Stripping out discontinued operations, income from continuing operations attributable to ENDESA shareholders was EUR2,371 million, an increase of 5.8% on January-December 2007. This underlines the strong operating performance of the Company’s businesses.

ENDESA recognised a gross capital gain on these sales of EUR4,564 million.

This performance is also reflected in EBITDA, which totalled EUR6,895 million, and EBIT, which amounted to EUR5,234 million, with increases of 8.3% and 13.3% on the same period of 2007, respectively, despite the jump in the cost of raw materials for generation. Meanwhile, net income from continuing operations attributable to ENDESA shareholders grew in both Spain and Portugal (+7.8% to EUR1,873 million) and Latin America (+7.4% to Euro 506 million).

These strong earnings were achieved despite the significant rise in generation costs due to higher fuel prices in both the Spanish wholesale market and the Latin American market. In the case of Spain, the increase in costs was also affected by the rise in the price of CO2 emission rights.

Cash flow from operating activities totalled EUR5,214 million in 2008, down 1.9% on 2007. This decrease was due entirely to the decline in cash flow generated by the European subsidiaries sold to E.ON in June, as cash flow from activities in Spain and Portugal and Latin America increased.

A robust financial position

ENDESA had net debt of EUR14,003 million at 31 December 2008, a reduction of EUR6,831 million vs. 31 December 2007.

When assessing ENDESA’s debt level, it must be remembered that at 31/12/08, ENDESA had the recognised right to collect EUR5,138 million in connection with several regulatory matters: EUR3,034 million for financing the revenue shortfall from regulated activities and EUR2,104 million in compensation for stranded costs in non-mainland generation. These receivables increased by EUR1,753 million in 2008. Stripping out the amounts from these regulatory items, ENDESA’s net debt at December 31, 2008 was EUR8,865 million.

At 31 December 2008, ENDESA had a leverage ratio of 67.4%, i.e. 54 points lower than the ratio seen at year-end 2007, due mainly to the sale of assets to E.ON.

ENDESA invested a total of EUR4,150 million in 2008, excluding investment in assets held for sale. Of this, EUR3,613 million was invested in tangible and intangible assets with the remaining EUR537 million being invested in financial investments; of this latter amount, EUR324 million relates to the buying out of minority shareholders in the Peruvian companies Edegel and Edelnor as a result of the ex post facto takeover bids resulting from Enel and Acciona taking control of ENDESA.

ENDESA has been awarded 20% of ESB (Ireland)’s generation assets, namely four plants with operational capacity of 1,068 MW and two sites. These assets were acquired in January 2009 at a cost of Euro 440 million.

Interim dividend charged against 2008 earnings

ENDESA’s Board of Directors, at its meeting on 20/02/09, agreed to pay shareholders an interim dividend charged against 2008 earnings of EUR5.897 per share, bringing total shareholder remuneration to EUR6,243 million.

This dividend includes the payment of 100% of the net capital gains obtained by the Group in 2008, which totalled EUR4,556 million and EUR1,687 million in dividends to be charged against ordinary profit. This represents a 12% increase on the total ordinary dividend paid to shareholders charged against 2007 earnings.

Income from the business in Spain and Portugal

Net income from the business in Spain and Portugal was EUR2,217 million in of 2008, EUR432 million more than 2007. This figure includes income from discontinued activities, including both income from the sale of the Los Barrios and Tarragona plants to E.ON and after-tax income from both of these plants until the date of their sale.

Stripping out the result of discontinued operations, net income from continuing activities attributable to ENDESA shareholders corresponding to business in Spain and Portugal was EUR1,873 million in 2008, a rise of 7.8% vs. 2007.

EBITDA rose 3.7% to EUR3,930 million and EBIT advanced 6.4% to EUR2,834 million.

A difficult scenario

2008 was marked by increasing generating costs as a result of more expensive CO2 emission rights and higher fuel prices, although the latter fell sharply in the last few months of the year. The increase in generation costs triggered a 58.2% rise in average wholesale prices.

ENDESA sold 67.8% of its mainland output under the ordinary regime to deregulated customers, 16% in regulatory stipulated auctions and the remainder on the wholesale market.

Nonetheless, the revenues booked by applying the corresponding tariffs were reduced by EUR422 million under Royal Decree Law 11/2007, which stipulates that the cost of CO2 emission rights be netted from regulated generation revenues.

At the present date, the enacting regulations for Royal Decree Law 11/2007 have yet to be passed. Accordingly, in calculating this deduction, ENDESA used the same formula approved by the Spanish government to calculate the deduction applicable in 2006 and 2007 in accordance with Royal Decree Law 3/2006

However, ENDESA has appealed against the Ministerial Order approving the calculation method for the discount put forward in the Royal Decree 3/2006. In ENDESA’s view, the discount established in Royal Decree 11/2007 should be eliminated, and, in particular, it should not be applied to sales carried out via bilateral contracts aimed at deregulated customers as these sales do not generate a deficit for the electricity system.

Despite the significant rise in generation costs, the electricity tariff increase approved was only 3.3% from 1 January 2008 and 5.6% from 1 July 2008. As a result, it is estimated that the 2008 sector-wide tariff deficit amounted to EUR4,864 million. ENDESA stands to finance EUR2,148 million of this amount.

Lastly, mainland electricity demand grew 1.3% in 2008. This growth in demand was met from a 20.4% increase in energy generated from renewable sources, which accounted for 23.9% of the total, and a 1.5% decrease in ordinary regime output.

Operating highlights

ENDESA maintained its leading position in the Spanish electricity market in the year. The Company boasts a market share in ordinary regime generation of 32.2%; a 42.8% share of distribution; and a 43.1% share of sales to deregulated customers

ENDESA’s mainland electricity output totalled 88,190 GWh in 2008, 0.2% more than in 2007. Of this amount, 68,241 GWh corresponded to ordinary regime generation output, 0.9% lower than in 2007. ENDESA generated 3,587 GWh of energy from renewable sources, up 24.7% on 2007, while output in non-mainland systems was 15,002 GWh, an increase of 0.9%.

ENDESA distributed 119,529 GWh of electricity in the Spanish market through December, growth of 1.2%. The Company’s sales in the deregulated market rose 17.4% to 47,705 GWh

ENDESA sold a total of 39,653 GWh of natural gas in Spain in 2008, 19.3% more than in 2007. Of this amount, 37,744 GWh were sold on the deregulated market, an increase of 25.5%, whilst 1,909 GWh were sold on the regulated market, 39.5% lower than in 2007.

The 39,653 GWh sold in both the regulated and deregulated markets, together with the 26,258 GWh of gas consumed in ENDESA’s own generation plants, amount to a total of 65,912 GWh, implying a market share of 14.7%.

Quality of supply

The Company made further significant improvements in quality of supply in 2008, thereby continuing the positive trend seen over the past few years.

ENDESA’s system average interruption index (SAIDI) for 2008 was 94 minutes, an 11% improvement.