MILAN: Italy's biggest utility Enel has committed to upgrade its networks to prepare for a digital era when home appliances will be hooked up to the Internet, in a move that will drive fatter shareholder returns.
The state-controlled utility said on Tuesday it would be spending about a quarter of the 21 billion euros of investments it plans to 2019 on digitising its grids to better meet customer demand and capture clients.
In the presentation of its 2017-2019 strategy plan, Enel forecast ordinary net profit will grow at an average of around 14 percent per year in the period with 2017 earnings seen at 3.6 billion euros from 3.4 billion euros in the previous plan.
Utilities across Europe are reshaping business models to cope with falling margins on traditional generation business and are increasingly looking to new services for customers.
So-called smart grids that can handle the intermittent flow of solar and wind energy are seen as vital to boost efficiency and meet renewable energy and carbon emissions targets. "We've seen a transfer of value from generation to customers and that trend will accelerate," CEO Francesco Starace told analysts.
Enel, Europe's biggest utility in terms of customers, plans to raise its retail base to around 64 million end users from the current 62 million.
Under Starace Enel has been focusing on grids and renewable energy, installing so-called smart meters in homes to take advantage of the "Internet of things", where appliances such as washing machines and refrigerators are online.
The group also plans to roll out some 11,000 charging and discharging stations for electric cars in the next three years which will provide a form of mobile storage for the power it generates.
"Your car will make money even while you're not using it and I see a big space here for us," Starace said, referring to a system whereby car owners will be able to sell electricity from their car battery back into the power system.
The CEO said he did not expect a constitutional referendum in December to have any major energy policy repercussions. Prime Minister Matteo Renzi has staked his political future on the vote and some analysts have expressed concern over reforms.
BETTER RETURNS
Enel, which became Europe's biggest utility last year when it re-absorbed its green energy unit, said it would raise its dividend payout ratio to 65 percent in 2017, from 60 percent previously, rising to 70 percent in the following two years.
"We believe Enel provided sound and achievable targets, increasing almost all the goals included in the previous business plan," said Dario Micchi, analyst at broker Akros.
Enel said it was considering the option of a buyback programme of up to 2 billion euros but added the amount also depended on plans to simplify its business structure round the world by buying out minority shareholders.
"The assumption in the business plan is for 1 billion euros of minority buybacks and 1 billion euros of share buyback," CFO Alberto de Paoli said.
Enel also said it would sell 3 billion euros of assets in the next three years, including thermoelectric plants, while at the same time reinvesting about 2 billion euros in bolt-on acquisitions, especially grids.
"Power distribution assets is the most logical way forward," Starace said.
At 1211 Enel's shares were up 3.6 percent while the European index was up 1.1 percent.
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