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Edited Transcript of ELE.MC earnings conference call or presentation 24-Feb-21 7:30am GMT

·42 min read

Full Year 2020 Endesa SA Earnings Call Madrid Feb 24, 2021 (Thomson StreetEvents) -- Edited Transcript of Endesa SA earnings conference call or presentation Wednesday, February 24, 2021 at 7:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * José Damián Bogas Gálvez Endesa, S.A. - CEO & Executive Director * Luca Passa Endesa, S.A. - CFO and GM of Administration, Finance & Control * Mar Martinez Endesa, S.A. - Head of IR ================================================================================ Conference Call Participants ================================================================================ * Alberto Gandolfi Goldman Sachs Group, Inc., Research Division - Head of European Utilities Research * Enrico Bartoli Stifel Europe, Research Division - MD * Harry Peter Wyburd BofA Securities, Research Division - VP and Junior Analyst * Javier Fernandez Garrido JPMorgan Chase & Co, Research Division - Head of Utilities and Senior Analyst * Jorge Alonso Societe Generale Cross Asset Research - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Mar Martinez, Endesa, S.A. - Head of IR [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen, and a warm welcome to the full year 2020 results presentation, which, as always, will be hosted by our CEO, José Bogas; and the CFO, Luca Passa. In the following slides, we will elaborate on the progress of our strategic plan according to its key strategic pillars. And then we will go through the full year operational and financial performance. Following the presentation, we will have the usual Q&A session. Thank you for your attention. And now let me hand over to José Bogas. -------------------------------------------------------------------------------- José Damián Bogas Gálvez, Endesa, S.A. - CEO & Executive Director [2] -------------------------------------------------------------------------------- Okay. Thank you, Mar, and good morning to everybody. Thank you for being able to join us today on such a full day of financial events in the utilities sector. We will try our best to speed up our presentation to allow for a maximum Q&A session given the time constraints. Let's start with the main highlights of the period. In 2020, we can take pride in delivering an outstanding set of results despite the extremely complex environment. Like-for-like EBITDA increased by 5% year-on-year, reaching EUR 4 billion, excluding the nonrecurring impact booked during the period. The provision booked so far and the related efficiencies set the ground for a higher degree of flexibility to meet future challenges. This excellent performance proves the resiliency of our business lines against extraordinary impacts. At the bottom line, net ordinary income reference figure for the dividend payment increased by 36%, up to EUR 2,132 million. Consequently, 2020 shareholder remuneration proposal to be approved in the next AGM will be the highest in Endesa since 2014. So we’re moving now to Slide #4. During this past year, we have win a significant achievement in each of our ESG main lines of action, proof of the success of the integration of sustainability into the strategy and operation. We are in a very advanced stage of incorporating the recommendation of the Task Force on Climate-Related Financial Disclosure, TCFD, in all of our reports. Evident of this is the top score awarded to us by CDP, Carbon Disclosure Project. On the subject of GHG emission, based on the acceleration of coal closure, we have achieved a record low specific emission level of 180 grams CO2 per kilowatt hour, well under our target of 277. In the context of the acceleration of our decarbonization plan, we believe that hydrogen green generation is a good complement to the energy transition. On the social side, we have focused on the development of Just Transition Strategy to secure employment in areas affected by closure always based on our self-value creation approach. On top of that, we have endowed and completed the EUR 25 million Public Responsibility Plan launched in March 2020 to mitigate the heavy labor and economic impact of the COVID-19 pandemic. We have also achieved a notable milestone in our action plan to promote gender diversity with the presence of women in positions of responsibility, reaching more than 30% of female director and setting a new more ambitious target of 40% by 2022. As a way of preserving the health and safety of our employees from COVID-19 infection, we have extended the smart working for more than 6,000 people. The recognition of all these achievements has resulted in increased presence and rank improvement in the most prominent ESG ratings worldwide. And also, ESG investors have increased their presence up to 15% of our total sales outstanding. Moving now to the delivery of the strategic plan and starting from the achieved financial target on Slide #5 EBITDA amounted to EUR 4 billion on a like-for-like basis, ahead of the EUR 3.9 billion target. Net ordinary income came in at EUR 2.1 billion, an increase of 36% year-on-year and also ahead of the EUR 2 billion target. These remarkable results have allowed us to propose a record dividend per share of gross EUR 2.014 according to our policy of 100% net ordinary income payout ratio. Gross CapEx dropped by 19%. This is explained by the fact that last year's figure included the extraordinary