Enel reports rise in Q1 core profit, readies Brazil defence action
Enel's First-Quarter Financial Performance and Brazil Concession Challenge
By Francesca Landini
Q1 Financial Results Overview
MILAN, May 7 (Reuters) - Italian utility Enel on Thursday reported a 3.6% rise in its first-quarter ordinary core profit, adding it was preparing to defend a lucrative power concession in the Brazilian city of Sao Paulo against the risk of revocation.
The state-controlled group said earnings before interest, taxes, depreciation and amortisation (EBITDA) excluding extraordinary items reached 6 billion euros ($7.1 billion) at end-March, in line with an analyst consensus compiled by LSEG.
Regional Performance Breakdown
Growth in the group's grid business offset weakness in thermal generation and trading. Spain and Latin America posted gains, while Italy shrank.
EBITDA for the first quarter of last year was restated to 5.8 billion euros, from 5.97 billion previously.
Full-Year Outlook
The group confirmed full-year financial targets announced at its capital markets day in February, before the start of the U.S.-Israeli war against Iran.
Brazilian Regulatory Risks and Sao Paulo Concession
Sao Paulo Assets and Regulatory Process
SAO PAULO ASSETS VALUED MORE THAN 3 BILLION EUROS
Enel faces regulatory risks in Brazil where energy watchdog Aneel has opened an administrative process that could lead to the revocation of the Sao Paulo power distribution concession held by Enel's local unit.
The regulator cited alleged "structural failures" in the service provision, following extreme weather events in recent years.
Enel's Defence Strategy
Enel is "100% sure" it is not in breach of contract, Chief Financial Officer Stefano De Angelis said in a post-results call, adding that extreme weather events should be excluded when assessing service quality.
"We are now preparing counter-arguments for the regulator," he said.
Enel has until mid-May to present its case to the regulator, which will assess the company's arguments before deciding whether to propose revoking the concession. A final decision rests with the government.
Financial Implications of Potential Revocation
The financial assets linked to Sao Paulo concession have a book value of more than 3 billion euros in the group's balance sheet, De Angeli said, suggesting Brazil would need to reimburse Enel in case of a revocation.
($1 = 0.8496 euros)
(Reporting by Francesca Landini, editing by Alvise Armellini)
