Endesa Sa Madrid

Hello, good evening everyone. Today's first quarter 2026 results presentation will be led by our newly appointed CEO, Jan Armani, whom we warmly welcome today, together with the CFO, Marco Palermo. Before we start, let me remind you that after the presentation, we will have the usual keynote session. Thank you, and now let me hand over to Mr. Armani.

Thank you very much, Mar, for your kind welcome. I've only recently taken up the role of CEO, and I would like to ask you the indulgence for a brief settling in period. For this reason, during the Q&A session, I will take slightly a secondary role, giving the floor to our CFO that will answer questions. to all your questions professionally. Thank you very much for the understanding. The quarter delivered solid financial results, with the BDA growing 14% and net income rising 24%. The performance was primarily driven by the distribution business, which continues to to demonstrate its strength supported by effective and disciplined management of our grid and in the environment of the new regulatory framework. Once again, the period highlights the resilience of Endesa liberalized business model. Despite the environment shaped by the geopolitical uncertainty, the ongoing volatility of the energy markets Our strategy has enabled us to deliver consistent and robust results. Finally, the portal highlights the strategic importance of a well-diversified energy mix where renewables and nuclear generation, along with demand electrification, remain a key to strengthening the energy independence and ensuring price stability. These pillars are essential not only for the energy transition but also for increasing the resilience and the reliability of the systems and would add to contribute to the growth of Spain as a country. The strong operational and financial execution provides the necessary visibility and the confidence to confirm the full year guidance. With that, I will turn to the operational and financial developments of the period. On slide four, let me briefly comment on the operational evolution during the quarter. Starting with generation, the total output increased by 8% year on year, reaching more than 14 terawatt hours. The performance was primarily driven by higher renewable production, which was 18% compared to first quarter last year. Hydro output increased 13%, benefiting from very favorable rainfall conditions during the period, while our reservoirs stand at record levels. At the same time, wind and solar output grew 24%. Supported both by both higher installed capacity and solid resources conditions. Nuclear output was slightly lower, reflecting the scheduled reflowing outages. Overall, degeneration from not emitting technologies, including nuclear, accounted for approximately 87% of total peninsular production. At the same time, CCCT generation was materially higher, benefiting from the increased demand for backup services for the TSO. Meanwhile, the sales slightly decreased by 5% to 18 terawatt hours, mainly driven by lower index volumes on Iberia, mostly B2B customers, more exposed to market uncertainties and fixed price sales remain stable instead. Finally, the number of free power customers grew by 3% year-on-year to 6.4 million, including the contribution of Energia Collettiva, which added just about 300,000 customers annually. on power portfolio from the market perspective I'm now on slide 5 the current geopolitical tensions around the Strait of Hormuz have once again placed the energy market on the forefront of the debate while the distribution of commodity supply routes is certainly affected by affecting the global markets as far as gas is concerned. Strong US LNG flows into Europe have limited the impact if you see it on quarterly pricing levels compared to last year. TTF spot price averaged around 40 euro per megawatt hours in first quarter this year, representing 15% decline year on year. At the same time, the CO2 prices reached 76 euro per ton, up 4%. This evolution is not particularly linked to the energy crisis, but more into structural factors linked to the progressive tightening of EU ETS mechanism. and the introduction of the carbon border adjustment mechanism, the CBAM. As a result, the average variant pool price in the first quarter stood at 44 euros per megawatt hours, down 48% year on year. This notwithstanding the conditions, the crisis conditions on the commodities. These comparatively low price levels has helped to contain the power bills, absorbing the impact of exceptionally high ancillary services costs driven by the TSO-reinforced operation in dispatching since April 2025 blackout. From a cross-country perspective, Spain's average price remains very competitive when compared to main European economies, underscoring the reduced exposure to volatile prices thanks to the high share of renewable energy sources and a reliable nuclear fleet that contributes to reduced exposure. On slide six, we reviewed the demand evolution trends. Electricity demand at the start of the year keeps showing a growth trend consistent with the previous quarters. On adjusted basis, mainline demand grew around 1% year-on-year. which compares to 1.7% demand increase in these areas, mainly leveraged on a steady contribution from services, business, and residential consumption. The weak performance of industrial sector appears linked mainly to the uncertainty on the geopolitical scenario. In this context, the high level of network congestions across all major distribution nodes remain the critical concern for the future. As of April's last available figures, Spanish power grids saturation reached 90%, which largely hinders the connections of all these new demand vectors. It is clear that to unlock the potential that contains the total cost of energy, grid bottlenecks and inefficient system operations should be solved. Therefore efforts must be focused on providing comprehensive framework to foster required investments in distribution for network security and voltage management. I will now hand over to Marco for differential results.

