Endesa free market business drives 5% EBITDA increase in 1Q 2019

Published on Tuesday, 7 May 2019

Endesa posted a good set of earnings in 1Q 2019 that makes to be confident to deliver on the guidance disclosed to financial markets for 2019.

Effective management in the free market business, coupled with stability in the regulated market and the company’s cost saving strategy were key to achieve this performance, despite unfavourable conditions both in the gas and electricity markets.

In Spain, during 1Q 2019, overall electricity demand declined on the back of high temperatures and low consumption, especially by large companies, following the country’s economic slowdown. Meanwhile, the price of CO2 emission allowances increased, while hydro and renewable output fell, driving a 14% increase in wholesale market prices, to 55 euros/MWh.

Against this backdrop, “Endesa is investing heavily in digitalisation and renewable energies, which are key to be at the leading edge of the energy transition. The 879 MW awarded to the company in the 2017 auctions are due to be on stream by the end of the year” said Endesa CEO, José Bogas. “During this new investment cycle, we are achieving high levels of efficiency, with a 5% like-for-like reduction in fixed costs".

Trends in key financial figures during 1Q 2019 were as follows:

  • EBITDA increased by 5% year-on-year due to the good performance in the free market business and stability in the regulated business, as well as the implementation of the company’s cost saving strategy:

- The company's free market strategy paved the way for a 14% increase in EBITDA in that segment to 365 million euros.

o The gross margin in the free market business was 42 million euros. The increase was due mostly to:

  1. The improvement in reference prices more than offset the increase in variable costs caused by higher CO2 prices and the reduction in sales caused by lower demand.
  2. The positive contribution by Endesa's renewables arm, Enel Green Power España, with the consolidation of the wind capacity in the Gestinver portfolio.
  3. All of these factors allowed the company to withstand the decline in the gas business, which saw its gross margin fall by 30% in the period due to lower revenues in the wholesale market, despite a 1% increase in the number of residential customers.

- EBITDA in the regulated business was stable (563 million euros) as a result of the higher margin in the distribution business (+2%), which already includes the contribution of Empresa Eléctrica de Ceuta, acquired last year. This increase offset the decline in generation from non-mainland territories. Regulated business EBITDA was equal to 61% of total EBITDA.

- Endesa went to great lengths to contain costs: fixed operating expenses fell by 5% on a like-for-like basis (-2% reported) amid rising investment in renewable energies.

  • EBIT increased by 3% despite higher depreciation and amortisation expenses due to the investments that were carried out and the impact of the application of IFRS 16, the new regulations that require the inclusion of existing lease contracts under amortisations. The application of these standards has had an impact on depreciation in the quarter of 7 million euros. 
  • Financial costs increased mostly due to the updating of provisions for workforce restructuring and facilities decommissioning.
  • As a result of all these factors, net income fell by 2%.

 

Operating cash flow, net financial debt and investments

  • Operating cash flow for 1Q 2019 totalled 335 million euros, a 13-fold increase from the same period of 2018. This major increase followed the increase in EBITDA and the improvement in working capital (-39%).
  • Net financial debt increased by 1.127 million euros from December 31st, 2018 as a result of a number of factors, mainly the impact of the application of IFRS 16 (which led to an increase of 186 million euros in net debt as of December 31st, 2018), the investments carried out to develop new renewable generation assets and payment of an interim dividend of 741 million euros on January 2nd out of 2018 net income.
  • The new debt/EBITDA ratio is just 1.9x, leaving the company with plenty of room to carry out the necessary investment in the energy transition in both digitalisation and renewable energies.
  • Gross investments totalled 395 million euros, up 100% year-on-year, mainly due to investments in digital transformation projects as well as new wind and photovoltaic capacity.

 

Operating results 

Operatives

1Q 2019 (GWh)

 1Q 2018 (GWh)

Change (%)

PRODUCTION

14,139

15,397

-8.2

DEREGULATED MARKET SALES

21,087

21,968

-4.0

REGULATED MARKET SALES

3,806

4,267

-10.8

ELECTRICITY DISTRIBUTED

29,166

29,890

-2.4

GAS SALES(1)

22,754

25,457

-10.6

(1)  Net of consumption from own power generation.

 

  • Electricity demand in mainland Spain fell by 2.8% in 1Q 2019, or 2.1% adjusted for working days and temperature.
  • Renewable generation in Spain in the period met 52% of total mainland demand for electricity, up from 57% in 2018.
  • Endesa’s peninsular electricity production fell by 8% on the back of lower hydro and renewable production (-28% and -5%, respectively, in line with the overall performance in Spain).

CO2 free technology (hydro, wind, solar and nuclear) represented 57% of Endesa's mainland generation mix through March, an increase on 53% achieved in 2017.

- Endesa's production in Non-Mainland Territories (TNP, from the Spanish acronym) was 2,893 GWh (-7%).

  • In the period, Endesa registered market shares of 22.5% in mainland generation, 43.2% in distribution and 32.9% in electricity sales to free market customers, confirming the company's leading position in the Spanish electricity sector.
  • Endesa had 5,782,726 free market electricity customers as of March 31st, +1% from the year-earlier figure.
  • At the end of the first quarter of 2019, Endesa held a 16% share of gas sales to free market customers.

 

Dividends

Endesa's General Shareholders' Meeting held on April 12th, 2019 agreed to distribute a total dividend of 1.427 euros (gross) per share out of 2018 net income, for an overall dividend amount of 1,511 million euros.

Factoring in the interim dividend of 0.7 euros (gross) per share (741 million euros) paid on January 2nd, 2019, the final dividend on 2018 net income is 0.727 euros (gross) per share (770 million euros) and will be paid out on July 2nd, 2019.