Dear shareholders and stakeholders,
The year 2015 was marked by great changes and the achievement of significant results. The strategic decisions we have taken have in fact enabled us to gain strength and resilience in a changing economic environment, while laying the foundation for equally solid growth in the near future.
Strategy and outlook for 2016
In March, the new management presented its first strategic plan to the market. After the significant progress achieved during the year, and following the decision to shift the presentation of the plan from March to November each year, for 2015 only an update was subsequently presented. The new plan is focused closely on long-term industrial growth, especially in renewables and networks. It sets out an ambitious program for enhancing efficiency through the reduction of maintenance and operating costs in all the global business lines in which our operations are now structured following the reorganization undertaken in 2014. The plan also envisages the simplification of the Enel Group’s corporate structure, which began in 2014 with the separation of the two subsidiaries Endesa and Enersis. It also seeks to manage the Enel portfolio actively with a view to creating value through the strategic repositioning of the Group. Finally, it provides for focusing growing attention on shareholder remuneration, thanks to a gradual increase in dividends distributed through 2019 in order to align the Enel Group more closely with the sector average. The Enel strategic plan, which is updated each year, is a synthesis of the long-term vision of the Company. It is the fruit of cooperation and exchange between management and the Board of Directors. The Board, after a process of sharing information and analysis with management, is responsible for final approval of the strategic direction being pursued and periodic monitoring of its implementation. We sought to summarize the essence of this new strategic direction with the term “Open Power”, which represents a new approach involving all of the Group’s industrial processes and commercial initiatives, guiding investments and the relationship with stakeholders. It is in fact based on the concept of openness in terms of sustainability and, hence, innovation and technological innovation at a time when the Enel Group is opening its infrastructure to a variety of other uses: openness with stakeholders, through dialogue with the communities in which the Group operates; openness within the Group, which means leveraging the talents and diversity among our people; and finally, openness as the capacity to listen to the world around us and to seize the opportunities and meet the needs we find. Consistent with this innovative approach, on January 26, 2016, in Madrid, Enel presented the new Group logo, a global brand that represents openness to change, listening and innovation.
The macroeconomic environment
The global economic environment in 2015 was characterized by strong turbulence, marked by increased volatility in the major financial markets and uncertainty about the outlook for the global economic recovery. Preliminary forecasts of growth in global gross domestic product are below the average of the last 15 years. In the euro area, the combined effects of the expansionary monetary policy instituted by the European Central Bank, together with the fall in commodity prices and the depreciation of the euro, point to faster expected growth than last year, although the outlook is impacted by the weakness of the global economy and developments in the foreign exchange market. Letter to shareholders and other stakeholders 12 Annual Report 2015 The emerging economies are slowing, with a contraction in domestic demand, high inflation and the depreciation of local currencies. Tensions on the financial market in China, combined with the prospects of a slowdown in the real economy, have had an adverse impact on trade and, owing to a decline in expected use of commodities in industry and construction, have contributed to the sharp decline in commodity prices, particularly oil. Despite the slide in oil prices, investments in renewable energy around the world continued the positive trend of recent years, reaching record levels in 2015. This trend will also continue in the coming years, irrespective of the volatility in commodity prices that, in all probability, will also characterize the immediate future.
In spite of the complex macroeconomic environment, 2015 was a good year for Enel, as demonstrated by the excellent performance we achieved: revenue of about €75.7 billion, essentially in line with 2014; ordinary EBITDA of €15.0 billion, a slight decrease compared with the €15.5 billion posted in 2014, but perfectly in line with the targets already announced to the market; and ordinary net income of €2.9 billion. The decrease in EBITDA is essentially due to the adverse evolution of exchange rates, the formalization of a number of agreements on early retirement incentives in Italy and Spain – intended to achieve significant generational turnover – and the lower margin on the generation of electricity from conventional resources. These factors were partly offset by efficiency gains and the positive impact of regulatory and legislative changes in the countries in which we operate. At the end of 2015, net financial debt stood at €37.5 billion, essentially in line with the figure reported at December 31, 2014. The cash flows generated by ordinary operations allowed us to finance almost all our investments in the period and the payment of dividends, which were compounded by the negative effects of exchange rate changes.
