Endesa, S.A. (OTCPK:ELEZF) First Half 2022 Earnings Conference Call July 27, 2022 12:00 PM ET
Company Participants
Mar Martinez – Head-Investor Relations
José Bogas – Chief Executive Officer
Luca Passa – Chief Financial Officer
Conference Call Participants
Manuel Palomo – Exane BNP Paribas
Alberto Gandolfi – Goldman Sachs
Jorge Alonso – Société Générale
Javier Garrido – JPMorgan
Operator
Mar Martinez
Good evening, ladies and gentlemen, and welcome to the First Half 2022 Results Presentation, which will be hosted as always by our CEO, José Bogas; and the CFO, Luca Passa. Following the presentation, we will have the usual Q&A session open to those connected on the call and on the web. Thank you.
And now let me hand over to José Bogas.
José Bogas
Thank you, Mar. Good evening everybody. Let’s start with highlight of the period. Today’s results are still marked by the persistent instability in the macro context and gas price volatility caused by geopolitical tensions worldwide. Additionally, inflation pressers have intensified while electricity prices are reaching new record highs in European Union countries and are expected to remain high in 2022.
In this context, the European Union has elaborated a common framework with a series of acceptable intervention measures that Member State can consider to curve energy costs and to mitigate the impact on most vulnerable customers. The European Commission has clearly advocated to accelerate the investment both in renewable energy and grid and interconnection reinforcement as a crucial factor to mitigate the risk of future energy crisis. Our business development strategy is fully aligned and the investment made during the period are aimed at these two fundamental energy transition topics.
Against this backdrop, our like-for-like EBITDA increased by 4% excluding the sale of Endesa X Way to Enel which generated a positive impact of €238 million, net ordinary income in the same terms decreased by 12%. On the nest slide, we will look more deeply into the dynamic of the market context. Fiscal figures show a certain leveling of in demand. As a result, accumulated mainland power demand in the period decreased by 1.8% compared to the previous year. The war in Ukraine added to the growing risks of – is affecting economic activity mainly industrial customer, gross demand in Endesa’s mainland distribution area decreased by 0.1% or 0.5% when adjusted by calendar and temperature effects. On the residential segment, the consumptions fell by 4.6% in cumulative terms versus last year, mainly explained by lower remote working and cost saving measures in a context of record energy prices.
Likewise, the industrial segment, despite a slight recovery is still affected by the economy slow down mainly in the metallurgical and paper sector and records 3.5 drop. On the other hand, the service sector demand grew by more than 11% benefiting from a more relaxed post-COVID restriction and the summer season. When it comes to pool prices, persisting market imbalance, and uncertainties over gas stock for the next winter have multiplied pool prices by 3.5x, reaching an average of €206 per megawatt hour. These conditioning factors can be extrapolated to most European countries which – with their generation mixes and procurement source distinction recorded similar electricity price level. In July, the Russian gas supply flow reduction has resulted in European price rising again. While in Spain, the gas cap enforces June the 15th has contained pool prices at around 50% lower.
On the Slide number 5, we can see a quick summary of the latest regulatory development aimed at containing electricity prices and mitigated social impact. The last set of measures announced in May by the European Commission is fully aligned to several tool boxes of available measures unveil since the start of the Ukrainian crisis and mark an important step forward for the sector, mainly for renewables and network entailing a significant increase in the investment pace for the rest of the decade. Concerning the regulatory development in Spain, the approval of Royal Decree Law, 10/2022 established a gas production cost adjustment mechanism, which is internalized by the facilities in the pool bits. And as we have already mentioned has brought noticeable moderation of Spanish electricity prices in July.
Additionally, it includes a mandate to introduce a price reference for regulated tariff base on a basket of products, including both daily and intra-day and for our market prior references to be applied in 2023.
In addition, Royal Decree Law, 10/2022, extended some of the energy measures already develop in the Royal Decree 6, including the gas clawback, which will be in force until year’s end and where the electricity cap reference is maintained at €67 per megawatt hour for hydro, nuclear and renewable output. A new proposal further to conduct regulated auctions for the fuel supply in the non-mainland territories was disclosed. We have submitted a series of allegation as we believe that this ministerial order must ensure that the outcome of these auctions truly reflect a full cost pass through in the current commodity price scenario.
