Endesa Sa Madrid

Good morning, ladies and gentlemen. Welcome to the first half 2023 results presentation, which will be hosted by our CEO, Jose Bogas, and the CFO, Marco Palermo. Following the presentation, we will have the usual Q&A session, open to those connected on the call and on the web. Thank you, and now let me hand over to Jose Bogas.

Thank you, Mark, and good morning, everybody. Let's start with the highlight of the period. During this second quarter, we have seen a gradual softening of the macro scenario in Europe with inflation showing some signs of moderation, despite which some rate hikes are still not ruled out. Energy markets have been characterized by falling gas prices that have resulted in a big relief in power prices, easing the need for further regulatory measures. In this context, we have recorded a strong operating and financial performance that gives us good visibility to meet the 2023 target. EBITDA, like for like, increased 27%, reaching €2.5 billion, while net ordinary income is up by 20%. FFO is robust and accounts for €1.6 billion, with a remarkable improvement thanks to the normalization of the negative market context that impacted working capital evolution last year. On slide number four, you can see the evolution of the main operational parameters across all businesses. Mainland renewables capacity amounted to around 9.3 gigawatts, an increase of 0.8 gigawatts over the last 12 months, with an emission-free output of 81% that allows us to cover around 76% of our fixed-price contract, reducing our sourcing costs, re-exposure, and improving profitability. Customer in the liberalized market increased, reaching a total of 6.9 million, consolidating our leadership backed by an appealing commercial offering in a scenario of still high and volatile prices. As proof of our commitment to boost electrification as one of our main strategic pillars, we continue to accelerate charging point deployments, reaching 16,600. increase of 50% in the last 12 months. In REITs, we continue to improve quality indexes. Time of interruption improved to 25 minutes, while RAP remains stable at around 11.4 billion euros. Let's keep diving into investment deployment on slide number five. Overall gross capital amounted to more than 1 billion euros, 12% higher than previous year. Around 80% of total investment had been channeled towards the strategic pillar outlined in our business plan. On the one hand, to develop new renewable capacity, and on the other, to optimize network operation through the improvement in efficiency, the adaptation of the network to new customer needs, and enhancing, at the same time, service quality and resilience. On slide number six, we summarize the evolution of the market dynamic throughout the period. During the second quarter, European gas references continued with a downward trend already seen in the past quarters. Behind this performance lies the combined effect of milder temperatures, weak industrial activity, and the ongoing gas saving measures endorsed by the European Union. TTF and PVV spot reference prices were, on average, 55% down year-on-year. Cumulated mainland demand fell by 4.8%, heavily affected by the combined effect of the reduction of the interconnection balance, the increase in self-consumption, that boom in 2022, and last but not least, the economic downturn affecting industry and SMEs. Endesa's mainland demand performed better and decreased by 3.8%, with services and residential segment trimming its demand by 5.3% and 4% respectively due to the aforementioned effects. The relative normalization of commodity prices The destruction of demand and the record levels of renewable output have resulted in a 57% fall in average spot power prices in Iberia. On slide number seven, sales to liberalized customer with our free power market amounted to 36 terawatt hour, with index sales decreasing by 2%. Fixed price sales were almost 80% baked by our CO2-free generation, ensuring the competitiveness of our customer energy costs and further reinforcing the commercial appeal of our integrated business strategy. Solid development of free power margin, which rates 58 euros per megawatt hour, almost doubled the previous year level, mainly resulted from the outstanding thermal margin, still benefiting from the favorable market environment. the higher price-driven output margin due to better achievement prices, supply margin normalization now returning to levels around 12 euros per megawatt hour, and finally, the positive result obtained in the management of our short position. Regarding forward sales, we continue steadily progress in hedging energy sales to fixed price customers for the coming years. a brief focus on the gas business. We are on slide number eight. Total gas sales decreased by 5%, mainly due to lower CCDT's activity and a slight decrease in gas sales compared to the previous year. This trend is in line with the demand contraction at country level, normalizing from the extraordinary levels reached in 2022. Total gas unitary margin increased It's slightly decreased year on year, reaching 0.8 euros per megawatt hour, showing that the favorable market scenario seen in the first quarter is normalizing. Volume heads of our sourcing contract come to 90% and 65% for 2023 and 2024, respectively. And now I will hand over to Marco, who will detail the financial results.

