Endesa posted a 435 million euro net income in the first quarter of 2015, a 36% increase compared with the benefit obtained in Spain and Portugal corresponding period of 2014. This is mainly attributable to the 112 million euro EBIT increase and larger contribution to net income from equity stakes in companies not controlled by Endesa, which amount to 57 million euros.
The net income of Endesa increase in the first quarter a 4.1% despite the sale of the business in Latin America to Enel, in the last quarter of 2014; and the higher financial expenses because of the debt increase. The business in Latin America had contributed 98 million euros to Endesa's consolidated profit in the first quarter of last year; and the net financial costs have increased by 45 million euros, as a result of the increased indebtedness that Endesa withstands due to its payment of two extraordinary dividends to shareholders, in October 2014, which amounted to 14,605 million euros.
During the first quarter of 2015, electricity demand in the Iberian peninsula increased by 2.3% compared with the same period in 2014, an increase of 1.5% after adjustment for working days and temperature.
Endesa's peninsular electricity output under ordinary regime was 15,090 GWh, 22.1% higher than in the first quarter of 2014, due to the increase in production from coal-fired power plants (+105.7%) and CCGTs (+176.7%) that offset the 16.7% drop in output from hydro sources.
Nuclear and hydro accounted for 62.7% of Endesa's peninsular generation mix under ordinary regime, compared to 78.6% in the first quarter of 2014 and 59.8% among the rest of the Spanish power sector, which in turn dropped from 77.4% in the first quarter of 2014.
Endesa's electricity output in extra-peninsular systems was 2,929 GWh in the first quarter of 2015, a rise of 1.7% on the corresponding period of the previous year.
Endesa reached a 37.7% market share in peninsular electricity generation under ordinary regime, 42.5% in distribution and 35.8% in sales to free market customers in the first quarter of 2015.
Revenues were 5,451 million euros in the first quarter of 2015, in line with the 5,455 million euros posted in the first quarter of the past year. First quarter 2015 revenues included 5,086 million euros from sales (+1%) and other operating revenues worth 365 million euros (-12.5%).
Compensation for stranded costs in extra-peninsular generation reached 264 million euros in the first quarter of 2015, a 90 million euro or 25.4% reduction on the first quarter of 2014. These figures were estimated on the basis of the draft Royal Decree on regulated remuneration for extra-peninsular generation received in January 2015.
Regardless of the impact of the Draft Royal Decree, there would have been a reduction in compensation attributable to the higher revenues posted by extra-peninsular activities, which were in turn due to the increase in electricity prices on the wholesale electricity market.
During the first quarter of 2015 the margin on the free market returned to more normal levels compared to those posted in the previous year, during which extraordinarily positive conditions were recorded. The margin was reduced due to the higher cost of the electricity sold, both that produced by Endesa and that acquired through third parties. Lower water availability during the period led to an increase in thermoelectric power generation and a subsequent rise in both generation costs and the average wholesale electricity market price, which reached 47.38 euros/MWh (+94.4%). These increases led to higher average electricity purchase costs, as well as an increase in tax payments related to electricity generation.
The increase in variable costs has been partly offset by the decline in fuel prices. Meanwhile, fixed costs remained basically stable at 532 million euros, an increase of 6 million euros or 1.1%.
The situation described above was compensated for by the recognition of the value of the European Union Allowances (EUAs). European legislation on this matter allows the exchange of Emission Reduction Units (ERUs) and Certified Emission Reductions (CERs) for EUAs. These exchanges were worth 173 million euros to Endesa.
As consequence of the above, EBITDA reached 952 million euros in the first quarter of 2015, up 4.7% compared with the corresponding period of 2014.
In turn, EBIT increased by 21.7% to 628 million euros, due to the rise in EBITDA and the 43 million euro reduction in depreciation and amortisation because of the extension of the useful lives of nuclear power plants and CCGTs. In addition, the impact from the provisions related to the evolution in the price of carbon dioxide (CO2) allowances declined by 21 million euros.
Net financial charges posted by Endesa in the first quarter of 2015 were minus 83 million euros, an increase of 50 million euros or 151.5% on the same period of the previous year. This increase is attributable to the 45 million euro increase in net interest charges that were due to an increase in net financial debt caused by the payment of two extraordinary dividends in October 2014.
Net income of companies accounted for by using the equity method increased to 24 million euros from the minus 33 million euros posted in the first quarter of 2014, as a consequence of a 51 million euro provision resulting from Endesa’s cost estimate related to the closure of Elcogas.
As a result of the above, Endesa posted a 435 million euro net income in the first quarter of 2015, up 36% compared with the benefit obtained in Spain and Portugal in the first quarter of 2014.
Sale of Assets
The agreement for the disposal of assets associated with the Chira-Soria hydroelectric power plant in Gran Canaria to Red Eléctrica de España (REE) for a price of 11 million euros was signed on January 23rd, 2015. The gross capital gain for Endesa amounted to seven million euros.
On February 3rd, 2015, Endesa also closed the sale of all its shares in Compañía Transportista de Gas Canarias to Enagas. The total consideration for the transaction, which included the price of the shares and the equity loan as well as interest earned, amounted to seven million euros, equivalent to a three million euro gross capital gain.
As of March 31st, 2015, Endesa's net financial debt stood at 5,137 million euros, a 283 million euro reduction compared with December 31st, 2014. When analysing the evolution of net financial debt, it should be remembered that on January 2nd, 2015, Endesa paid its shareholders a dividend on 2014 results equivalent to a gross sum of 0.38 euros per share, a total payment of 402 million euros.
Cash Flow and Investment
Operating cash flow in the first quarter of 2015 amounted to 907 million euros, a reduction on the 1,446 million euros raised in the first quarter of 2014. The difference is explained by the fact that 2014's figures included the cash flow generated by the Latin American business, that was not posted in the first quarter of 2015 due to the sale of that business to Enel.
Endesa's gross investment during the first quarter of 2015 stood at 221 million euros, of which 197 million euros was related to investments in property, plant and equipment, and intangible assets, while the remaining 24 million euros were financial investments. Total investments in the first quarter of 2015 were 52.4% higher than for the same period of the previous year.