investment boost required to put into commercial operation the 2017 awarded auction project. To sum up, this year, we have performed outstandingly, exceeding set targets across the board. Moving to Slide #6. We can see how this set of good results comes in a year in which important steps have been taken in order to further promote decarbonization and electrification. Firstly, in November, a special new fund called national fund for the sustainability of the electrical system that is FNSSE was proposed. Finally, (inaudible) electricity tariff. We welcome this development and believe it will be a fundamental instrument to achieve the decarbonization of our energy system. Regarding the use of the funds from the European Union climate recovery fund, the government has defined a series of guidelines and leverage policies to allocate these resources across several sectors. Energy transition and digitalization will benefit from around 70% of these amounts. Within this context, Endesa has submitted a lease of 110 projects representing around EUR 19 billion of potential total investment on energy transition, renewables, energy efficiency, hydrogen sustainable transport and smart network. Additionally, a new framework on renewable auction has been set, targeting a minimum of around 20 gigawatts up to 2025. That is around 60% of the (inaudible) target for the period 2020 to 2025. In the first auction under the scheme (inaudible) in January 2021, a total of more than 3 gigawatts were awarded. Moreover, the CMC secular on grid tariffs has been approved, and the draft Royal Decree on regulated levies cost is expected to crystallize during 2021, allowing for a new methodology to encourage demand electrification. And finally, very recently, the Spanish energy storage strategy was approved, setting ambitious target of 20 gigawatts of storage capacity by 2030 and 30 gigawatts by 2050. We believe that this strategy is a good instrument, but it is key to advancing the definition of the capacity mechanism and the operating procedures for these kind of facilities. 2020, represented a significant landmark in the decarbonization of our generation mix as detailed in Slide #7. At the end of June, 2.1 gigawatt of Endesa's domestic coal fire generation was formally disconnected. Moreover, we are pending formal approval of the closure request for the remaining mainland imported coal power plants, which will be phased out during 2021. This represents a decisive step to fulfill our full decarbonization target. These closing plans also include several proposals for significant investment in new renewable energy facilities and potentially linked hydrogen projects in the surrounding areas. The overachievement of our specific emission reduction target translate into a decline of coal contribution in the P&L, which only represents now a negligible 1% of the total revenue. Advancing on to Slide #8, we can see the increase of around 0.4 gigawatts in mainland renewable capacity, which now represents around 45% of total mainland figure. We're on track to reach the 62% target set out in our business plan. We have reached a record renewable output of 13.3 terawatt hour. That is 33% increase versus 2019. Out of this production increase, 55% is due to the exceptional hydro output of this year. The rest being higher contribution from photovoltaic and wind generation. Emission-free production represented around 85% of the total mainland production, already reaching the target set for 2022 and well on track to reach 89% by 2023. Moving on to Slide #9. Increasing our pipeline of renewable projects has been particularly important in order to support our ambitious objectives and the potential participation in the new auction for the next 5 years. Our gross pipeline was boosted to 41.8 gigawatts. Out of which, more than 15% has TSO awarded connection points with a significant weight of solar of around 65% in net pipeline. As we have detailed earlier in the last Spanish auction under the new scheme, Endesa was awarded with 50 megawatts, which will be operative by 2023. In response to the ministry's call for interest in hydrogen to benefit from European Union funds, Endesa presented a plan to develop up to 23 projects. Expected investment subject to the concession of the European Union grants would amount to more than EUR 2.9 billion to bring 340 megawatts of electrolyzers capacity, online (inaudible) by around 2,000 megawatts of renewable energy, with a significant impact on the upgradation both in the construction phase and in the 20 years of maintenance work. When it comes to electrification, on Slide #10, the drop in Spanish demand has led to a 10% decrease in total gross sales, affecting mainly B2B, minus 14%, strongly hit by the economy the acceleration due to the COVID-19. Spanish industrial sales decreased by 13%, and SMEs run by 21%. B2C sales showed a lower decrease of 2%, mostly as a consequence of the mild winter and soft summer, the lower number of customer and the infusion of the SoHo segment, that is small office, home office, considering only domestic customer sales would have increased by 3%. Total power customer decreased by 2%, mainly due to the intensive competition in the sector. Against this backdrop, we have been able to reshape our mix to remain more valuable customers. Our objectives in B2C is to ensure our leadership through our clients' knowledge and the increasingly sophisticated range of products and services as evidenced by in