Endesa Sa Madrid

Good morning, everybody, and welcome to the first half 2024 results presentation, which will be hosted by the CEO, Jose Bogas, and the CFO, Marco Palermo. Unlike previous occasions, we have scheduled this call at this time in order to make it easier to follow the last number of conferences that are planned for today. 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 welcome to everybody. Let's start with the highlight of the period. During this second quarter of the year, we saw a strong performance of the main business figures in line with our expectations. which enabled us to achieve an EBITDA of 2.4 billion euros, almost in line with the first half of 2023, while net income decreased 9%. These results that we will break down hereafter, together with the high visibility we already have for the second half, strongly support the achievement of full-year guidance. FFO showed a positive evolution, reaching 1.2 billion euros, with a strong improvement compared to the first quarter, heavily affected by the Qatar award payment. All in all, FFO over net debt ratio stands at healthy levels. On slide number four, a brief detail of the main operational KPIs performance. Gross capex slowed down by 16% year-on-year as a result of a more selective capital allocation criteria. As an indicator of the transition of our generation model to a greener one, we expanded our renewable capacity to more than 10 gigawatts, which in turn allowed us to increase emission-free production to 90% of total mainland production, up from 82% of 2023. The intensification of competition in a context of sustained low prices has led to a reduction in our customer base. However, we were able to retain higher value customers while increasing the weight of our fixed price sales. In grids, we continue to progress on quality indicators. Energy losses improved by 0.4 percentage points, while interruption time remained flat. Slide number five illustrated market dynamic evolution year on year. Average electricity price in the first half of 2024 were 56% lower than last year. Volatility has been extremely high during the period and resulted from the combination of several factors. In a context of stable commodity prices, renewable sources accounted for around 60% of the energy mix, causing a deflationary effect on pool prices. Solar photovoltaic production reached record levels in Iberia, while hydroavailability increased significantly. On the other hand, mainland electricity demand displayed some signs of recovery, increasing by 1.3 once adjusted by water and calendar effect, despite the combined effect of mild water, low industrial activity, and energy savings initiatives. Demand in Endesa's area decreased by minus 1.4%, minus 0.8% adjusted, hindered by the contraction of energy-intensive industrial consumption, notably in chemical and metal activities, while the residential segment drop is mainly due to weather effect, which otherwise would have been rather flat. Finally, 2024 forwards for the remainder of the year are trading at 80 euros per megawatt hour, which transforms into a 60 euros per megawatt hour expected average price for 2024. For 2025 and 2026, energy forwarders are quoting at 70 and 60 euros per megawatt hour, respectively, recovering from the beginning of the year. Moving to PECSIS, and here summarizing main regulatory topics, the challenges of the energy transition, electrification, and digitalization of the economy are leading to the emergence of new demand from strategic agents and projects with a great potential to foster economic growth and employment. First, grids are set to play a key role in this new phase. Therefore, there is an ample consensus of the need to substantially speed up distribution investment to accommodate new connections. To this day, it has meant the forced rejections of a total 30 GW since 2020 at sector level. For all this reason, it is crucial to count on a fair and predictable remuneration scheme. Following the remuneration parameters implemented by other European countries, the average Spanish rate of return would yield between 7.3% to 8.7%. When it comes to the non-mainland system, one of the main concerns is the technological obsolescence of the generation fleet. The current regulatory scheme does not adequately support investment needs and does not provide the basis for technological renewal. Finally, regarding nuclear, the government has approved a 30% rise in the so-called NRESA tax. This increase is in excess of 20% increase applied in 2020. We believe this is disproportionate and seriously threatens the viability of the nuclear fleet and it is not aligned to the nuclear protocol. On slide number seven, a few more details on our generation mix evolution, where 78% of mainland capacity was represented by CO2-free technologies. Output during the period was marked by a significant increase in production from renewable sources, mainly thanks to higher hydroavailability in the first half of the year, which accounted for a 63% output increase. And finally, regarding the partnership model, at this moment we are in the final stages of concluding the sale of a minority shareholding of our operating solar portfolio, of which you will be informed in due course. now on slide number eight in a context of intensified competition fueled by the low prices recorded in the first half of the year general rate hit historical record highs resulting in a contraction of our liberalized customer base it is important to point out that we expect to revert this trend, not only due to the natural easing of the competitive scheme as prices gradually increase, as indicated by the forward prices, but also through a series of commercial initiatives aimed at increasing the loyalty of the most valuable customers. In fact, we have already started to see the beginning of this trend reversal, with the most relevant losses occurring in April and May, while in June and July they have been slightly lower. Liberalized power sales decreased 3% to 37 TWh, mostly affected by the decrease of B2B index sales due to the lower industrial activity. Deep diving into our integrated strategy on slide number nine, sales to liberalized customers within the scope of our free power margin amounted to 35 terabyte hour, with 81% of fixed price sales back by our CO2 free generation. A strong free power margin maintained at 58 euros per megawatt hour, which primarily derives from the following factors. First, the normalization in generation margin, where the reduction in thermal activity is mitigated by a better performance of the inframarginal production. Second, positive results obtaining the management of our short position, returning to more moderate level from an exceptional fair half 2023. And third, a sound improvement on supply margin to around 18 euros per megawatt hour, mainly as a result of higher underlying prices and lower sourcing costs and better sales mix. Looking ahead, thanks to our hedging strategy, We have already secured most of our 2024 inframarginal output, and 94% and 60% for 2025 and 2026 respectively, with an energy price reference around €60 per MWh. Turning to slide number 10, on gas business, total gas sales decreased by 20%. As a result, there was a significant drop in customer demand and a sharp decrease of CCGT load factors due to the reduced thermal gap on the period. Gas unitary margin decreased. increase from around one euro per megawatt hour in the first half 2023 to a more normalized around two euros per megawatt hour level with full year in line with full year forecast. Looking forward volume heads from our sourcing contract give us comfort not only to reach the 2024 margin target but also to provide protection for the coming years. And now I will hand over to Marco, who will detail the financial results.

