Endesa 9M 2012 Financial Results

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ENDESA, S.A. and Subsidiaries

Consolidated Management Report for the nine-month period ended 30 September 2012

Madrid, 8 November 2012

Analysis for the period

Consolidated results

ENDESA reported net income of Euros 1,662 million in the nine-month period ended 30 September 2012

ENDESA reported net income of Euros 1,662 million in the first nine months of 2012, 16.0% less than in the same period last year. This is largely due to lower remuneration in certain regulated activities in Spain and recognition in the first nine months of 2011 of the capital gain from the sale of ENDESA’s telecommunications and systems business to Enel Energy Europe, S.L.U. of Euros 123 million after tax.

The table below shows the breakdown of net income of both businesses and the year-on-year change:

ENDESA net income, January-September 2012
    Millions

of Euros

  % change

9M 2011

 

% of total net

income

Spain, Portugal and other   1,269   (13.4)   76.4
Latin America   393   (23.4)   23.6
TOTAL   1,662   (16.0)   100.0
     

Electricity generation and sales

ENDESA's generation in the first nine months of 2012 rose 5.8% year-on-year to 108,593 GWh, while electricity sales climbed 0.5% to 133,147 GWh.

Power output and sales, January-September 2012
    Output   Sales (1)
  GWh   % change

9M 2011

  GWh   % change

9M 2011

Spain, Portugal and other   60,808   6.2   78,831   (2.1)
Latin America   47,785   5.4   54,316   4.6
TOTAL   108,593   5.8   133,147   0.5
     

(1) Spain, Portugal and Other includes sales totalling 846 GWh. Latin America includes tolls and unbilled consumption totalling 9,919 GWh in the first nine months of 2012. Stripping out tolls and unbilled consumption, sales would have totalled 44,397 GWh (+4.3%).

EBITDA: Euros 5,457 million

EBITDA and EBIT in the first nine months of 2012 rose by 0.1% and declined by 5.1%, respectively, to Euros 5,457 million and Euros 3,648 million.

EBITDA was affected by the decline in Spain resulting from the Government’s measures to reduce regulated remuneration in place since the beginning of 2012, although this was offset by growth in the same business in Latin America.

In the first three quarters of 2012, revenues grew 3.5% to Euros 25,463 million, primarily due to higher sales prices. Variable costs rose by 5.1% as a result of a less favourable generation mix, with conventional thermal generation increasing relative to hydro output, thereby hiking up fuel costs. The cost of energy acquired for re-sale also increased.

Fixed costs amounted to Euros 2,870 million in the first nine months of 2012, broadly unchanged from the same period last year (Euros 2,850 million).

These factors combined to raise EBITDA by 0.1% to Euros 5,457 million as explained above.

Despite this increase in EBITDA, EBIT declined 5.1% to Euros 3,648 million. This is partly due, on one hand, to the write-down of the Group’s assets in Ireland to adapt their carrying amount to the agreed-upon sale price and, on the other, to the reversal of provisions in the business in Latin America in the first nine months of 2011 relating to the recovery of receivables for which provisions had previously been made.

The table below shows the breakdown of revenues by business, EBITDA and EBIT and the year-on-year change:

    Revenues   EBITDA   EBIT
 

Millions of

Euros

  % change

9M 2011

 

Millions of

Euros

  % change

9M 2011

 

Millions of

Euros

  % change

9m 2011

Spain, Portugal and other   17,442   2.2   3,073   (1.6)   1,836   (7.9)
Latin America   8,021   6.5   2,384   2.5   1,812   (2.1)
TOTAL   25,463   3.5   5,457   0.1   3,648   (5.1)
         

Net financial results stood at Euros 634 million

ENDESA reported a net financial loss for the first nine months of 2012 of Euros 634 million, a year-on-year increase of Euros 66 million.

Net finance expense totalled Euros 596 million, Euros 20 million higher than for the same period in 2011, while exchange rate losses were Euros 38 million compared to a gain of Euros 8 million at 30 September 2011.

When analysing net finance expense, the following factors should be taken into account:

  • The net financial result for 9M 2011 included a positive impact of Euros 63 million relating to interest recognised as a result of the two rulings handed down by the Spanish High Court in relation to Corporate Income Tax for the tax group headed by ENDESA in 1998 and 1999. Of this amount, Euros 27 million corresponded to the business in Spain and Portugal and Other, while Euros 36 million related to the business in Latin America.
  • The trend of long-term interest rates in the first nine months of 2012 and 2011 meant that provisions had to be adjusted to account for obligations from ongoing workforce restructuring plans for the sums of Euros 72 million (negative) and Euros 60 million (negative), respectively.
  • The net financial result for 9M 2012 included the Euros 23 million positive impact of adjusting interest relating to financing the revenue deficit for regulated activities in Spain, generated in 2006, pursuant to Royal Decree Law 20/2012 of 13 July, whereby the accumulated amount for this item is Euros 33 million.

Excluding the impacts mentioned above, net finance expenses would have declined by Euros 32 million (5.5%), due to the debt reduction over both periods and lower financing costs.

Assets held for sale

At the end of 2010 ENDESA started proceedings for the sale of its 100% stake in ENDESA Ireland, Limited, which culminated in the sale of this stake to SSE Generation Ltd. in October 2012 for Euros 286 million.

During the first six months of 2012, ENDESA wrote down Euros 67 million under “Depreciation and amortisation, and impairment losses” in the Consolidated Income Statement, in order to adjust the carrying amount of Endesa Ireland Limited’s assets, to the best estimated selling price.

Cash flow from operating activities: Euros 3,101 million

Cash flow from operating activities in 9M 2012 amounted to Euros 3,101 million, compared to Euros 3,005 million in the same period in 2011, representing an increase of 3.2%.

