Endesa Sa Madrid

Good morning, and thank you for joining us today. Welcome to the full year 2023 results presentation, which will be hosted, as always, 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, Mar, and good morning, everybody. Let's start with the highlight of the period. Although last year was marked by a sense of gradual normalization, we still saw the negative effects of the extraordinary market and energy conditions since in 2022 that still impacted this set of results, which are barely comparable to the outstanding results obtained the year before. In this context, like for like EBITDA, which excludes the retroactive gas arbitration award and the provision for the utilization process, amounted to 4.4 billion euros, 18% lower than in 2022, heavily affected by a negative delta of non-recurring and extraordinary impact, which we will detail later on. FFO reached 4.7 billion euros with an outstanding recovery thanks to the successful actions undertaken throughout the year and the reversal of the dynamic that affected the working capital evolution last year. And finally, Endesa will propose for approval at the next General Shareholder Meeting, according to our dividend policy, the distribution to its shareholder of one euro per share to be paid in 2024, which represents a 6% dividend yield. On slide number four, you can see, you can clearly notice how the ongoing investment effort entailed a steady progress across our business segment main KPIs. Gross capex amounted to 2.3 billion euros in line with the previous year, with 72% devoted to our main strategic pillars that are renewable deployments and network digitalization. Our renewable capacity expanded to around 10 gigawatts by allocating 34% of total gross capex, which meant that emission-free output reached 80% of total mainland production. Our customer base in the liberalized market increased to 6.9 million, reinforcing our leadership position in the supply sector, resulting in a growth of fixed price power sales by 2 terabyte hour. Investment in resiliency and quality of our grid amounted to 40%, leading to an improvement of our main distribution business KPIs, the most notable being the five-minute reduction in interruption time. Likewise, cell consumption connected to Endesa's distribution network more than doubled in 2023 to 250,000 active suppliers, leading the number of connections implemented in Spain, thanks to several measures to ease the processing and improve customer information. On slide number five, we summarize how market dynamics evolve year on year. European gas revenues remain almost flat along the year, consolidating the 40 euros per megawatt hour down by 67% year-on-year, mainly due to the massive influx of American gas to Europe, coupled with the mild winter and high gas storage levels. Meanwhile, CO2 was very volatile throughout the year, although on average it performed quite similarly to the previous year. In Iberia, commodity price evolution and the still weak demand resulted in an average electricity spot price down 48% versus last year. This decrease would amount to 62% if we consider the implementation of the cap on gas for electricity prices in both years, which had hardly any influence during 2023. Mainland demand remains strongly influenced by the combination of the weak industrial demand and the unusually mild temperatures, as well as the increasing expansion of solar cell consumption. This year did not lag far behind 2022 in terms of the high degree of regulatory activism in the energy sector, as can be seen on slide number six, where we summarized the most recent outcomes both at European and Spanish level. Following the high price volatility of the last two years, and in order to provide the energy market with a greater degree of stability, the European Council, European Commission and Parliament reached a provisional agreement to reform the current electricity market design. While leaving unchanged, the basic functioning of the market focuses on the use of several instruments such as the promotion of PPAs on new renewable generation, the establishment of two-way contract for difference on new generation facilities, and the agreement to simplify the capacity remuneration mechanisms. In Spain, the government approved last December, first of all, the gradual energy taxes reintroduction, as well as the extension of current renewable deadlines. Regarding the 1.2% extraordinary revenue tax, amendments will be to incorporate deductions linked to