Thank you. Thank you Gianni. So turning to slide eight. you can see the solid financial performance delivered in the first quarter of 2026. EBTDA reached €1.6 billion, representing a 14% year-on-year increase, like Gianni was mentioning, while net income amounted to €0.7 billion, up a strong 24% compared to last year. Net debt increased by €0.5 billion to €10.6 billion, with the net financial debt to EBITDA ratio remaining stable at 1.8 times. Moving now to slide 9, if we now focus on the main drivers behind the strong financial performance, EBITDA reached €1.6 billion, up 14% year-on-year, supported by, first, the network's EBITDA increase by 45%, representing approximately 200 million euro, mainly supported by the new regulatory framework and the effect of positive previous year resettlements from the update of some remuneration parameters. Generation and supply, EVTDA remained almost flat, driven by, on one side, stable renewables EVTDA, reflecting better volumes in the quarter, offset by the negative price effect from lower references. On the other side, flat customer EBITDA with resilience in gas business and power margin stability, although impacted by higher than expected ancillary services costs, as we commented before. And lastly, in conventional generation, EBITDA was almost flat, with the normalization of gas management margin offset by progress on the efficiency plan. Now on slide 10. These dynamics are reflected in the performance of our integrated power and gas unitary margins. The pre-power margin amounted to 54 EUR per hour, remaining flat year on year, despite higher ancillary services costs. Meanwhile, the gas unitary margin stood at 10 euro per megawatt hour, broadly in line with expectation, as it began to normalize from the exceptionally strong levels recorded last year. Moving now to slide 11, further below EBTDA, net ordinary income came in at 0.7 billion euro, 24% up versus the first quarter of 2025. reflecting strong operational performance and improving the net ordinary income to EBITDA conversion ratio to 44%. DNA remained flat at €0.6 billion as the lower bad debt offsets the increased amortization linked to higher investments. Financial results, almost flat year-on-year. lower cost of debt on one side that offsets the increase in average gross debt. And finally, the effective tax rate stood at around 20.5%. Turning to the next slide, I'm on page 12 now. Cash generation remains strong, with funds from operations standing at 1 billion euro and a cash conversion ratio of 65% FFO to BTDA. Over the period, net financial debt increased by €0.5 billion, up to €10.6 billion. This reflects dividend payments of €0.5 billion, together with the execution of the share-buy-back program, which generated a cash outflow of around €300 million. Gross financial debt rose by €1.2 billion, while the average cost of debt improved to 3.1%. And now I hand over to Gianni for the closing remarks.

