Endesa has closed the first half of 2020 with good results, despite the serious situation in which the whole country has been involved because of the COVID-19 pandemic. The company recorded 1.128 billion euros in net income between January and June, 45.4% more than in the same period in 2019. These results reflect the impact of the entry into force of the new Collective Agreement and the recognition of certain restructuring provisions, which had a positive net effect of 267 million euros. Excluding this extraordinary impact, the increase in net income is still 11%, which shows the strength of the company's accounts despite the current scenario.
The slowdown in economic activity during the months of the state of emergency has had a significant impact on electricity demand and prices in our country, exacerbating growth in the first quarter. At mainland level, demand decreased by 7.8% compared to the same period in 2019, while in non-mainland territories (TNP) declines of 13,2% were registered (18.6% in the Balearic Islands and 10.1% in the Canary Islands). This drop, together with the reduced price of raw materials, has thus led to lower prices in the wholesale market, with €29/MWh on average, which represents a decrease of 44% compared to the same period in 2019.
Endesa estimates that the effects of COVID-19, with the drop in demand and associated prices, together with the provisions made for insolvencies in accordance with the IFRS9 standard, have had a negative effect of around 100 million euros in the EBIT and about 75 million euros at net profit level.
Although it is not possible to estimate the future impact of COVID-19 today, the company expects a more standardised second half of the year, which, together with the resistance of having an integrated business model and low exposure of regulated companies, it will allow it to keep its estimates for 2020.
The Chief Executive Officer of Endesa, José Bogas, highlighted that "Despite the environment's complicated circumstances, Endesa has shown great strength in a context for which we had no prior references. Not only in the business and the company's accounts, but in the support that Endesa has given to the institutions and citizens at the most critical times. And now, with a complicated economic scenario ahead, we want to continue helping our country, the recovery of the Spanish economy, maintaining and even accelerating our planned investments, helping to create jobs and generating wealth; and fighting for it to be done in the most sustainable way possible".
Accelerating the process decarbonisation and support for economic recovery
Endesa is, now more than ever, unequivocal in its investment commitments presented in the company's latest strategic plan and which represent an injection of 7.7 billion euros between 2019 and 2022 of investment, 5.2 million euros of which will be devoted to making possible the decarbonisation process in which the company is immersed.
But in addition, the company wants to play a significant role in Spain's recovery, and thanks to the resilience of its business model and its financial flexibility, and with an adequate framework and the necessary regulatory and fiscal measures, it could increase its investment plan by approximately 30% in the 2020-2022 period.
Endesa has designed an accelerated plan of €7.5 billion. for that period, which involves an additional investment of about €1.7 billion , in which we hope to become one of the Spanish companies with the largest investment plan, with a multiplier effect on the country's GDP of €2.7 billion , and be able to generate 12,000 direct and indirect jobs and around 27,000 related jobs during each year of this plan.
And in this first half of the year, Endesa has reached major milestones along this decarbonisation path:
- About 90% of the mainland generation mix is already emission free.
- Seventy-two percent of the asset building investment has been earmarked for developing the renewable business. The income derived from the coal business barely represents 1% of total sale.
- The closure of its mainland coal-fired plants has been brought forward by one year, with the formal request to close the imported coal plants of Litoral and As Pontes having already been submitted in 2019. On 30 June, 2.1 GW of Endesa's coal generation, which represents more than 43% of the installed capacity of this technology, was formally disconnected, which constitutes a decisive step in the gradual elimination of coal.
Along with these requests, Endesa is developing Fair Transition plans, based on a shared value creation approach for specific generation locations. These plans include significant investments in new renewable energy facilities in the affected areas, which will help create direct jobs, not only through dismantling coal plants, but also through building new ones that improve activity and employment.
Trends in key financial figures
Trends in the company's key figures in the first six months of 2020 were as follows:
- EBITDA increased by 22% in this first half of the year, to 2.315 billion euros , largely due to the impact of applying the new measures contained in the Collective Bargaining Agreement approved in January, which resulted in 515 million euros of unused provisions being released and a provision of 159 million euros for workforce restructuring plans. The impact of these two aspects was 356 million euros but, without taking them into account, EBITDA increased by 3.4%, despite the significant drop in electricity demand due to the state of emergency experienced in our country, thanks to the strong performance of the deregulated business.
1. The deregulated business, with a growth of its adjusted EBITDA of 21% (903 million euros ), has made it possible to offset the drop in business in non-mainland territories. Its gross margin has increased by 12%, reaching 1.497 billion euros. This performance was driven mainly by:
- The strong performance of the electricity business margin, which increased by 6.9%, despite the scenario of falling prices and demand.
- The good results of the gas business (x2), to reach 140 million euros.
- Endesa X's contribution of 63 million euros, which has increased by 10.5%.
2. In the regulated business, adjusted EBITDA and gross margin have fallen 8% and 9%, to 1.056 billion euros and 1.425 billion euros €.
- The margin in the distribution business has decreased slightly (-5%) as a consequence of the application of the new remuneration parameters established for the second regulatory period that came into effect on 1 January.
- At the same time, the decline in non-mainland territories, the fall in the margin amounted to 69 million euros (-26%), mainly affected by certain regulatory inefficiencies that have not allowed fuel costs to fully recover given the current scenario of raw material prices.
- Reported EBIT increased by 41%, to 1.555 billion euros, mainly due to the lower depreciation expenses for coal-fired plants after the accounting adjustment made to the carrying amounts of the plants last year.
- Net financial results have been negative and amount to 48 million euros, improving almost 50% (96 million euros 1H2019).
Sound financial position
Endesa continues to have a sound financial position, which gives it significant strength and flexibility to deal with the situation caused by COVID-19 and undertake the substantial investment in renewable energies and digitalisation that Endesa has committed to in order to meet the objectives of its Strategic Plan and energy transition targets.
The company has unconditional credit lines contracted with first-rate entities available of more than 4 billion euros which, together with the implementation of specific plans for the improvement and efficient management of liquidity, and its position of under-leverage, enables it to easily tackle the difficult economic situation that the country is current going through.
In fact, Endesa has not had to resort to refinancing processes for its borrowings as a consequence of the health crisis caused by COVID-19.
- Net debt stood at 7.092 billion euros, 715 million euros higher than at 31 December 2019 (+11.2%), mainly due to the payment of the interim dividend Endesa paid shareholders on 2 January 2020 out of 2019 profit of 0.7 euros per share (gross), for a total amount of 741 million euros.
- The net debt/EBITDA ratio continues to be 1.7x.
- Liquidity has increased 35% in this first half of the year, to 4.469 billion euros which covers nearly 23 months of debt maturities.
- Gross investments totalled 797 million euros, down 16.6%, due mainly to the efforts made by the company in the construction of wind and photovoltaic capacity awarded in the auctions held by the government in 2017 and which were brought into operation in 2019.
- In the first half of this year, electricity demand in mainland Spain fell by 7.8%, accelerating the decline started in the first quarter by warmer temperatures. Only in the second quarter, demand decreased by 13% (-3% in 1H2020) in Spain as a consequence of the pandemic.