Lastly, the Spanish Prime Minister announced the establishment of a new tax to clawback extraordinary profit from all energy companies. While the details are still known, it should be stress that we have sold all our hydro nuclear and renewable energy below the €67 per megawatt hour threshold that the government has considered reasonable. And therefore our result do not show any windfall or extraordinary profit.
Now we turn to the evolution of the generation operating parameters on Slide Number 6. Over the last 12 months we have continued to make progress in shifting the generation mix bringing more than 700 megawatt of renewables into operation. Mainland renewable capacity is 9% higher than in the first half 2021 while CO2 free sources now constitute 70% of installed capacity on the mainland.
Over the first six months of 2022 Endesa connected 122 megawatt of new wind and solar capacity to grid. Total mainland output reached 25.2 terawatt hour that is 11% higher than previous year. First half maintains lower hydro production in the first quarter one of the driest quarters in recent years. In that context, the increasing wind and solar production due to the entry of new capacity together with the recovery of thermal production, mainly CCDTs and nuclear more than offset the drop of hydro production. Thanks to the continued effort of de-carbonization, emission-free production is up by six percentage points, version 2021, reaching 78% and positioning us well on track to reach our de-carbonization target.
Moving to Slide Number 7, as of June the renewable pipeline reached 77 gigawatt, supporting our growth ambitions to accelerate renewable deployment. The mature pipeline now is worth around 10 gigawatt out of which 9 gigawatt have TSO awarded connection points. 2022 renewable targets are thus secured as we have around 90% either in execution or in operation, while in 2023, this figure amounts to around 70%.
With respect to the 4 gigawatt committed additions for 2022 to 2024, we stand at around 50% address with 2 gigawatt currently in execution are already built with solar technology representing the majority of this project. Based on our policy of hybridizing storage with new renewable capacity, we aim to gradually incorporate batteries into newly installed renewable capacity once the regulation guarantees the competitiveness of these facilities.
Let’s now take a closer look at our customer base on Slide number 8, free power sales increased by 1% versus the previous year while regulated sales dropped by 20%. Total sales decreased by around 2% to 42.99 terawatt hour. The decrease in B2B sales is clearly marked by the economic slow down, mainly due to the Tulsa contract termination and the cease of production at Ancoa. Our very focused commercial strategy and the introduction of attractive offer in the current price contest have resulted in a remarkable increase during the last 12 month in our free market customer base by adding over 1 million new customer of which 700,000 were in the last six months.
Looking at the Endesa X, e-home contract performed extremely well with a 25% increase, charging points increased by 39% up to 11,100 devices and e-bus charging points reached 120 unit tripling last year’s figure.
On a Slide number 9, electricity sold on the Iberia free market increased by 2%. The unitary free power margin reached €32 per megawatt hour, 28% above previous year, despite the complex and challenging market and prices scenario, resulting from unitary revenue that rose to 141 associated to an increase of index sales and higher pool price context and increasing variable cost due to higher energy purchase costs and higher fuel costs, free power margin reached €1,178 million well above previous year, analyzing its break down. The generational margin increased mainly due to the new price reference and higher thermal output, partially offset by lower renewable contribution and other minor effects.
The supply margin was likewise affected by the net increase in sourcing costs and higher ancillary and save costs. Not fully passed on to our customers. Positive effect on short position regarding forward sales, 100% of our 2022 price driven output and 88% for 2023 have already been hit at the baseload price of €65 per megawatt hour set in the bilateral contract between our generation and supply subsidiaries.
Moving to operative achievement on network. And I’m now on Slide number 10, distributed energy is stood at the 66 terawatt hour up by 3%. Our efforts to improve quality and efficiency resulted in a drop in losses that improve 0.1 percentage points while time of interruption improved by around 8%.
I’ll now hand over to Luca, who will detail the financial results.