Investment: Euros 1,659 million

Investments totalled Euros 1,659 million in the first nine months of 2012. Of this amount, Euros 1,514 million related to capex and investment in intangible assets and the remaining Euros 145 million to financial investments, as follows:

Total investments in January-September 2012
    Millions of Euros   % change

9M 2011

 

Capex and

intangible

assets

 

Financial

investments

  TOTAL  
Spain, Portugal and other   729   49   778   (7.0)
Latin America   785   96   881   (0.9)
TOTAL (*)   1,514   145   1,659   (3.9)
     

(*) Excludes investments in non-current assets held for sale and in discontinued operations amounting to Euros 73 million, and the acquisition of the portfolio of gas customers in the Autonomous Community of Madrid for Euros 34 million.

Financial position

ENDESA had net financial debt of Euros 11,107 million at 30 September 2012, an increase of Euros 105 million compared to 31 December 2011.

Net financial debt by business line is as follows:

Breakdown of ENDESA’S net financial debt by business line (*)
    Millions of Euros  

% change

 

30

September

2012

 

31

December

2011

  Difference  
Business in Spain, Portugal and Other   6,451   6,841   (390)   (5.7)
Business in Latin America   4,656   4,161   495   11.9
Enersis Group   4,239   3,883   356   9.2
Other   417   278   139   50.0
TOTAL   11,107   11,002   105   1.0
   

(*) Net financial debt = Non-current financial liabilities + Current financial liabilities – Cash and cash equivalents – Financial derivatives recognised under assets.

The average cost of ENDESA’s total debt was 5.8% in the 9M 2012, while the cost of the debt corresponding to the Enersis Group was an average of 8.5%. Excluding Enersis Group debt, the average cost of ENDESA’s debt was 3.8% in the period.

When assessing the debt level, it is important to note that at 30 September 2012, ENDESA had the recognised right to collect Euros 5,852 million in connection with several Spanish regulatory matters: Euros 4,208 million for financing the revenue shortfall from regulated activities and Euros 1,644 million in compensation for stranded costs in non-mainland generation. Stripping out these regulatory items, ENDESA’s net debt at 30 September 2012 was Euros 5,255 million, Euros 367 million less than at 31 December 2011.

As of the date of this earnings release, ENDESA has informed the Deficit Securitisation Fund for the Electricity System (hereinafter “FADE”) of its irrevocable commitment to transfer all its collection rights for 2010, 2011 and 2012, amounting to a total Euros 2,962 million at 30 September 2012. The National Energy Commission has duly issued a certificate stating its compliance with these notifications.

On 26 October 2012, the FADE completed a further Euro 76 million issue (value date: 12 November 2012). Therefore, at that date, ENDESA is expected to cede deficit collection rights to the Deficit Securitisation Fund (FADE) for a total amount of Euro 34 million.

On 4 October 2012, the supplement to the Issue Prospectus filed by FADE on 24 November 2011 including these new irrevocable transfer commitments was registered with the Comisión Nacional del Mercado de Valores (the Spanish securities regulator or the “CNMV” for its initials in Spanish). This marks a step forward in the possibility of securitising the new amounts announced.

FADE has made two issuances after September 30, 2012: one closed on October 24, 2012, with a value date November 12, 2012, cash amounting to 76 million euros, and another issuance closed on November 7, 2012, value date on the November 16, 2012, cash amounting to 112 million euros. It is expected that Endesa will perform new assignments of rights linked to tariff deficit credit by a total amount of 83 million euros.

The table below shows the structure of the Group’s net financial debt at 30 September 2012:

Structure of ENDESA'S net financial debt at 30 September 2012 (Millions of Euros)
   

ENDESA and

direct subsidiaries

  Enersis Group   Total

ENDESA

 

Millions

of Euros

 

% of

total

 

Millions

of Euros

 

% of

total

 

Millions

of Euros

 

% of

total

Euro   6,792   99   -   -   6,792   61
US Dollar   66   1   1,725   41   1,791   16
Chilean Peso/Unidades de Fomento   -   -   621   15   621   6
Brazilian real   -   -   395   9   395   4
Other currency   10   -   1,498   35   1,508   13
TOTAL   6,868   100   4,239   100   11,107   100
Fixed rate   2,659   39   2,309   54   4,968   45
Variable rate   4,209   61   1,930   46   6,139   55
TOTAL   6,868   100   4,239   100   11,107   100
Average life (years)   4,5   5,3   4,8
   

ENDESA had liquidity of Euros 3,994 million in Spain, sufficient to meet the Group’s total debt repayments over the next 41 months. Euros 3,470 million of this amount was in undrawn, unconditional credit lines, of which Euros 2,600 million correspond to a credit line signed in November 2011 with ENEL Finance International, N.V. (hereinafter “EFI”), which had not been drawn down at 30 September 2012.

Meanwhile, the Enersis Group held cash and cash equivalents totalling Euros 1,282 million and Euros 695 million in undrawn, unconditional credit lines, covering debt maturities for the next 15 months.

As of the date of this earnings release, ENDESA’s long-term debt ratings are: Standard & Poor's: “BBB+” with a negative outlook; Moody’s: “Baa2” on Rating Watch Negative, and Fitch: “BBB+” on Rating Watch Negative.

The above text is part of Endesa’s Consolidated 9M 2012 Management Report. The complete report together with the Financial Statements and the Results Presentation for 9m 2012 can be found in Endesa’s web site www.endesa.com

Short Name: International Endesa
Category Code: MSC
Sequence Number: 351307
Time of Receipt (offset from UTC): 20121108T181838+0000

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