Thank you, Pepe, and good morning everybody. The soundness of our business model is clearly reflected in the strength of our financial performance, as detailed on slide 10. EBTDA stood at €2.5 billion, marking a solid 27% growth year-on-year in comparable terms, while net ordinary income came in around €900 million, 20% higher. Both figures show a normalization compared to the extraordinary results of the first quarter. FFO strongly improved by 1.8 billion euro, mainly due to the normalization of working capital, strongly impacted by the market context in 2022, as we will see later on. Moving now to the main drivers of the ABTDA growth, I am on chart number 11. The integrated business management that you can see in the spotted box in gray color represents the bulk of this growth with 867 million euro increase and notable 95% versus previous year. All of this was driven by a positive performance in supply, normalizing the margin from negative levels of the first half of 2022, as well as in conventional generation and renewable businesses. Distribution EBITDA slightly increased by 3% to €902 million. And lastly, the 1.2% extraordinary levy impact in Q1, as well as the positive effect of the social bonus sentence that we booked in the first half of 2022, are posted in the structured line of the P&L in grey colour on the chart. Moving into a deeper analysis, we are now on slide 12 on generation and supply business. EBTDA reached around €1.8 billion, doubling results of previous year, with an increase of the free power margin by €937 million, as Pepe has just commented, and additionally a slight deterioration in the gas business. If you look at the other margin, it remains almost flat with lower contribution of the non-mainland business, mainly affected by previous year resettlements and the recognition of higher fuel reference last year, mainly offset by the positive net impact of gas to market. And finally, fixed costs slightly increased, mainly explained by the inflationary context and higher activity. If we move to slide 13, distribution of ETDA increased by 3%, as we said, to €902 million, explained by the positive delta of gross margin due to the negative previous year's resettlements that we booked in the first half of 2022, and a slight fixed cost increase as a result of some positive non-recurrent booked last year and some CPI impacts. Let's now continue with the analysis of the results below EBTDA. I'm on chart number 14. Net ordinary income amounted to 879 million euro, up 20% compared to previous year, on the back of the positive dynamics commented at EBTDA level. DNA increased by 83 million euro year-on-year, mainly due to the higher investment in renewable distribution and retail products. and a slight increase in bad debt. Financial results increased by around €220 million, mainly explained by higher financial expenses as a result of the increase in average gross debt, coupled with a worsening interest rate scenario affecting the cost of debt, and a negative delta from the financial provisions update. Rise in income taxes by €51 million, mostly driven by the non-deductible revenue levy. And lastly, minorities decreased by €26 million. Moving to the cash flow, on slide 15, FFO recorded a sound improvement versus last year, reaching €1.6 billion in absolute terms. Deep diving into the main dynamics that positively affected the working capital, there was a significant improvement of half a billion euro in the regulatory working capital in the second quarter, mostly thanks to settlements cashed in related to the non-mainland system. positive impact as well of the net trade payables and receivables as a consequence of variation in energy and commodity prices recovering from the abnormal market context in 2022. And this was something that somehow we have highlighted in the previous quarter. All of the above was partially offset by higher income taxes paid, mainly from the increased result in 2022, and the payment of higher net financial expenses due to the increase in interest rates. Further improvement of FFO is expected over the rest of the year. If we now move on the debt evolution on chart 16, Net debt stood at €10.6 billion, decreasing by 3% versus the full year 2022. It should be underlined that the positive FFO already mentioned was more than enough to cover this period's investments. Gross debt decreased by 22% due to a sharp collateral requirement reduction of 53%. Moreover, as a consequence of the recent rising progression in interest rates, the cost of our debt reached 3%. Finally, our financial management reveals strong credit metrics in the period. Leverage, measured as net debt on EBITDA ratio, slightly decreased to 1.8 times, well below the industry average. And FFO to net debt ratio stood at 33%, increasing by 18 percentage points versus last year. Let me now hand over to Pepe for the final conclusions.