Luca Passa
Thank you and good evening to everybody. On the financial highlights, I’m on Slide number 12, EBITDA like-for-like increased by 4%, excluding the sale of Endesa X Way to Enel, which has generated a positive impact of €238 million. Net ordinary income was down by 12% year-on-year reaching €734 million excluding the net effect of Endesa X Way transaction. Reported funds from operation figure, which amounted to minus €169 million was strongly affected by the increase in the regulatory working capital during the period by €733 million. Once trip out from this impact both years FFO would’ve reached €564 million, 32% more than adjusted FFO in the first half of 2021.
Moving to the detailed analysis of the period on Slide 13, we invested €934 million in the period, almost 26% more than in the previous year. Mostly allocated to the two main strategy pillars, networks and renewables. EBITDA like-for-like reached €1.150 billion plus 4% versus a first half 2021. Generation and supply show an improvement of plus 17%. Distribution EBITDA declined by 8% to €874 million.
Going to more detail customer business was impacted by the net increase of the commercial sourcing cost mainly as a consequence of the bilateral contract with generation business still not fully passed on to customer. Including the capital gain obtained from Endesa X Way transaction reported EBITDA increased by 17%.
Moving to a deeper analysis. We are now on Slide 14 on the generation and supply businesses. EBITDA like-for-like reached €1.676 million plus 17% increase versus last year, including the following effects. Net effect on recurrence for minus €84 million, higher free power margin for €278 million and in particular, the generation margin increased by €492 million mainly due to the new price reference for €303 million and higher thermal output for €121 million partially offset by lower renewable contribution for about €50 million negative and other minor effects.
The supply margin decreased by €295 million likewise affected by the net increase in the sourcing cost and higher ancillary and ship cost not fully passed on to our customer and a positive effect on the short position for €81 million. We had also positive evolution for Endesa X during the period and then we have €30 million negative of other effects, which includes gas in non-mainland, in particular, the gas business decreased by minus €71 million as a result of the volatility of the market context, partially offset by an improvement in the wholesale activity compared to the previous year.
Non-mainland generation margin increased by €40 million, mainly explained by fuel cost compensation accrued in accordance to new recognize fuel cost references, higher revenues associated to increase of the activity. Fixed cost increased by €29 million, mainly due to the inflationary context and higher activity.
On Slide 15 distribution EBITDA dropped by 8% to a €174 million mainly affected by lower gross margin impacted by previous year resettlements, lower regulatory revenue, mainly due to loss reduction incentive and others. Fixed cost increase as a consequence of repairs and maintenance expense during the first half of 2022.
Few details on the fixed cost evolution and I’m now on Slide 16. Total fixed cost reached €1.25 billion 6% higher than last year. The increase of €58 million explained mainly by the negative inflation effect and perimeter and growth impact on cost partially compensated by efficiency and others.
In more detail, many impacts in fixed cost where the salaries increased due to the inflationary context and higher repairs and maintenance cost of distribution facility as previously commented. The price increase clearly affected the unitary cost across the different business lines in the case of renewables, it was also impacted by the lower hydro output seen in the period.
In distribution unitary cost increased to €45 end user mostly explained by inflation and higher activity. In supply cost to serve increase was lower than CPI rate during the period. The decrease in unitary cost in real terms is basically due to the major efforts made to optimize and digitalize the business line.
In particular, we record a 24% growth in the number of digital contracts to €7.3 million, 22% increase in the number of e-billing contracts reaching €6.7 million e-bills. On P&L evolution from EBITDA to net ordinary income and now on Slide 17, ordinary income came at €734 million down by 12% year-on-year. And in particular, we had higher reported EBITDA for 17%, which includes €238 million from Endesa X Way transaction. D&A were higher than last year by 11%, mainly as a consequence of amortization increased by €51 million due to investment effort, mainly renewables, as well as customer acquisition cost activated, higher provisioning as a result of expected duration in the payment behavior for about €37 million.
Financial charges and others increase mainly as a result of the net effect of late interest payments for minus €65 million and the net exchange difference due to the evolution of the Euro-U.S. dollar exchange rate during first half, partially offset by the update of the workforce reduction plan provisions and other minor effects. Rising taxes, mainly due to the higher results with the tax rate similar to the previous year.
