 1,175 19.1% Capex 376 286 31.5% Net Capital Employed 15,129 14,458 (1) 4.6% Headcount 11,012 11,196 (1) -1.6% Net Power Generation (domestic) (GWh) 61,744 66,097-6.6% (1) As of December 31, 2003 2
Networks & sales ( mn) 3 1H04 1H03 % change Revenues 1 9,986 10,244-2.5% Power 9,185 9,500-3.3% Gas 803 744 7.9% EBITDA 1,958 1,751 11.8% Power 1,791 1,608 11.4% Gas 167 143 16.8% EBIT 1,515 1,071 41.5% Capex 758 821-7.7% Net Capital Employed 12,778 11,981 (2) 6.7% Headcount 35,660 36,826 (2) -3.2% Power Dispatched (GWh) 125,264 121,815 2.8% Power Sold to End Users (GWh) 79,785 75,883 5.1% (1) Including 2mn intercompany elisions (2) As of December 31, 2003
Operational data 3 Power 1H04 1H03 % change Net Power Generation (GWh) 61.744 66.097-6,6% Purchase of Power (GWh) 62.317 39.440 58,0% Sales to End Users (GWh) 79.785 75.883 5,1% of which: Regulated Market 69.230 70.575-1,9% Free Market 10.555 5.308 98,9% Total Power Dispatched (GWh) 125.264 121.815 2,8% Gas Volumes Sold to Third Parties (mcm) 3,003 2,454 22.4% Customers ('000) 1,856 1,738 6.8%
Terna ( mn) 1H04 1H03 % change Revenues 519 450 15.3% EBITDA 347 306 13.4% EBIT 252 175 44.0% Capex 137 173-20.8% Net Capital Employed 3,630 3,580 Headcount 2,950 2,837 (1) (1) 1.4% 4.0% (1) As of December 31, 2003 3
Wind Key performance indicators Customers (mn) 29.6 26.2 1H04 1H03 1H04 1H03 Profit & Loss ( mn) Fixed Active 2.6 3.3 Revenues 2,408 2,123 of which LLU 0.4 0.2 EBITDA 814 480 Mobile 10.6 (1) 9 EBIT (2) 69 (173) Internet Subscribers 16.4 13.9 ARPU ( /average month) 1H04 1H03 30-Jun-04 31-Dec-03 Balance Sheet ( mn) Fixed Active Customer base 36.3 31.7 Net Debt (3) 6,757 6,743 Mobile 21.5 21.4 of which Mobile Data 2.8 2.6 Net Capital Employed (4) 7,029 6,804 (1) Excluding Machine-to-Machine (approximately 0.3mn) (2) Excluding goodwill amortization (3) Excluding debt to Treasury for UMTS license (4) Excluding goodwill 3
Services & holding ( mn) 1H04 1H03 % change SERVICES Revenues 1,004 1,259-20.3% EBITDA 182 256-28.9% EBIT 60 134-55.2% Capex 46 56-17.9% Net Capital Employed 1,985 2,220 Headcount 4,380 4,620 HOLDING (1) (1) -10.6% -5.2% Revenues 504 540-6.7% EBITDA 97 120-19.2% EBIT 86 105-18.1% Headcount 558 522 6.9% (1) As of December 31, 2003 3
Debt structure Average debt maturity: 5 years and 10 months Average cost of debt: 4.5% (Fixed+Hedged)/Total Net Debt = 58% S&P s: A+/A-1 stable ( Mn) Moody s: A1/P-1 negative (outlook under review) 30-Jun-04 31-Dec-03 % change Net Long Term 17,539 16,472 6.5% Short Term (1) 7,177 8,648 (17.0%) Cash (2) -686-946 (27.5%) Net Debt 24,030 24,174 (0.6%) (1) Including current maturities of long term debt (2) Including factoring receivables 3
Consolidated financial highlights Quarterly analysis - Income statement ( mn) 3 2Q04 2Q03 % change 1Q04 Revenues 8,919 7,352 21.3% 8,029 EBITDA 2,707 2,309 17.2% 2,642 % of Revenues 37% (1) 31% 33% EBIT 1,487 1,027 44.8% 1,560 % of Revenues 17% 14% 19% EBT 1,941 647 200.0% 1,256 (1) Calculated on revenues net of the Single Buyer effect
Capex ( mn) 3-137 Telecom Services & holding Terna 1,684 1,547 348 230 56 173 137 46-8.1% -33.9% -17.9% -20.8% Networks & sales 821 758-7.7% eneration & energy mgmt 286 376 31.5% 1H2003 1H2004
Summary operational targets 2002 Actual LTM 2006 Target eneration and energy management Fuel cost index % O&M / MW Thermal k O&M / MW Large hydro k 100 13.9 13.1 87 (1) 11.4 11.7 86 (3) 10.8 11.5 Network and sales Cash Cost / Cust - electricity Cash Cost / Cust - gas 150 105 129 100 122 92 Other Opex / MWh - Terna Opex/ Revenues - Wind % 0.95 31 0.87 (2) 30 ** (4) 21 Total opex reduction ~ 540mn 1.1 (5) bn H 04, based on $23/bbl Brent. LTM =92 ncluding 9mn for IPO (3) Target stated for 2004 (5) Includes 30mn for new projec (4) Left blank in March 04 due to compliance with Terna IPO procedure 3
Full year 2003 results 3
Income statement ( mn) FY 03 vs. 02 2003 2002 Pro Forma % change Revenues 31,317 30,471 2.8% Operating Costs 21,476 22,776-5.7% EBITDA 9,841 7,695 27.9% % of Revenues 31% 25% EBIT 4,732 2,813 68.2% % of Revenues 15% 9% EBT 3,393 2,400 41.4% Group Net Income 2,509 2,035 23.3% EPS (Euro) 0.41 0.34 20.6% Net Ordinary Income (2) 1,090 649 68.0% (1) Calculated on revenues net of the Single Buyer effect (2) Net income less non recurring items 4
EBITDA by business areas ( mn) FY 03 vs. 02 9,841 1.010 +64.5% Telecom Services, terna & holding (1) International operations 7,695 614 933 253 1.276 277 3,626 +36.8% +9.5% +4.8% Networks & sales 3,461 Generation & energy mgmt 2.434 3.652 +50.0% 2002 Pro forma 2003 (1) Net of intercompany 4
Net debt evolution ( mn) 4 Down 293 December 31st, 2002 Operating cash fow from operations Capex Extraordinary activities Dividends, interests and taxes December 31st, 2003 ENEL Net operating cash flow -17,846-17,431 4,647 ENEL +8,616 Wind -6,621-3,969-728 -6,743 Wind -24,467-3,626-24,174