the Única tariff which has been very well received and is, I would say, pioneering initiative in the sector. Our priority in the B2B cluster is to exploit our customization and consulting mobile to be the leading energy partner of industrial and SMEs. Another milestone regarding electric mobility has been the 42% boost in charging points up to around 7,100 deployed. This has allowed us to become leaders in public charging points in Spain, a step forward in our effort in demand electrification. Within our energy management in Slide #11, the unitary integrated margin resulted in EUR 33.9 per megawatt hour, showing a 20% increase versus the 28.3% of 2019. While electricity sales in the liberalized business decreased in Liberia – in Iberia by 11% in terms of volume, that is 9 terawatt hours, this margin increase was mainly supported by the positive management of the short position, which was partially offset by the slightly negative evolution of the supply margin affected by lower sales, but with a higher unitary margin and almost flat results in the generation margin. Regarding forward sales, we have hit for 2021, 90% -- 97% of our estimated price-driven output at a price of around EUR 71 per megawatt hour. Once we consider our total sales mix, the all-in revenue, including in index energy will reach EUR 66 per megawatt hour. For 2022, hedged volumes stand at 57% at a price of around EUR 73 per megawatt hour. All-in price and the estimated ordering revenue including index energy will be similar to 2021 once all of the estimated price-driven output has been hedged. In networks. I am now on Slide #12. Endesa's distributed energy slightly decreased by 1%. The significant accumulated investment effort has resulted in the maintenance of the RAB at a level of EUR 11.7 billion. This in turn has allowed for a sound improvement of all operational performance indicators of expert customer was trimmed by 2%. The number of interruption remained flat versus last year while the minutes of interruption indicator improved by 23%. In that sense, losses saw a sharp reduction of 4% -- 4 percentage points mainly thanks to the continuous implementation of the digitalization projects. All this shows our commitment to becoming a best-in-class digital network operator while maintaining a continued focus on quality and operational efficiency. Finally, diving deeply into 2020 investment on Slide #13. Overall, gross CapEx was equal to EUR 1.6 billion. Investment in renewables, mainly channeled towards new capacity development and investment in distribution, devoted to digitalization account for the lion's share with 67% of the total CapEx. After this challenging year, we expect to accelerate 2021 investment by 25% up to EUR 2 billion as announced in our strategic plan. Note that each business line has a direct impact on each of the SDGs 7, 9 and 11 and in turn on the wider scope of SDG 13, reaching a total of around 80% of CapEx allocated to climate action once aligned to the European Union tax only. All in all, more than 90% of our total development investment was devoted to our main strategic priorities, renewables and distribution. And now let me hand over to Luca Passa for the financial performance for the period. -------------------------------------------------------------------------------- Luca Passa, Endesa, S.A. - CFO and GM of Administration, Finance & Control [3] -------------------------------------------------------------------------------- Thank you, Pepe, and good morning, ladies and gentlemen. To start, I would like to comment on the market context for the period on Slide 15. During 2020, mainland power demand affected by the COVID crisis has fallen by 5.1% versus 2019 despite a progressive recovery seen since second quarter. Likewise, in this concession area, gross demand has softened the fall to 4.4% on not-adjusted terms and to 5% in adjusted terms. These figures are mainly driven by the drop in the industry and service segments, partially offset by the increase in the residential sectors activity. As far as prices are concerned, we experienced high volatility during the year. The progressive improvement in demand from second quarter and the strong increase of commodity prices in the second half of the year allowed that in typical recovery of pool price in the fourth quarter. Despite this, Spanish wholesale price averaged EUR 34 megawatt hour in 2020, the lowest ever recorded and showing a decrease of 29% versus 2019. Let's now move to the financial performance of the period on Slide #16. EBITDA stood at EUR 3.783 billion, decreasing 2%. On a like-for-like basis, once netted from the personnel provisions effects that will be explained on the following slide, the EBITDA increased by 5% to EUR 4.027 billion. Net income rose by 8x to EUR 1.394 billion impacted by the impairments of core plants booked last year worth EUR 1.1 million at net income level and the impairments of non-mainland assets in both years. Net ordinary income grew by 36% year-on-year, reaching EUR 2.132 billion. In the analysis on Slide 35, we have included the bridges from EBITDA reported to like-for-like and from net income to net ordinary income. Funds from operation reached around EUR 3 billion, down by 7% versus last year. Net debt increased to EUR 6.9 billion, up 8% versus full year 2019. Let's move to Slide 17, where we illustrate the nonrecurrent impacts on personnel costs. In addition to the provision booked in the 9 months 2020, in this last