And finally, minority increased by €31 million in first half, mostly due to the better results in 12 wind generation subsidiary with minorities participation out of which two plants have exited the regulatory schemes after having fully recovered their investments. Including the no recurring item booked in the first half, reported net income increased by 10%.
Moving to the cash flow. And I’m now on Slide 18, provision paid amounts to €219 million, including the cash outflow from the provision for restructuring digitalization and decommissioning of previous years. Funds from operation reached minus €169 million impacted by €1.8 billion of duration working capital and others.
This item was strongly affected by the €733 million of regulatory working capital increase during first half 2022, most of it in the mainland business due to the regulatory settlements at historical full cost far below the current market. Excluding this impact adjusted FFO would’ve reached that €564 million.
Working capital evolution once excluded rights from regulatory assessments would’ve amounted to minus €1.1 billion out of which about minus €0.5 billion are expected to be temporary and correspond to minus 0.6 associated to the sudden change of the energy market environment, which imbalanced between vendor payments and client bill collections, minus 0.2 corresponded to the social bonus sentence spending to be casting and plus 0.2 net system charges impacted by the government measures in 2021 and 2022. We expect the above effects impacting working capital to normalize over the year, assuming stabilization normalization of the energy context and no further regulatory measures.
I will now move to the debt evolution on Slide 19. Net debt amounts to €10.3 billion, €1.5 billion higher than full year 2021. The increase is clearly affected by €169 million of the duration of FFO as commented before about €900 million of cash based CapEx and about €500 million of interim dividend corresponding to 2021 results.
Regulatory working capital at the end of first half 2022 was €1,528 million, €733 million higher than full year 2021, mainly due to the higher pending compensation in a mainland. These €10.3 billion net debt figures, the data – the financial guarantees require for commodity management contracts, which has been material increasing in 2022 due to volatile situation.
In that sense, gross debt is notable increase as a result of aforementioned collaterals is expected to normalize along the year as commodity volatility lessons. With no further regular intervention and stabilization of the market scenario, driving the absorption of the negative temporary impact in FFO, we expect net debt to be just over €10 billion at year end, driven by the increase in regulatory working capital expectation at year end, which is expected not to improve in the second half.
Our leverage measures as net debt to EBITDA ratio was 2.2 times. Average cost of debt decreased to 1.1%, one of the most competitive financing costs of the European utilities. Despite the context of increasing rates, we expect the cost of debt to remain [indiscernible] in the regional 1.5% by year end. We enjoy comfortable access in the markets having liquidity for up to €5,987 million, which allow us to meet debt repayments in the coming 27 months.
When it comes to the retail sustainable finance on Slide 20 during the first half of 2022, we close sustainability-linked transactions for an aggregate amount of €12.2 billion in a complex context where certain sustainability principles that were under review. The most remarkable transaction is to increase the limit of our SDG7 Euro Commercial Paper program from €4 billion to €5 billion. As a result, sustainable finance now represents 62% of our gross debt gradually approaching our 80% target in 2024.
Now let me hand over to José for his final conclusion.
José Bogas
Thank you. Thank you, Luca. To close this presentation on a Slide number 21, I would like to serve some final remarks on the main achievements of the period. The resiliency of our long proven integrated business model has allowed us to cope very successfully in one of the most complex energy scenarios and continued regulatory volatility. Our customer strategy allowed us to attract new free market customers over 1 million more in just one year benefiting from energy and a wide range of valuable services at competitive prices.
More than 90% of our additional renewable capacity targeted for this year is already in execution or in operation well on track to reach the milestone set in our last business plan. And finally, our solid track record of delivering in complex years, make us confident to navigate the risks and opportunities for the remainder of the year and achieve the €4.1 billion EBITDA and €1.8 billion for net ordinary income guidance committed.
And ladies and gentlemen, this concludes our first half 2022 results presentation. Thank you very much for your attention. And we are ready to take some question.
Mar Martinez
Okay. Thank you, José. Thank you, Luca. We are now open to answer all the questions you may have.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Mrs. Mar Martinez, Head of Investor Relations. Please go ahead.