The performance described above synthesizes the commitment of a year of hard work, one marked by a series of major events. In February 2015, the Ministry for the Economy and Finance carried out the fifth tranche of Enel’s privatization, an operation that reduced the majority shareholder’s interest to 25.5%, down from the 31.2% held previously. As regards industrial growth, 2015 saw the completion of construction and the entry into service of power plants with a total capacity of 2,063 MW, of which 94% powered by renewable resources (including large hydroelectric facilities), strengthening Enel’s leadership position in this important sector. We also initiated sustainable growth in new countries (India, Kenya and Germany), pursuing our medium/ long-term strategy. In 2015 we connected about 530,000 new users to our networks, expanding the number of customers served around the world to 61.5 million, once again reinforcing Enel’s pre-eminent global position. In Italy, we reached the significant threshold of 10 million customers served on the free markets for electricity and gas. Within the program for the active management of our asset portfolio, in 2015 we made disposals totaling about €1.6 billion, including a number of hydroelectric assets in Italy, minority stakes in renewables in the United States and renewables assets in Portugal. We also reached an agreement for the sale of our stake in Slovenské elektrárne, to be implemented in two tranches: the first in 2016 and the second upon completion of the construction of the new 3 and 4 units at the Mochovce nuclear power plant. With regard to Italy in particular, 2015 saw the launch of Futur-E, a project for the redevelopment of generation plants that have reached or are approaching the end their life cycle. Specifically, the project involves 23 thermal plants (with a total of 13 GW of capacity) for which Enel intends to develop, together with all other stakeholders, sustainable solutions to preserve jobs and, where possible, the productive and industrial vocation of the sites. In other developments in Italy, we launched a number of initiatives that will have significant implications for the indus- Annual Report 2015 Report on operations 13 trial growth of the country. The first is the plan to replace, over the next few years, some 32 million smart meters. The project will enable the roll-out of innovative services with significant benefits for both customers and the entire national electricity system. In addition, with the launch of a project that recently led to the establishment of the new company Enel Open Fiber, we have laid the foundations for major infrastructure development (which could also be replicated in other countries in the future): a national ultra-broadband network. The initiative is open to all interested stakeholders and will contribute to digitizing the entire country by 2020, in line with national objectives. Another important event was Expo 2015, an initiative in which Enel participated as an Official Global Partner, creating the first greenfield smart city in the world and a showroom to showcase Enel’s most innovative technologies to the some 800,000 visitors. In order to simplify the Group’s corporate structure, we launched a restructuring program in Latin America. This represents a key decision for the development of our business in that area: it provides for the separation of generation and distribution activities in Chile from those in other Latin American countries (Argentina, Brazil, Colombia and Peru). It will allow us to eliminate existing duplication and overlap, improve the visibility of the various businesses and countries, accelerate and streamline decision-making and maximize value creation. In another step, at the end of 2015 we began the process of integrating Enel Green Power into Enel: this operation enable us to increase the economic impact of the Group’s most important drive of growth in the coming years and accelerate the development of the global renewables market. At the same time, it will improve synergies with the rest the Group and add flexibility to the structure of the program for the structural rotation of assets. Also in 2015, Enel was recognized – unique among utilities – by Fortune in the Change the World list as one of the five companies capable of changing the world and was appointed to the Board of the Global Compact of the United Nations. And as regards the new Sustainable Development Goals adopted by the United Nations, we wanted to make an effective contribution to their achievement through the implementation of projects aimed at: i) ensuring universal access to clean energy; ii) countering climate change and its effects; iii) supporting access to education; and iv) contributing to the inclusive and sustainable economic growth of the communities in the countries in which we operate. Enel, in a demonstration of its commitment to sustainable development, from the very outset integrated those objectives into its strategy and in its sustainability reporting. In 2016 Enel will complete the integration of Enel Green Power, the reorganization in Latin America, the start of installation of smart meters, and the development of the business plan of Enel Open Fiber. These are solid projects that well represent the pillars of our 2016-2019 strategic plan: improving operational efficiency, industrial growth, simplifying the Group, active management of our asset portfolio and the remuneration of shareholders. These are the foundations on which we are building the Enel of the future.