Endesa tops guidance with 1,511 million euro net ordinary income in 2018

(1)As of December 31st, 2017

Endesa posted excellent results in 2018, driven mainly by efficient management of its electricity business, the recovery of gas business margins and the steady regulated market.

Growth in the company's main financial indicators exceeded the targets announced to the market, despite the impact on net income from impairment losses recognised on the Alcudia plant, that were decided after analysing current regulations and market conditions, affecting the plant's useful life. Excluding this impact, net ordinary income was up by 4%.

Endesa registered this performance against a backdrop of high energy prices in the commodity market and a significant increase in CO2 prices which, in turn, drove up wholesale market prices. These increases were recorded in spite of the growth in hydro generation in Spain, which reached levels above the 10-year run average, and a 40% increase in wind generation.

“Endesa's 2018 financial results are testament to its ability to create value from effective business management" said Endesa's CEO, José Bogas. “During the year, Endesa laid the foundations for sustaining solid business momentum going forward, through investments in renewable capacity among other things. The company will step up these efforts in 2019, by bringing around 880 MW of new renewable capacity online.”

Trends in the key figures of 2018 were as follows:

• EBITDA increased by 2% in 2018 versus the result posted in 2017. EBITDA would have increased by 12% net of non-recurring items in 2017, mainly related to the reimbursement of the 2014-2016 Social Bonus, previous years' settlements in non-mainland areas, certain adjustments related to gas and adjustments to income from distribution in previous years. The EBITDA increase was mainly due to the following:

-A 17% increase in EBITDA from free market activities (40% like-for-like, 346 million euros) resulting from Endesa’s effective market strategy.

-The gross margin in the free market business increased by 230 million euros in 2018, or 423 million euros net of non-recurring items posted in 2017. This improvement was mainly driven by:

1.    Effective management in the electricity market resulting in a 327 million euro gross margin increase, more than offsetting high wholesale prices, which were up by 10% at 57.3 euros/MWh vis-à-vis 2017 levels.

2.    A significant improvement in the gas business, whose contribution to Endesa’s gross margin was 138 million euros in 2018, up 82 million euros on the previous year.

-Regulated market EBITDA grew by an adjusted 1.8%, mainly on the back of the increase in distribution payments. Distribution EBITDA was 2,059 million euros, equivalent to a 4% increase on a like-for-like basis.

• Endesa’s strong focus on cost containment: in 2018, fixed operating expenses were broadly in line with the year before, offsetting the impact of inflation and growth in the company's business segments.
• EBIT declined by 6%, mostly due to the impairment losses recognised on the thermal power plant in Alcudia (Balearic Islands), amounting to 158 million euros.
• As a result of all of the above, net income fell by 3%, while net ordinary income increased by 4%, excluding the aforementioned impairment losses.

Operating cash flow, net financial debt and investments

• Operating cash flow remained stable throughout 2018, fuelling the company’s investment plan, as well as providing the net cash flows used for the financing of acquisitions.
• Net financial debt increased by 785 million euros on 2017, mainly due to investments carried out in the period, the acquisition of five wind farms from Gestinver for 172 million euros (including debt consolidation), the purchase of power distribution and retail company Eléctrica de Ceuta for 83 million euros, and the payment of dividends, for 1,472 million euros.  
• Gross investments totalled 1,470 million euros, increasing by 25%, mainly attributable to the construction of wind and photovoltaic facilities awarded to the company in 2017 tenders, as well as investments in the As Pontes thermal plant to bring it in line with European environmental regulations, specifically the Industrial Emissions Directive (IED), which will come into force on June 30th, 2020.

(1) Net of consumption from own power generation.

• Electricity demand in mainland Spain grew by 0.4% in 2018, or 0.3% adjusted for working days and temperature.
• Renewable generation in Spain in the year met 40% of total mainland electricity demand, up from 35.7% in 2017.
• Endesa's peninsular electricity production declined by 6.4% on the back of lower thermal production.

-CO2 free technology (hydro, wind, solar and nuclear) was 48.8% of Endesa's mainland generation mix in 2018, up from 44,4% in 2017.

-The company's output in Non-mainland Territories (TNP) was 12,855 GWh (-2.2%).

• In 2018, Endesa recorded market shares of 22.5% in mainland generation, 43.6% in distribution and 33.4% in electricity sales to free market customers, confirming the company's leading position in the Spanish electricity sector.
• Endesa had 5,724,633 free market electricity customers in 2018, up 2.4% on 2017.
• Gas demand for conventional consumption in Spain increased by 4.5% in 2018
• In 2018, Endesa held a 16.3% share of gas sales to free market customers in Spain.

Dividends

Endesa's General Shareholders' Meeting held on April 23rd, 2018 agreed to distribute a total dividend of 1.382 euros (gross) per share on 2017 earnings, for an overall amount of 1,463 million euros.

At the upcoming General Shareholders' Meeting the company will propose payment of a dividend on 2018 net income of ENDESA, S.A. of 1.427 euros (gross) per share (100% payout), 3% higher than the dividend on 2017 earnings and 7% above the minimum dividend announced to the market for this year.