Thank you, Marco. As we look at 2026 as a year, we do so with confidence in the strength and resilience of our business model, reflecting a solid visibility on earnings across all activities. We confirm our targets for the year, in EBITDA in the range of 5.8, 6.1 billion euros, and net ordinary income between 2.3 and 2.4 billion euros, supported by the following business drivers. First of all, generation and supply performance is sustained by a resilient model that relies on efficient edging strategy, significantly mitigating the exposure on market volatility and enhancing earnings abilities. In network, results are driven by the new regulatory framework that keeps certainties and by a successful management of the grid with continued focus on quality and reliability. At the same time, we remain fully committed on efficiency that is a key driver to generate value, progressing steadily in delivering an efficient and effective plan. To conclude the presentation, we would like to highlight the priorities that need to be addressed in order to meet the upcoming energy challenges. The current global context reinforces a clear message. Accelerating electrification and efficient renewable development within the carbonized mix is the most effective way to protect consumers and economies from geopolitical shocks, particularly in Europe. Electrification is not only central for the energy transition and for the environment, but also to long-term affordability, resilience, and security of supply. In parallel, investments in electricity networks need to be accelerated to accommodate structural demand, growth, and to ensure system reliability. Grids are the bottlenecks of the transition, enabling a renewable integration and strengthening overall system security. To make this possible, regulatory support is essential. In particular, approval to increase investment cap is critical to unlock CAPEX. required in distribution network and stability of regulation is even more important thank you for the attention I will now hand to Marco for the Q&A session the telephone Q&A session starts now if you wish to ask a question please press star 5 on your telephone keypad if you change your mind please press star 5 again on your telephone keypad

Please ensure your phone is not muted.

Okay. We'll start with a round of questions from our analysts, starting with the first question coming from Pedro Alves from CaixaBank. Please, Pedro, go ahead.

Good afternoon. Thank you for taking my questions. Three, if I might. The first one on the Spanish royal decree on the Greek investment card. Can you tell us the current status of the royal decree, the approval process? Has there been any formal engagement from you with the ministry since the CMD? Basically, I want to ask if you see a risk of the decree being eventually delayed, and if so, how would that affect your regulated asset base expansion trajectory towards your 2028 target? Second question on ancillary services. We are not seeing... any sign of normalization in technical restrictions. Actually, heavy electric data show quite the opposite. I think there was actually another important increase in the previous month. So, are these costs evolving according to your expectations in the plan and in your guidance? And how is this impacting your retail margins. Basically, and also, these extra costs are being progressively recovered in terms of customer pricing. And last one, very quickly, just a clarification on the distribution. Can you please quantify the effects of the settlements corresponding to previous years? Thank you.

Okay, so thank you very much, Pedro. And let me take the chance just to thank you all the people connected now. It's very late. It has been a long day for you guys. I know a lot of events and just you are together with us. So thank you very much. Pedro, so on the Spanish royal decree, we do expect to have news on that. um i would say if not before the summer after the summer so in any case during this 2026 i guess that what we are seeing after the publication of the the congestion on the different notes in the in the around the cities but in the different uh communidades autonomas clearly reflects the need for a development of CapEx on the distribution side and on the transmission side. So we get that this should somehow trigger this decree that has been announced by the government last year. So I mean, we do expect this either before the summer or right after the summer. Question number two regarding the ancillary services. So yes. You're right. There are no normalization signs. Actually, all the opposite. Now, we should remember two things. That in first quarter of last year, you know, we had no blackout. So, of course, in January, those tend to be, you know, months of deep impact because prices tend to be a bit lower. So, generally, the cost of ancillaries tend to be higher. Having said that, this level of costs, it's somehow higher than the one that we were foreseeing. So I would say that on one side, this is slightly higher But then on the other side, I guess that if you look at the results of the first quarter, the operative performance of the group is really, really strong. So despite this, that's probably the only thing that is going not as expected. I mean, all the rest is really compensating the rest. And regarding distribution, I mean, just to give you an idea, the level of extraordinary there, it's around 100 million euros. So if you have to net that, you know, also on the number that you have, this quarter lands at 1.5 in terms of ABTDA. So, I mean, also that I guess that it's a good indication of the good performance of the company. Thank you.

Okay, thank you, Pedro. Next question comes from Javier Suarez from Medianca.

Thank you, Mara, and good afternoon, and congratulations to the new CEO. Three questions. The first one is on the demand evolution. On slide number six, I'm interested to see the underlying trend that you see on the market. that justify the continuous increase on electricity demand that we have seen in 2025, also in 2026. And in this context, the company can update us on any ongoing discussion with upscaler for the development of new data centers. And then a second question is on the on the details on network saturation, you can divide your latest detail of that level of network saturation in the distribution network that can justify the increase on the existing regulatory caps on CAPEX. And the third and final question is on the CAISA that has been affirmed today after a very strong first quarter of the year. So the net income is representing more than 30% of the full year target. So I'm just questioning myself the reason why the company is maintaining that based existing guidance. Is that for the sake of being conservative at the beginning of the year, or there is any element that we should consider that should be making us being a little bit more conservative in the next few quarters? Thank you.