quarter, Endesa booked a new one of EUR 387 million regarding the initial net accrual personnel costs due to the restructuring plan relating to the digitalization processes. As it was the case with decarbonization plant personnel provision booked in third quarter, it will not have an impact on Endesa's 2020 dividend payment. In summary, provisions booked in first half 2020 and in second half 2020 sum up to minus EUR 244 million at EBITDA level and minus EUR 183 million at net income level. This provision will allow us to early retire a maximum of 2,200 full-time employees or about 22% of our workforce, providing the company with greater degree of flexibility, allowing for a further degree of efficiency to face future challenges. Moving to Slide 18 on the impairments booked during the period. As of 31st December 2020, the estimation of the recovering value of non-mainland assets which consider, among other aspects, the order on fuel references price (inaudible), resulted in an impairment loss of EUR 338 million. This is in addition to the impairment of EUR 404 million booked in 2019. Also in 2019, Endesa recorded an impairment for the entire net book value of the assets of the non-mainland coal fire power plants for an amount of EUR 1.366 billion. While in 2020 as a result of the update of these provisions, we booked a net reversal of EUR 17 million. Out of these impairments booked in 2020, EUR 356 million are not considered in the calculation of net ordinary income in accordance with the current dividend policy, so they have no impact on elimination of the shareholders' remuneration. Before moving to the detailed analysis of the period, let's take a look at the COVID estimated impact on our financial results. I'm now on Slide 19. The third wave of infections in the fourth quarter obliged the government to declare a new state of alarm. This new restriction adopted that caused an additional negative impact of about EUR 40 million today already booked EUR 81 million in 9 months’ results. Therefore, as of the end of December, we have estimated a net impact of EUR 120 million at EBITDA level. Out of which around EUR 30 million in mainland, mainly due to the sharp demand contraction. Net of this effect, EBITDA would have been up by 2% year-on-year. Moving down to the P&L, we recorded a negative hit on D&A of about EUR 50 million. All this translates to around EUR 130 million impact on net income level. Without considering these negative impacts, net ordinary income would have increased by 45%. CapEx has also been marginally affected while the impact in funds from operation amounted to around EUR 200 million. Moving to the retail analysis of the like-for-like EBITDA on Slide 20. Let me now briefly set out the main drivers. As already commented, once deducted and nonrecurrent effects are booked in the personnel cost, Endesa's EBITDA stood at EUR 4.027 billion, plus 5% versus 2019. Generation and supply EBITDA rose by 21% to EUR 1.782 billion, mainly supported by the increase in the integrated electricity margin and the lower fixed cost. Distribution EBITDA decreased by 4% at EUR 2.018 billion. Finally, non-mainland generation EBITDA reached EUR 227 million, a 50% increase -- decrease, sorry, year-on-year. I will comment on each business line performance on the next slides. On Slide 21, a quick follow-up on our efficiency program, which is consistently proving to be effective across all our business lines. Total like-for-like fixed cost reached EUR 1.979 billion, minus 4.2% versus last year. Efficiency and others and the positive effect of inflation more than offset the perimeter and growth effects on cost. The strong effort in renewables capacity development is leading to a slight increase in unitary fixed costs reaching EURO 17 megawatt hour in 2020 from 16 in 2019. This temporary rise will be reverted as the new capacity is brought into operation. In distribution, the digitalization initiatives of our processes and assets brought reductions of our operational cost with a drop of – to EUR 42 from EUR 43 end user of last year. Lastly, in supply, we have been able to maintain a flat cost to serve of EUR 11.1 customer as a consequence of leveraging on digitalization initiatives. The COVID backdrop has boosted the digital interactions with customers heavily. Finally, the new collective agreement signed with the unions is expected to bring stability and increased efficiencies in the upcoming years. Going deeper in the performance of the regulated business, I'm now on Slide #22. Like-for-like EBITDA decreased by 5% to EUR 2.245 billion, with a lower gross margin and slightly higher fixed cost by 2%. Distribution margin decreased by 4%, mainly due to the application of the new remuneration parameters of the second regulatory period. On the other end, it must be highlighted the improvement of adjusted fee costs by EUR 19 million, thanks to the positive impact from the update of the workforce provision and others. The non-mainland generation gross margin remained mostly flat, partially recovering from the negative fuel margin suffered during the first half of the year, thanks to a rebound in the commodity prices since the summer, allowing a relative normalization. Like-for-like EBITDA in non-mainland decreased to EUR 227 million, still 15% lower than last year, mainly due to the lower demand driven by COVID pandemic, offset by the positive regularization from previous years. Fixed costs increased mainly due to the provision booked