José Bogas, CEO of Endesa

Dear Shareholder,

The presentation of ENDESA’s Activities Report is, every year, an excellent opportunity to review the work carried out during the previous fiscal year, without forgetting the achievements or difficulties and thus to be able to explain the results obtained and the goals we set for the future.

Starting with the former, I am please to be able to share that the results of financial year 2018 have confirmed, once again, our company’s ability to effectively manage its business. Indeed, despite the fact that last year was characterised by high prices of raw energy materials and a significant rise in CO2 prices - which, in turn, led to high prices in the electricity wholesale market - ENDESA’s gross operating profit (EBITDA) stood at 3.627 billion euros and net profit amounted to 1.417 billion euros, figures that exceed the commitments we had disclosed to the markets.

The good management of the electricity business, the recovery of the margin of the gas business and the stable trend in the fixed-price market were some of the factors that made it possible for these results and other results for the year to exceed those commitments. The wholesale market prices grew almost 10%, amounting to 57.3 euros/ MWh. However, ENDESA managed to increase its gross margin in the electricity market by 327 million euros. In turn, the contribution of the gas business to the gross margin amounted to 138 million euros, accounting for an increase of 82 million euros compared with the previous year.
In addition, ENDESA once again made a great effort to contain costs, thus confirming its ability to remain one of the most efficient companies in the market. As a result, fixed operating expenses were in line with the previous year, absorbing both the impact of inflation and the growth of the company’s businesses. 

On the other hand, ENDESA gave a new impetus, during 2018, to its efforts to reinforce the strength of its business in the future, especially in view of the challenges facing Spain in terms of energy transition and decarbonisation of the economy. ENDESA not only fully undertakes these goals, but they are also essential areas of its business vision, as evidenced by the Strategic Plan presented to the markets in November 2018. 

Last year, 50% of the company’s electricity production was free of CO2 emissions and the goal is to increase that percentage to 56% by 2021, to 65% by 2030 and to 100% by 2050.

To achieve this, the company is committed to significant growth in renewable energy with a major investment effort. Thus, 39% of the investments planned by ENDESA for 2019 will be allocated to the development of renewable energy technology facilities, which will involve the incorporation of around 900 MW of new capacity; and, in the whole of the period 2018-2021, the company will have invested a total of 2 billion euros in them. This will enable it to go from the current 6.5 GW of installed capacity in renewables to 8.4 GW in 2021.

In turn, the digitalisation and modernisation of the electricity grid will be another of the major investment commitment of the company’s Strategic Plan. A total of 1.9 billion will be allocated to its development. This considerable effort is essential, not only to meet the new needs for growth in demand, but, above all to enable the incorporation of the new renewable power, the roll-out of the recharging points required for the promotion of e-mobility and the accessibility to products and services designed to respond to the new needs and expectations of our customers.

Indeed, the new trends that are developing in the electricity market, from distributed generation to sustainable mobility, through new relationships with customers, demand both a constant renewal of the business model and a special ability to detect new opportunities that arise from this accelerated process of change.

A good example of this is ENDESA’s commitment to e-mobility. At the end of last year, the company announced an ambitious plan to install more than 100,000 public and private charging points for electric vehicles, with an associated investments of 65 million euros. We are going to do this through ENDESA X, which is our company’s new line of business that offers new services and technological solutions in the world of energy, which include, in addition to the promotion of e-mobility, the development of efficient lighting in cities, photovoltaic installations for self-consumption, energy advisory services for companies, etc.

In the same line of renewal of its businesses, ENDESA will allocate a total of 1.3 billion euros between 2018 and 2021 to the digitalisation of its assets and processes, which will be mostly intended for the distribution network. The development of smart grids, i.e., the smart networks that include information and telecommunication technologies in the electricity grids, is key to improving the efficiency of the electrical system and responding to a new model in which electrical flows cease to be unidirectional - from the large power station to the consumer - and become bidirectional.

The energy transition and decarbonisation objectives are testing the ability of companies to take on long-term challenges that require a radical transformation of a good part of their businesses. To be successful in taking on these challenges, you have to have the desire, knowledge and ability to do so. In this way, desire, knowledge and ability become three essential axes of the attitude that companies must maintain to demonstrate their willingness to be a important agent in building a sustainable future.

ENDESA has decided to face these challenges firmly and decisively, given that it is obvious that they cannot be achieved without great effort, in a task for which the company has proven vision and ability: the increasing electrification of the energy demand. Without it, neither energy transition nor the decarbonisation of our economy will be possible. Therefore, with all humility, but also with full conviction, our company has decided to play the role of leader, as it should, in order to overcome this great challenge. 

 

José D. Bogas Gálvez

ENDESA Chief Executive Officer