Thank you, Javier, for the clear questions. I will try to be clear as well. So on slide number six, regarding what we are seeing on demand, I guess that just to give you a bit more of color, what we are seeing and it's there is that the problems on the Strait of Hormuz and the war is somehow impacting strongly industry. So on the industry side, there has been a clear signal of reduction of demand, while on the other side, you know that the trends below the residential and services are still very strong and do not depend on that. On the data centers and hyperscalers, I guess that here the news is that the new decree that somehow is trying to take away from the current demand, the capacity demand that has been allocated, the projects that do not have a real execution phase or that are not so much decided yet. We think that all this should somehow allow for the good project, somehow allowing some space in the grid, and therefore giving potentially faster, more space to project like the series one on coming from the hyperscalers. So, I mean, that should, we should see this probably in a few months. But despite this, we still believe that, you know, clearly in the congestion, I go to question number two, The congestion level all around Spain, particularly around the big cities, but now it's in the entire community, the community that is autonomous, is so high, you know, passing the 90%, that basically the need for new investment is there and should be done. So we see positively the new royal decree because somehow it's trying to tackle the problem short-term. But, I mean, these... Somehow we have to take the chance just to do capex and resolving those problem medium and long term. And regarding question number three, on the net income, well taken. I mean, the short answer is, you know, we are conservative. This is the first quarter. So, I mean, it's... I guess that it's early just to discuss about, you know, whether reviewing the 2026 targets. Clearly, I mean, the quarter has been very solid, and therefore, I mean, but still, it's only the first quarter, so let's wait. Thank you.

Okay. We move now to the next question coming from Javier Garrido from J.B. Morgan.

Thank you. I will have two questions. The first is on the impact of the higher cost of ancillary services. There is a tradeoff in between higher generation revenues and lower supply margins, but I would assume that you will continue as you did last year to increase prices to pass through the high ancillary services cost. Is that a fair assumption? And if yes, when do you expect to neutralize the impact of these higher ancillary services costs on the integrated margin? And the second question is if you could quantify what would be the impact for Endesa from the suspension of the generation tax in Spain? Thank you.

Okay. Thank you, Javier, for the two questions. Actually, almost three. So, on the higher cost of ancillaries, yes, you're right. I mean, as we said, it's a bit higher of what we were thinking. As you know, we basically are somehow marginally exposed because the On the other side, on the generation side, we do not recover all of this. We are almost 30% of the market when it comes to as a supplier. So we bear the cost, 30% of the cost of the system. While when we move to the ancillary services, it's probably half of that. So there is always kind of an exposure. And... I would say that probably this is, just to quantify, I mean, still on the quarter it's a low number. It's a few tens of millions of euros. But, I mean, that's the difference. And despite this, the result of the quarter has been very good. When it comes to how long does it take just to neutralize all this, all of this. I guess that, unfortunately, it takes time. So, I mean, we started to do that, but we are exposed, and as we said, when we presented the business plan, we were seeing this somehow recovered at the end of the plan. So it takes us, it's not a matter of months, it's not a matter of years. So it will probably take a couple of years just to do that. And when it comes to the last one being on the On the generation tax, yes. So on the generation tax, basically all the changes that have been done are kind of neutral to us. The generation tax estimation is also there, I would say, when it comes to compensate this effect that I was mentioning on the higher ancillary costs. So also there are a few tens of millions. Thank you very much, Javier.

And now we have from .