strategic investment. As for gas cloaca and gas cap, both measures expired at the end of 2023. And finally, on distribution, the CMC recently announced the launch of the regulated work revision in December 2024 that provides for the methodology update of the financial remuneration rate calculation to adapt it to the challenges of the energy transition and enable efficient investment in networks. On slide number seven, it should be noted that we completed the closure of the last mainland coal plant, an important milestone resulting in a 27% reduction in our thermal installed capacity by year-end to 3.8 gigawatts, all of them CCGTs. Likewise, our focus remains on enhancing mainland installed capacity through renewable expansion. Over the past 12 months, we added approximately 600 megawatts, bringing our total installed capacity to around 10 gigawatts. As a result of the above, CO2 free sources now constitute 78% of mainland capacity. Total output decreased by 7%, mainly as a consequence of the normalization of thermal load factor after last year's extraordinary requirements. In turn, renewable production increased 18%, meaning that 80% of our production now comes from CO2-free technologies. Hydroproduction increased by around 40%. with a significant boost in the last quarter. Better hydrological conditions allowed for a relevant improvement in our reservoirs, which are now slightly above the previous year. And finally, regarding the parallel model, we are now in the final phase of the process for solar capacity in operation. Now, on slide number eight, In 2023, we have been able to consolidate our liberalized customer base, where we have close to 7 million customers, enabling us to lead the Spanish market in a context of record high share rate levels. Liberalized power sales remain stable, with B2C sales increasing 3%. offsetting B2B sales reduction impacted by the lower industrial activity. Remarkable operative performance in the offer of other services to customers where we kept growing both in the installation of recharging points and in self-consumption. Deep diving on our integrated strategy on slide number nine. Sales to liberalized customers within the scope of our free power margin amounted to 75 TWh, out of which fixed price sales increased by 3%, with around 75% of these sales backed by our CO2 free generation. The robust growth of our free power margin, a sound plus 24%, standing now at 52 euros per MWh, primarily derives from the following factors. First, the improvement of supply margin to a level around 13 euros per megawatt hour, benefiting from 2022 second half repricing, although penalized by higher ancillary service costs. Second, positive results, obtaining the management of our sole position. And third, a slight increase in generation margin, where the improvement in renewables due to higher volumes and better prices compensate the reduction in thermal after the extraordinary activity of 2022, and the decrease in nuke affected by lower production and higher variable costs. Looking ahead, thanks to our hedging strategy, we have already secured 2024 estimated information output, while for 2025, 84% has also been locked in and 53% in 2026, with an energy price reference in the range of 65 to 70 euros per megawatt-hour. If we factor the inertial rollover of the entire residential portfolio, we will attain 94% output hedge in 2025 and 80% in 2026, significantly reducing the exposure to power price volatility. Now, on slide number 10, let's focus on the gas business. Country-level demand dropped by 10%, while our overall gas sales decreased by 6%, largely explained by the normalization of CCDT load factors and a sharp decline of industrial demand in the Iberian market. Gas unitary margin. DECREASE FROM THE EXTRAORDINARY MARGIN OF 6.1 EUROS PER MW IN THE YEAR 2022 POSITIVELY IMPACTED BY THE GAS CONTEXT LAST YEAR TO A NEGATIVE 2023 ESSENTIALLY DUE TO FIRST THE IMPACT OF THE ABOVE-MENTIONED CONVENTIONAL DEMAND REDUCTION COMPARED TO CONTRACTED VOLUMES THAT RESULTED IN A NEGATIVE EFFECT and second, the inefficiencies that arose in the hedging strategy due to the exceptional and temporary mismatches between TTF and PBB. Both items can be considered exceptional, and we do not expect them to be repeated. The absence of these extraordinaries coupled with the high visibility in the volumes hedged allows us to foresee a 2024 margin recovering from previous year's exceptionality. And now I will hand over to Marco, who will detail the financial results.

