Endesa S A : recognises ordinary net profit of €1.47 billion until september, in line with the same period in 2021

Operating income (EBITDA) came to €3.47 billion in the first nine months of the year in comparable terms, up by 11%.

• Endesa recognises net ordinary income of €1.47 billion between January and September, up by 0.7%, in a more complex and volatile market context than seen in the first half of the year
• Gross operating income (EBITDA) was €3.47 billion in comparable terms, up 11%, underpinned by the strong performance of the generation business. This improvement has offset both the challenging pricing situation affecting the supply business and the lower EBITDA in the grids business
• Including the extraordinary positive effect of the partial sale of the electric mobility business, reported EBITDA rose 19% and consolidated net income, 13%
• All new renewable capacity planned for the year is now operational or undergoing implementation to come online before the end of the year. A total of 65% of the amount planned through to the end of 2024, when the current strategic plan ends, is also under way
• Endesa has been provisionally awarded 953 of the 1,200 MW of the fair transition tender in Andorra (Teruel) and has already submitted the expanded project to achieve this total amount of power
• The company's strong commercial performance continues, with adds of 1.2 million domestic and business electricity customers on the free market compared to September 2021, coming to a total of 6.8 million. This saw the number of customers grow by 4% to 10.6 million
• The network of charging stations for electric vehicles stood at 12,000 stations by the end of September, 43% up year-on-year
• The investment made during the first nine months of the year came to €1.48 billion, up by 20%, with 73% of this amount destined to renewables and the grid
• At the next extraordinary shareholders' meeting, to be held on 17 November, the company will approve several transactions with its parent company, Enel, to strengthen its position in the international gas markets, as well as to strengthen its position in the face of new, highly volatile peaks.

Endesa ended the first nine months of the year paying testament to the resilience of its vertically integrated business model to overcome an even more deteriorated market context when compared to the first half of the year. Specifically, the outbreak of war in Ukraine and the rise in prices of energy raw materials, particularly gas, have meant that this fuel is 236% more expensive between January and September compared to the same period in 2021. As a result, the average cost of electricity in the Iberian wholesale market between January and September has risen by 137% year-on-year, to €186/MWh. As a result, 2022 has seen the highest prices in history. The main European markets, which have no gas cap measure in place, have registered even higher average prices: France (€297), Germany (€250), Italy (€324) or the United Kingdom (€255).

Zeroing in on the third quarter of the year, the average price of the electricity pool in the Iberian peninsula (including the cost of compensation for the gas cap) came in at above €300/MWh, more than 150% more than the same quarter of 2021. This price level was decisively influenced by the historical peak recorded in the European Gas Reference Index (FTT) at the end of August (above €300/MWh).

The use of the Iberian exception has meant that, despite this, it has been possible to keep electricity prices under control compared to the average levels seen on the aforementioned European markets, which have seen historical records due to the rise in gas prices: Germany (€375 MW/h), France (€429), Italy (€472) and the United Kingdom (€345).

In terms of Endesa's main highlights, EBITDA (gross operating profit) was €3.47 billion, 11% higher than in the first half of the previous year in comparable terms. This excludes the extraordinary positive impact from the sale of 51% of the electric mobility business to its parent company, Enel, last April. Taking this into account, EBITDA is up 19%.

Ordinary net profit, which is the basis for the distribution of the dividend, increased by 0.7%, to €1.47 billion, in line with the figure recorded during the same period of 2021. These €1.47 billion do not include the extraordinary net impact of the sale of the electric mobility business for the net value of €182 million. Consolidated net profit, which does include this sum, increased by 13% through to the end of September.

As regards the pathway to decarbonisation, Endesa's CO₂-free production during the six-month period accounted for 73% of the total. The breakdown by technology is consistent with the trend seen towards the end of the first half of the year: drop in hydroelectric production against the backdrop of a severe drought combined with the increase in exports (on account of the problems with French nuclear installations and, since 15 June, the entry into force of the gas cap) which has resulted in an increase in production from combined cycle power plants (114% compared to September 2021). Nuclear generation grew a further 3% and accounted for 51% of all Endesa's own generation during the first nine months of the year. Installed production capacity in renewable sources now accounts for 70% of the total, compared to 64% during the first half of 2021. In total, Endesa generated 39.9 TWh (terawatt hours) between January and September, up by 16% year-on-year.

The company is making parallel progress in the promotion of its renewable portfolio, technologies that now total 8,500 MW (10% more than at the end of the first half of 2021), out of a total generating capacity of 16,900 MW on the Iberian Peninsula. The portfolio of renewable projects comes to more than 80,000 MW. All new clean energy for 2022 is operational or being implemented, with 65% of all the new renewable capacity planned for the end of 2024, when the current strategic plan ends, under way by the end of September.

In addition to the foregoing, there has been another great success in 2022 concerning the fair transition strategy in traditional production areas with coal-fired plants to make the switch to renewable energies, storage, green hydrogen production and creation of shared value with institutions and organisations around these locations. After winning the fair transition tender in Pego (Portugal) during the first half of the year, at the start of October, Endesa was provisionally awarded 953 MW of the total 1,200 MW offered as part of the Andorra (Teruel) tender. The company has already submitted its application, as established in the specifications of the process, to be allocated the entire capacity available under the award. In other words, Endesa will lead the first two fair transition processes in the Iberian peninsula, placing it in a leadership position in the transformation of the energy system in Spain and Portugal.