Mar Martinez
Okay. The first question comes from Manuel Palomo from Exane BNP Paribas. Please Manuel, go ahead.
Manuel Palomo
Hello. Good afternoon, everyone. Thanks for taking the question. I have three. So first one is an update on the bad debt situation – bad debt solution. What is your expectation in terms of percentages versus sales and also total amount for the coming course in light of increasing energy bills? That would be the first one. Second one is about how you are managing in order to pass through onto final customers the rising energy prices. So what percentage of total volumes have seen already a tariff update in the last, let’s say 12 months, that would be very helpful. Just to have a view on and a sense on what is left or what is the potential for increase in the coming course. And finally, I mean, this is something I’m curious about. It’s whether you could please remind us the criteria that the group follows in order to consider some investments as recurring over last year, while others are not recurring [indiscernible] this quarter. Thank you very much.
José Bogas
Okay. Thank you, Manuel. I will try to answer your second question and then Luca will answer the first and the last one. And perhaps I will command also on the second one. With regard to the rising energy prices and if we translate or not, let me say that we are not transferring the electricity price increase to our customers. Our price driven production is, as I have said, 100% hit for this year and 88% for the year – for the next year, the 2023, at prices as of €65/MWh with our fixed price contract portfolio.
During the second half of this year, we expect to complete the review of a cluster of a contract whose condition had been kept on chain, but we will not pass on unreasonable prices. Therefore, in the second half, we are forecasting a recovery of the unitary supply margin, and we don’t expect any negative regulatory impact this year. And Luca?
Luca Passa
Yes, when it comes to bad data, as I mentioned, we have already recorded in the first half €37 million of higher bad data on the better duration of behavior for basically this period. But this is obviously a forecasting also for the rest of the year. So, we are not expecting, let me say further regeneration, and in terms of percentage of provisioning to our sales, we keep maintaining the same percentage. However, as you can imagine, we decide per scenario the billing has increased heavily in terms of absolute volumes. But between now and year end, we not expect, say for the regeneration as the one already mentioned.
As far as the third question, basically we adjust in our net ordinary income results of capital gains about €10 million. Therefore the Endesa X Way transaction is clearly now part of our net ordinary income guidance. And when it comes to EBITDA, we gave the like-for-like measures in order to basically net this in regarding effect.
And finally on the second one, before obviously we have let me say reprising activity constantly throughout the year some has already been executed in the purpose of the year, which will bring increasing supply margin for the rest of the year. As you’ve seen, we have supply margins in the first part of the year, in the first semester of €1.6/MWh. We expect to end the full year on the region of just below €8/MWh to our supply margins, which implies the second half supply margins just above €13/MWh.
Mar Martinez
Okay. Thank you, Manuel. The next question comes from Alberto Gandolfi from Goldman Sachs.
Alberto Gandolfi
Mar, thank you, and good afternoon, good evening. I have three on my side as well. The first one is still on the guidance, not much on EBITDA is to the bottom line. Essentially you need almost €1.1 billion in the second half. So maybe can you give us a bit more granularity? I mean, the integrated margin is very helpful. May I ask the integrated margin expands either, because you can prefer product increase or the procurements are going down, but in this case, I suspect it’s not procurement. So, what product increase do you need to implement in the second half to get to the guidance?
The second question is, we have seen a socialization of potential shortfall of that in Europe agreed on a voluntary basis yesterday. If I’m not mistaken, that would imply 7% reduction for winter for Spain? May I ask you if you have any visibility on how this may happen? Because being voluntary would this, I mean, would there be like a reverse option where if you are interrupted, you get paid as an investor customer, is it possible of losing revenues in winter? So, can it be ahead wind for you? Could you be mandated to run your combined cycles less and can a reduction in gas perhaps impact electricity as well? Because then again, we need CCGTs to produce power, so we need gas to produce electricity as well. So can you tell us how this could impact you?
And the last question, look probably sorry for the long day. So maybe I’m a bit brain dead, but can you repeat what you said about if you don’t mind the €10.3 billion definition of net debt when it comes to collateral? So, what are you not including in the net debt, if you don’t mind me asking? Thank you.
