Generation and electricity sales:
Endesa’s power output in the January-March 2009 period amounted to 37,127 gigawatt hour (GWh), 2.1% less than the first quarter of 2008. Electricity sales were 42,509 GWh, down 3.7%. These decreases were the result of reduced electricity demand, mainly in Spain.
Despite lower output levels and lower prices in wholesale markets, both revenue (up 9.7%) and EBITDA (up 6%) increased.
This increase revenue took place despite reduced electricity output and lower prices in the wholesale markets, and was due to higher prices for deregulated customers in Spain, increased electricity output and sales in Latin America and increased electricity trading activity in wholesale markets, among other factors.
Variable costs also increased by 10.6% due to the increase in purchases in wholesale markets mentioned in the previous paragraph, which were partially offset by lower fuel expenses, mainly resulting from lower electricity output in the period.
The increase in revenue was more than sufficient to cover increases in both variable and fixed costs, resulting in EBITDA increasing by 6.0% to EUR1,729 million.
However, EBIT was EUR1,223 million, down EUR5 million, a decrease of 0.4% due to amortization and depreciation charges in the first quarter of 2009. These included EUR43 million relating to depreciation charges from October 1, 2007 to December 31, 2008 for assets which were not depreciated during this period as it was planned to contribute them along with other assets to a joint venture with Acciona; however, these assets were not finally sold to Acciona under the terms of the February 20, 2009 agreement.
Financial expenses EUR265 million (Down 15.3%)
Endesa reported a negative financial result of EUR265 million for first quarter of 2009 (1Q09), a 15.3% reduction compared to the same period in 2008.
Net financial expenses amounted to EUR249 million, 8.1% lower than in the first quarter of the last year, whilst currency fluctuations generated net losses of EUR16 million compared to net losses of EUR42 million in first quarter of 2008 (1Q08).
This decrease in net financial expenses is the result of a lower volume of debt in the first quarter of 2009 compared to 2008 and is also due to a 1.55 point decrease in the average cost of the group’s debt; this enabled it to offset the recording of EUR117 million of financial expenses in the period as a result of the increase in the current value of provisions, mainly those for early retirement programs, resulting from lower interest rates during the first quarter of 2009.
Cash flow from operating activities: EUR1,179 million
Cash flow from operating activities amounted to EUR1,179 million in the first quarter of 2009, a decrease of 3.8% due to the cash flow in the first quarter of 2008 including the assets sold to E.On in June 2008. The cash flow generated by the Spain and Portugal and Latin America businesses increased by 1.2% and 22.1%, respectively
Investments: EUR1,109 million
Endesa invested a total of EUR1,109 million in the first quarter of 2009. Of this figure, EUR565 million was capex and investment in intangible assets and the remaining EUR544 million corresponded to financial investments.
On January 8, 2009, Endesa acquired 20% of the electricity generating assets of the Irish public sector electricity supply board (ESB) for EUR440 million. The assets acquired have total installed capacity of 1,068 megawatt (MW) which is already on stream, divided up between four sites, and two additional sites with evacuation capacity of up to 300 MW. These represent around 16% of the Republic of Ireland’s total installed capacity.
In addition, Endesa invested EUR8 million in assets classified as held for sale.
Financial position
Endesa had net debt of EUR21,641 million at March 31, 2009, an increase of EUR7,638 million compared to December 31, 2008.
The increase in net debt was mainly the result of payment of an interim dividend on March 16, 2009 amounting to EUR6,243 million, which included payment to shareholders of the full amount of the capital gains resulting from the sale of assets to E.On in June 2008.
When assessing Endesa’s debt level, it must be remembered that at March 31, 2009, Endesa had the recognized right to collect EUR5,097 million in connection with several regulatory matters: EUR3,086 million for financing the revenue shortfall from regulated activities and EUR2,011 million in compensation for stranded costs in non-mainland generation.
Stripping out these regulatory items, Endesa’s net debt at the end of March 2009 was EUR16,544 million.
The average cost of Endesa’s total debt was 4.61% in 1Q09, while the cost of the debt corresponding to the Enersis group was on average 6.60%. Excluding Enersis group debt, the average cost of Endesa’s debt was 3.85% in the period
At March 31, 2009, Endesa in Spain had liquidity of EUR3,443 million, of which EUR3,065 million corresponded to undrawn sums on unconditional credit lines.
Since March 31, 2009 the group has signed an agreement for a EUR2,000 million loan and has extended the term of a club deal transaction for EUR1,280 million from 2010 to 2012. Taking these two transactions into consideration, liquidity at March 31, 2009, is sufficient to cover debt maturities for the coming 25 months for these companies as a whole.
Meanwhile, the Enersis group held cash and cash equivalents totaling EUR1,611 million and EUR644 million in undrawn, unconditional credit lines, covering debt maturities for the next 20 months.
Endesa’s long-term debt ratings are A- at Standard & Poor’s and A at Fitch, both with a negative outlook, while Moody’s A3 rating was under review for a possible downgrade.
Equity: EUR15,212 million
Endesa’s consolidated equity was EUR15,212 million at March 31, 2009, EUR5,552 million lower than at year-end 2008.
Of this amount, EUR11,381 million was owned by Endesa shareholders, and EUR3,831 million corresponded to minority shareholders of group companies.
The net equity corresponding to the shareholders of Endesa decreased by EUR5,701 million compared to December 31, 2008 as a result of the payment of the EUR6,243 million interim dividend agreed by the board of directors on February 20, 2009 and paid on March 16, 2009.
Financial leverage
The changes in group equity and net debt resulted in leverage reaching 142.3% on March 31, 2009, compared to 67.4% on December 31, 2008.
Following the payment of the interim dividend detailed in the previous section, the leverage ratio returned to normal levels, as the level at December 31, 2008 had been unusually low as a result of the group holding the funds from the sale of assets to E.On in June 2008 and not having distributed the capital gains from this divestment to shareholders.
Business In Spain And Portugal:
Net income – Spain and Portugal: EUR378 million
Net income from business in Spain and Portugal was EUR378 million in the first quarter of 2009, EUR59 million (13.5%) lower than the same period in 2008, contributing 74.3% of the company’s total net income.
This decrease was due to the following factors:
The effect of the after-tax income generated in the first quarter of 2008 by the assets sold to E.On in June 2008, which amounted to EUR23 million.
The EUR117 million financial expenses resulting from the increase in the current value of the provisions recorded in the consolidated balance sheet, mainly early retirement programs, resulting from lower interest rates during the first quarter of 2009.
Depreciation charges amounting to EUR43 million for the period October 1, 2007 to December 31, 2008 for renewable energy assets which were not depreciated during this period as they were to be contributed to a joint venture with Acciona but which were finally not sold to Acciona under the February 20, 2009 agreement.