Sustained growth in customer acquisition

In terms of the performance of the electricity supply market, Endesa has continued to consolidate the growth of its portfolio of free domestic and business customers, a trend that has been seen since the end of 2021. Thanks to its attractive commercial offer, the company has gained 1.2 million customers in the deregulated market, up by 21%, to reach the figure of 6.8 million in total, of which 400,000 are companies (up by one hundred thousand year on year). This positive trend has resulted in a 4% increase in the volume of electricity destined for this free portfolio, to 59 terawatt hours during the first nine months of the year. Meanwhile, the number of customers on the regulated tariff is 3.8 million.

In total, Endesa ended September with 10.6 million customers in Spain and Portugal, 4% more than at the middle of last year.

In terms of electric mobility, the company has maintained its leadership position in Spain as regards the network of charging stations, with 12,000 in total, 43% up on the 8,400 deployed in September 2021. Also worth note is the growth of e-home contracts, up by 30% over the past 12 months, to 2.6 million.

Concerning the strategy for selling its own generation (nuclear, hydroelectric and renewable) up to two years in advance, Endesa has already placed 100% of the generation expected in 2022, 90% of the amount corresponding to 2023 and 46% of what it expects to generate in 2024. In all cases, at a price of €65/MWh, in line with the government regulation in this matter which sets a limit of €67/MWh

The figures recorded by the distribution business, during a quarter marked by extreme weather conditions (heat waves or Cyclone Hermine in the Canary Islands), have also proved to be resilient. Energy distribution has increased to 102 TWh, up by 3%, of which 83.4 TWh has been consumed by own customers (2% more). Furthermore, the volume of electricity losses and the duration of supply interruptions have continued to see improvements compared to January-September 2021.

In the gas business, Endesa has substantially improved the total margin to €3.7/MWh. This business includes wholesale and retail operations, as well as the use of gas at combined cycle plants, demand for which has increased significantly. All of Endesa's long-term gas supply portfolio for 2022 has already been sold (including the consumption of combined cycle power plants), as well as 60% of its portfolio for 2023 and 29% of its portfolio for 2024. The company has also increased its customer base by 6%, to 1.8 million, of which 1.5 million (7% more) are in the free market.

José Bogas, Chief Executive Officer, had the following to say about these results:

"The deterioration of the macroeconomic scenario has not shown any signs of letting up during the third quarter of the year. The volatility in gas prices and wholesale electricity prices has seen the EU and Spain take short-term measures to mitigate the impacts of the energy crisis. As well as discussing other bolder proposals for the medium term. Against this backdrop, the strong performance of our deregulated business is a clear example of how our vertically integrated business model has helped us to overcome difficulties."

"In addition to this, the Extraordinary General Shareholders' Meeting to be held on 17 November will approve preventive operational and financial measures that will provide us with the necessary flexibility in case of new situations of extreme volatility on the energy markets in the short term. All this within the usual framework for related transactions with our parent company, Enel".

Financial performance

In comparable terms, EBITDA increased by 11% to €3.47 billion, thanks to the management strategy employed by the deregulated business (generation and supply), which has made it possible to overcome adverse market circumstances. Specifically, the EBITDA of this deregulated business enjoyed growth of 38%, to €2.34 billion.

This growth in the gross margin recorded by the deregulated businesses has allowed us to offset the drop in income recorded by the regulated distribution business, which has mainly been affected by the updated remuneration for the 2017-2019 period, negative re-statements from previous years and an increase in fixed costs of €56 million. In total, the EBITDA of the grids business contracted by 21%, to €1.13 billion.

Fixed costs grew by 8% in the first six months of the year as a result of the strong rise in inflation and the company's growth. This increase was partially offset by efficiencies achieved for the value of €34 million.

Ordinary net profit returned to the path of growth based on the strong performance of EBITDA, although in percentage terms, growth is substantially lower: just 1%, to €1.47 billion when compared to January-September 2021. This is attributable to the increase in impairment and depreciation costs; higher tax payments, with an effective corporate tax rate of 25.6%; and interest, since, despite the low cost of liabilities (1.1% on average), the volume of total debt increased to meet the higher requirements for financial guarantees in the organised derivatives markets in which Endesa operates.

The company's net debt amounted to €11.15 billion, up by €2.34 compared year-end 2021. This increase is attributable to the volume of investments (€1.58 billion, investments with cash criteria, unchanged compared to Sept 21), the payment of dividends in relation to 2021 (€1.53 billion), partially offset by the free cash flow of €600 million achieved during the first nine months of the year

The leverage ratio (net debt to EBITDA) stood at 2.3x, up from 2.1x at June 2021. The cost of debt remained low, with an average interest rate of 1.1% (four-tenths of a point lower than at the end of 2021).

The sum of gross debt reflects the impact of the extreme volatility seen during the third quarter on the international gas market, up from €14.3 billion at the end of the first half of the year to €21 billion. The guarantees (also known as collateral) required on organised gas markets to close purchase agreements in advance have skyrocketed and are an essential part of this increase.

Luca Passa, Endesa's Chief Financial Officer, told investors:

"The performance of EBITDA through to September is leveraged on the integrated business model against an extremely volatile energy backdrop. Specifically, the strong performance of the deregulated businesses, which, when combined, increased their gross profit by 38%, have made it possible to more than compensate for the lower EBITDA recorded by the Distribution areas, which has dropped by 21%. Net ordinary income has remained at practically the same level as in 2021. In short, our performance through to September has been solid and supports the achievement of our objectives for the whole year."