José Bogas
Okay. Alberto, I will try to answer the second question. And then Luca will give you a clear guidance just to get the guidance. And the third question, talking about the shortfall of gas, the raise of the shortfall of gas well, in my opinion, well, it is really risks, but it’s Spain doesn’t depend on the Russian gas is the first thing. Less than 10% of the gas demand comes from Russia and amount can be in my opinion, easily replace the gas sale in Spain, this 7% to 8% well, it’s a measure of solidarity to the other member state. But what I say, or what I think is that we can transfer this gas to other European countries due to the lack of infrastructure either by lines or gasification plants.
In any case what we are doing and what as far as I have understood we try to do at the level of Spain. And at level of Spain is just to export more as to France. Today we are – those days we are exporting more or less 11% of all the gas that comes into the Iberian hub and it is possible almost to triple this quantity. So within that, this should be our target, just to do that. Trying to answer your question well, we are not going to be affected by any interruption. We don’t respect any negative impact in our P&L as because these possible shortfall of gas coming from Russia and affecting all the member state.
Luca Passa
Thanks Pepe. On the guidance question Alberto, we confirm our EBITDA guidance of €4.1 billion for the full year, not considering the positive nor recurring items already booked in for first half, which are the €152 for social bonus, as well as the capital gain on this X Way transaction, which means that we have a better evolution of the business in the second half. Now, let me try to comment on this better revolution so that you have the number. This means that we are expecting basically an EBITDA increase versus first half of about €500 million in the second half, which is supported by higher gross margin for €350 million and a reduction of cost for about €120 million in the second part of the year.
We expect networks to improve around €150 million thanks to normalized condition. And I would say the absence of negative previous year settlements, which affected the first half while the generation and supply EBITDA will increase by about €300 million mainly from the expected improvement in the free power margin, which is resulting from rising and underlying price. Also driven by the pricing activity recommended before in supply. We estimate unitary margin for the second half to reach above €40 mega watt hour, which is very similar as well to the performance we had in the second half of last year and supply margin as I commented before above €13 watt hour.
Now from EBITDA to net ordinary income, we expect D&A to basically be 80 million lower vis-à-vis first half in the second part of the year, and to lend to a D&A guidance for the full year of 1.7. And this basically implies an improvement in net income in the second half of about €400 million. So that’s how we basically get to our guidance both EBITDA, net ordinary guiding as well as net ordinary income.
And then on the third questions, I commented that we have basically an increase in gross debt vis-à-vis net debt which is substantial. We are reporting 10.3 of net debt, and above 14 billion of gross debt. The increase is driven by basically the collateral behind our derivative hedging with exchanges which are basically public markets and that is accounted in the differential between net debt and gross debt. The only – I would say adding items in the two metrics is about 200 million of cash available.
Operator
Okay. The next question comes from Jorge Alonso from Société Générale.
Jorge Alonso
Hi, good evening to everyone. I have a couple of questions, please. The first one was related to the improvement in the generation and supply that you are mentioning for the second half. The question is can we assume that in the second half, the company will be able to reach the level of profitability in order not to trigger the flow back. So that in essence, the level of profitability in the contract with pricing level can be maintained for 2023. So the second half improvement can be maintained in 2023, or there is still room for further repricing in 2023 at the levels that you are thinking in the second half. So if there are still volumes that will be positively impacted in 2023, thanks to this repricing that you are mentioning for the second half.
And the other question is regarding the distribution grid. We have seen some weakness in the first half. You are mentioning that you expect a recovery in the second part of the year. Can you explain a little bit what, I mean what the weakness was related to, and if this really be reverted, and if that could you to make to reconsider to accelerate or not investments in the distribution grid and shift that onto other areas like renewables [ph] for example. Thank you.
José Bogas
Okay, Jorge. I will try to give you some color and then Luca will go deeper in these two questions. First of all, the improvement in generation and supply mainly if we are not going to trigger the clawback of gas. First of all, let me say, as Luca said, the supply margin, first of all our own inframarginal production that is hydro, nuclear and renewable. We are selling these electricity at the price of €65 per megawatt-hour; that is the first thing.