Hey, good evening. Well, thanks for all the questions, and welcome to Gianni. Thanks, Marco, for all the great, for all the answers. The first question, to just clarify something, you mentioned a circa 100 million um i suppose one-off network resettlement um was that anticipated in guidance um to be recovered uh this year and to just to understand um whether that sort of contributes to the guide to the full year cover um or not um and um to be honest actually i think the other questions have already been asked so i'll leave it there hi rob so thank you very much for the for the question so uh

I would say that we were not expecting this level when we set the guidelines for the 2026, just to be clear on that.

Let me add what is the source of this, let's say, anticipated or non-anticipated coming. We worked a lot on transparency of our regulatory certifications, and this has effectively an impact on the years that have been certified, and we have, let's say, a recovery of the certification of the previous years that is coming with a slight delay, and that is The last one was what year?

The last one was 2022 and we have now a proposal of a final settlement of 2023.

Of 2023. And so we have been working a lot on our documentation that we sent to CNMSA and this is starting to work out. And the other element is linked to the change in the in the incentive scheme based on quality and losses which of course is a pie that has been shared between all the different players in the market and so part of this depends on our performance but also on the performance of the others by the way guys so I mean that

I guess that truly shows how, you know, how it's on the ball, our new CEO. I mean, so fully, absolutely fully is my previous activity. Exactly. And on the other side, that also shows how beautiful it is to go live on this stuff, such as to really get a feeling on things. Thank you.

Next, I guess that is the last question from the call, is Alberto Gandolfi from Goldman Sachs.

Hi, thank you for taking my questions, and welcome, Gianni, as well. Two questions are, one is on the churn rate. Can you tell us what are you seeing lately on the churn rate? Is there an acceleration before the phone, for lack of a better word, poaching is about to end, or quite the opposite? has the volatility in commodities, which has not really impacted the electricity prices in Spain, but has an impact on the churn rate. So if you can tell us what's going on and what you think is going to happen in the next few months. And the last one, just to be really, really, really clear, networks. Last year, in the full year, you had about 100 million, let's call it kind of no recurring, And now there's 200 million. So I'm trying to understand what is really the earnings power of this business before one-offs, regulatory, you know, compensation for previous years. Should we think this year underlying as 2.1 billion EBITDA and we use this as a basis for forecasting future years? So it's quite important we manage to clean this up, if you don't mind. Thank you so much.

Thank you, Alberto. And so, on churn, yes, we have seen in the market a super high level of churn, and we were anticipating that, given the new royal decree that somehow will try to prevent the high level of fraud that was in there, and given that it gets into operation in a few months, I mean, the level has been very high. Now, very, very recently... we are seeing this changing a bit. So it has been spiking and now just reducing. I don't know whether they're preparing for what it is about to come. And then on networks, yes, we're right. You know, when we presented the plan, we basically carefully set as a new reference approximately 2 billion for networks because there were 100 million of extraordinary there just to set the new number. I would say that probably now you can assume the 2.1 you were somehow mentioning.

Okay, thank you. At this point, we have tackled all the questions. I have received some through the web. but most of them have been addressed. Yes, one follow-up question coming from Pedro Cuadrado, JV Capital. He's asking about the evolution of the ancillary services, in particular the cost of the ancillary services during the first quarter. How do we expect the evolution during the year? And if we have in mind if it should be passed as a regulated cost. Okay, thank you.

Okay, so thank you for the question. I mean, here on ancillaries, I mean, we were mentioning before, the first years, the first months of the year generally are the ones with the higher impact. So particularly when the cost of electricity is kind of lower. You can clearly see at page five in February, for example, but also somehow in March. So it tends then to get lower along the year. So we do expect that the evolution will be probably very similar also to the other, with the same seasonality that we have been seeing also last year. And in terms of... whether this could be regulated. I mean, yes, we think it should be. I mean, there has been, I guess, on this at least 80 suppliers that have been somehow making this proposal. It is like this in the rest of Europe, apart from Portugal and Spain, and particularly now, I guess, that it's pretty much evident that it is regulated. a cost of the system, not really a cost of the suppliers or somehow to be borne by the suppliers. So thank you.

Okay. With this, we will finish the presentation. Just to thank you for your participation. As always, the IR team will be available in case you have any further questions. Thank you very much.