Thank you, Pepe, and good morning, everybody. As we have already commented, the results evolution was strongly affected by a year 2022 with high record results, followed by 2023, which was heavily penalized by the market, context, and regulatory interventions, such as the gas clawback threshold or the 1.2 extraordinary revenue tax. As previously stated, EBITDA reached €4.4 billion, that is an 18% lower than previous year, on a comparable basis, while net ordinary income affected by the Retractive Gas Arbitration Award came in around €1 billion, that is 60% lower than previous year, explained by the lower EBITDA, higher DNA, and the increase in financial costs. On the other hand, FFO had an outstanding performance, reaching €4.7 billion, €3 billion up from the previous year, mainly explained by the recovery of the dynamics that affected the working capital evolution last year, as we will see later on. Turning now to the key drivers of EBITDA evolution, I'm now on slide 13. EBITDA like-for-like decreased by 18%, negatively impacted, first of all, by the delta of non-recurrent items for €322 million, due to the 1.2% extraordinary levy negative impact in 2023 and the social bonus positive effect booked in 2022. Both items recorded in the structure segments in grey colour in the chart. The generation and supply results decreased by 19% versus previous year, with a significant deterioration in relative terms of conventional generation, in particular gas margins, as I will detail in the next chart, and partially upset by the renewables increase thanks to higher volumes and better prices, and the positive performance in supply. Networks reached €1.8 billion, quite in line with 2022. Moving into a deeper analysis, we are now on slide 14. Generation and supply EBITDA reached €2.8 billion, down 19% compared to the previous year. First of all, bear in mind that EBITDA comparison must consider the non-recurring item for €113 million booked last year. The numbers also include a robust increase of the free power margin by €727 million, as Pepe has just commented, with all the businesses moving parts making a positive contribution. Gas business shows negative evolution for around €840 million when compared with last year's outstanding results. This negative performance is explained by the inefficient hedging in some derivatives, as mentioned before, the impact of lower-than-expected demand this year versus the contracted volume, and the higher sourcing costs. Other margin decreased by €350 million, mainly explained by the negative net impact of market-to-market in power and gas. and by a normalization of non-mainland business following an exceptional 2022, which benefited from positive resettlements. Finally, a slight increase in fixed costs, mainly driven by inflation and higher activity. On slide 15 now, distribution EBITDA saw a 3% improvement, to 1 billion 757 million euro owing a positive gross margin delta recovering from last year 180 million euro negative went off which was partially compensated by lower regulated revenues due to rub decrease and previous year resettlements with a non-recurrent nature and a slight increase in fixed costs mainly driven by negative provisions update I'll turn now to slide 16 to continue the analysis of the results below EBITDA. Net ordinary income declined 60% from the prior year to around €1 billion, reflecting the dynamics observed at EBITDA level and impacted by... First, the increase of DNA and provisions by €254 million year-on-year, mainly due to the investment effort carried in renewables distribution and retail, higher impairments in non-mainland generation assets, and the increase in bad debt figures due to a more cautious approach in view of the market and economic scenario. And second, net financial sell results increased of €380 million, driven by higher financial costs due to the worsening of interest rate environment affecting the cost of debt, despite the average gross debt reduction, and a negative delta from the financial provisions update, affected in turn by the expectation of a moderation in long-term interest rates. An income tax reduction of €588 million, consequence of the lower results year on year, whereas tax rate amounted to 29%, heavily affected by the non-deductible revenue levy. Finally, minorities decreased by €35 million. Moving to cash flow on slide 17. FFO reached €4.7 billion in absolute terms, showing a strong improvement compared to last year, explained by the outstanding working capital dynamics. In particular, two things. First, the significant regulatory working capital recovery, cashing in €2 billion from the negative peak attained in the first quarter, mainly thanks to non-mainland settlements, And second, a part of this effect, working capital improvement supported by the positive impact from net trade receivables and payable, thanks to energy and commodity price normalization, even considering the 208 million euro payment from the extraordinary levy. All this partially offset by the increase of cash out for taxes, a consequence of the 2022 extraordinary results, and by higher financial charges paid due to the worsening of interest rate environment affecting cost of debt. I will now move to debt evolution on slide 18. Net debt came in at €10.4 billion, an improvement of 4% compared to 2022. During the period, FFO contributed positively to net debt evolution for €4.7 billion, as commented before, which was more than enough to cover investment, and the dividend paid last July amounted to €1.7 billion. This improvement in net debt, together with the sharp reduction in collateral requirements, resulted in a sound gross debt decrease of 26%. Moreover, the cost of debt rose to 3.2% after the significant increase in euro interest rates in the first half of the year. Finally, our strong commitment on a strict financial discipline resulted into robust credit metrics at year-end. Net debt ABTDA leverage remains at healthy levels, while FFO to net debt ratio reached 45%. Regarding financial position on slide 19, following a quite volatile 2022, during 2023, we implemented a number of financial initiatives to strengthen our liquidity position, ensuring adequate levels to address the company's business plan in a challenging environment. As a result, we achieved a remarkable improvement of all the financial KPIs, Available liquidity amounts to 10 billion euro, which boosts the debt maturity coverage up to 27 months. Corporate debt maturities profile improved after signing several long-term operations reaching an average debt life of four years, which provides for a comfortable position to meet the 2024 sizeable maturities. Let me now hand over to Pepe for the final conclusions.