The second thing is that just because I would like to say that given the high sourcing costs of the first half of the year to mitigate part of the supply price increase to our customer. We have absorbed in our margin – supply margin part of this increase. And that is the – the what, the reason why Luca has said that with these higher sourcing cost we have not passed on to customer these prices.
Having said that it is not sustainable, let’s say that just to maintain this very low level of margin in our supply business. That is the reason why what we have said is that this first half and in the rest of the year we are reviewing the prices, the lowest – the lowest prices that we have with our customer train to renew this contract and to increase our margins somewhat. In any case Luca has said that the final supply margin will be lower than €80 per megawatt-hour, which it’s still lower than what it is reasonable.
That is the reason why we don’t spec any negative impact with the clawback. Yes in the next year, we will see, I mean, the year 2023, we will see what happened or what not happen. We will – we should take into account the evolution of the cost of the sourcing. And we have many levers just to manage the situation in the benefit of our customers and in our own benefit. But that is the reason why we’re improving or increasing these margins and now Luca if you want to add anything.
Luca Passa
Sure. On the second question on distribution grids, I commented expectation for the second half. Basically we are guiding to an EBITDA of €1.9 billion for the full year, which is just €100 million lower than what it was expected, mainly on the first half evolution that I have commented already. Now, what do we expect in the second half is basically recovery, especially in other revenues line in distribution, which is mainly coming from clients’ contribution. So that allowed us basically between the regulatory margin and the other revenue line to reach the guidance that was commenting before. And on the first topic, I just confirm what they said, their pricing will not trigger for us clawback for this year.
Operator
And we have now Javier Garrido from JPMorgan.
Javier Garrido
Thanks, good afternoon. Actually there is only one clarification left, when you have talk about the guidance for 2022, you mentioned that you are excluding the capital gain on Endesa X Way, and I understood you’re excluding also the social bonus recovery for due to get to €4.1 billion.
But on the other hand, if I understand correctly, the numbers that Luca mention, if you are looking for a €400 million increase in net income in the second half that was the first half that would make €1.1 billion. And therefore, in order to get to the €1.8 billion ordinary net income target, you are including in this ordinary net income target the recovery of the social bonus. I just wanted to clarify, if my understanding is correct that the recovery of the social bonus is not needed to get to the €4.1 billion EBITDA target that is needed to get to the €1.8 billion ordinary net income target. Thank you.
Luca Passa
Thanks Javier for the question, which I think clarifies for everybody, basically you are right. The EBITDA guidance is net of social bonus and net of the capital gain on this X Way. Net ordinary income below for how it is defined includes basically the social bonus. Now this social bonus below basically EBITDA for us is enough in order to cover the increase in D&A that we are expecting for the full year, as well as the evolution of minorities that have commented for the first half that we are expecting basically to draw for the second part of the year. So that’s how basically we are reaching the €400 million in the second part of the year at net income level.
Operator
Okay. Thank you. We are done with the question from the call. And I have just one question from the web. That is, it comes from Jorge Guimarães from JB Capital and it’s in relation to the announced tax on extraordinary profits. And what would be the potential impact of an Italian style tax?
José Bogas
Well, Jorge, first of all, we don’t know the details of this proposal and first of all to make a proper assessment we must wait to know the scope, to know the mechanism, to know the tax. And let me say that in our case not only, there are no extraordinary profit but also the current crisis is reducing, the result of all the electricity companies. As we have said, we have sold our hydro nuclear and renewable energy at a price of the €65 or below €67 established like reasonable by the government.
We assume that the tax would not apply to earnings generated by regulated business. On the other hand, the European commission stated that the new tax should not be excessive, should not jeopardize investment in renewable or the store the CO2 market. And with regard to the Italian one, we really think that it’s absolutely different, and we don’t know how this methodology could affect us, in any case Luca, could you add anything?
Luca Passa
Just starting that for us is basically impossible to give any estimates without knowing, how the measure will be drafted. So at the moment, we cannot really comment on estimates of this impact.
Operator
Okay. That’s all. So thank you for participating in this conference call. Just remind you that IR team is available, as always to help you in any other question you may have. Thank you again and have a nice summer break.
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