Thank you, Pepe, and good morning, everybody. As previously mentioned, EBTDA reached €2.4 billion, practically in line with the first half of 2023, while net income came in at €0.8 billion, at some 9% lower than previous year. It is worth highlighting the boost recorded in Q2, both in EBITDA and in net income, compared to the same period of last year. Finally, FFO stood at €1.2 billion for the year to date, with a sound performance in the second quarter after a weak start of the year. Turning now to the key drivers of eBTDA evolution and I'm now on slide 13, eBTDA decreased slightly by 2.5%, where conventional generation resulted normalized in contrast to the rest of the businesses that showed a solid performance, as we will detail in the following slides. As you know, the structure segment in gray color on the chart includes the impact of the 1.2% extraordinary levy on revenues with a similar amount in both periods. Moving into a deeper analysis, we are on slide 14. Generation and supply EBITDA reached 1.7 billion euro, down 7% compared to the previous year, and showing a leveling off versus the 35% drop we showed in the first quarter. Looking at the moving parts of the evolution of the period, first, free power margin. Free power margin shows a normalization, as Pepe just commented on, driven by a moderation of thermal and show position margins, partially offset by renewable resources and supply margin expansion. Second, the gas business improved due to better results in the retail activity, while other margin declined primarily due to the absence of positive to market book last year, partially compensated by good performance in the non-mainland due to better fuel margin and the absence of previous year's negative resettlements. On slide 15 now, GREED's eBTDA improved by 6%, driven by first a gross margin in line with past year, And second, fixed costs and other improvement, mainly from the reversal of provisions for contingencies, as well as from reduction of maintenance and personnel costs. Few more details on the evolution of fixed costs, now in slide 16. Total fixed costs were 2% down versus last year. mainly explained by efficiency gains from cost control actions in line with our strategy, more than offsetting negative inflation and growth effect. In more detail, main lines of action focused on reducing O&M costs as well as personnel costs through a 3% reduction on the average headcount. The efficiency approach is spread across all business lines, and it is important to highlight the major effort made in staff and services, where operating costs share on the total fixed costs fell by three percentage points. Moving now to the analysis below eBTDA, I'm on slide 17. Net income came in at 0.8 billion euro, 9% down versus last year, or minus 12% at net ordinary income level, once the reversal of the provision for contingencies was deducted. This number mirrors the dynamics at the EBITDA level and is impacted by, first, the DNA increases mainly due to the investment effort carried out in renewables distribution and retail and the revision of the bad debt provision. Second, the lower net financial result on the back of lower average gross debt but in a context of higher interest rates. And third, finally, the tax rate reached almost 30%, heavily affected by the non-deductibility of the 1.2% tax booked in Q1. Moving to cash flow on the next slide, slide 18. FFO stood at around €1.2 billion lower than last year, mainly explained by the working capital that was €0.7 billion negative, mostly affected by the payment of the Qatar Award in Q1. Excluding this effect, it is worth noting the positive evolution of the underlying businesses throughout the quarter. A slight worsening of the regulatory working capital balance, since last year we had an important cash-in from pending non-mainland accumulated compensations, while in 2024 it slightly increased. And lastly, a positive evolution of income taxes cash outflows, while net financial expenses were in line with last year. Excluding the mentioned extraordinary gas award payment, FFO would have amounted to around 1.7 billion euro, higher than previous year and showing a strong cash generation throughout the period. On slide 19 now, net financial debt came in at 10.8 billion euro, 4% higher, reflecting our capex effort as well as the payment of the interim dividend in January. while gross financial debt remained almost flat. Moreover, cost of debt rose to 3.6%, increases versus previous year, as expected, and starting to normalize after the peak seen in Q1. Finally, our strong commitment to a strict financial discipline has resulted in robust credit metrics. where we maintain leverage levels below three times net debt over EBITDA and the FFO over net debt ratio at 40%. Let me now hand over to Pepe for the closing remarks.