in fourth quarter as a consequence of blackouts (inaudible) islands during the summer. On the liberalized business, on Slide #23, EBITDA reached EUR 1.782 billion, a sound 21% increase on a like-for-like basis adjusted by the personnel cost provision backed by a EUR 204 million improvement in gross margin while fixed costs dropped by 8%. The electricity integrated margin increase has been driven by the positive management of the short position, partially offset by the comparatively worse evolution of the supply margins affected by lower sales with higher unitary margin. The generation margin remained flat versus previous year levels, mainly thanks to better generation mix with plus 2.6 terawatt hours of higher price-driven output, the better procurement margins in the combined cycles and revenues increased from ancillary services. These were partially offset by the increase of the (inaudible) tax, the new Catalonian tax enforced since the first of July and the removal of the 7% generation tax in the first quarter of 2019. Enel Green Power gross margin reached EUR 326 million, plus 12%. EBITDA decreased 6% due to the increase in fixed cost, explained by the new capacity projects in constructions and the adding of new staff in 2020. In gas, gross margin reached EUR 215 million, showing a fast evolution versus 2019 despite the unfavorable context. This year has been characterized by the better reference of our sales compared to our procurement cost, much lower and the flexibility provided by our long-term contracts that allow us to benefit from purchasing gas in the spot market. Endesa X, contributes with a flat gross margin of EUR 118 million. Like-for-like fixed cost have experienced a very good evolution, decreasing by EUR 103 million supported by lower operational cost in core plants, structure costs and disciplinary proceeding. These better costs more than offset the COVID social responsibility fund and higher cost in Enel Green Power, as mentioned before. Moving now to the next slide on the P&L evolution from EBITDA to net ordinary income on Page 24. D&A decreased by 7%, once excluded the impairments on thermal assets and on the islands in both years. This decrease is mainly explained by the lower D&A triggered by last year impairments, partially offset by higher amortization in Enel Green Power and the adjustment of nuclear fleet useful life set on the nuclear protocol. Despite this increased cost by COVID, overall bad debt provision has decreased by EUR 8 million, mainly due to the lower sales in 2020, down by approximately 15% and EUR 30 million from other factors, notably from higher collection in B2B. Net financial results decreased to EUR 134 million, mainly driven by the impact of IFRS 9 on financial assets and the financial update of workforce and dismantling provision as rates fell by around 50 basis points in 2019 compared to a decrease of around 30 basis points in 2020. Results from equity investment and others improved to EUR 36 million, mainly thanks to the favorable court decision on Catalonian nuclear tax. Taxes increased year-on-year by EUR 338 million, considering the difference in the amount of impairments in both years and in the personnel cost provisions of this year. Excluding these effects, the effective tax rate would have been 22.5% versus 24.4% last year, mainly as a result of greater materialization of deductions for investment in the Canary Islands imported to the results and the realization of the 2019 tax return recorded in 2020. Finally, net ordinary income increased by a remarkable 36% over the period. Moving to the cash flow on Slide 25. Funds from operation decreased by 7%, reaching EUR 2.951 billion due to the following effects: flat EBITDA after provision paid; working capital and others worsened to minus EUR 227 million, mainly due to the COVID-related Royal Decree 11 of 2020; impact on residential customer supply cut; a reduction of contracted capacity, higher inventories and lower net balance of receivables and payables accounts as a consequence of lower volumes and commodity prices, mainly in coal and gas derived from the economic crisis; income tax paid decreased by 48% to EUR 229 million, mainly due to the higher corporate tax refund. The cash-based CapEx, 10% lower than the previous year, also led to a free cash flow to positive EUR 1.221 billion in this period, a slight 4% below than 2019. Given the worsening of the salary situation in the fourth quarter, final full year estimate of COVID impact in FFO has amounted to about EUR 100 million, which fully explains the delta of 7% versus last year. Let's now look at the net debt position on Slide 26. Net debt amounts to EUR 6.899 billion, EUR 5 million than the previous year, but lower than our guidance. This increase is mainly due to the payment of EUR 1.6 billion in dividends corresponding to the gross dividend against 2019 results. The regulatory working capital remained almost flat at EUR 875 million, which we expect to reach a normalized level of around EUR 600 million to EUR 700 million. Our leverage remained stable with a net-debt-to-EBITDA ratio at 1.8x, slightly higher than in the full year 2019. It is worth to (inaudible) the extraordinary low-cost of debt of 1.7%, then marks a new historical minimum and (inaudible) as the European activity with the lowest cost of debt. As a consequence of this healthy financial leverage, Moody's upgraded last month the long-term issuer rating of Endesa to Baa1 with stable outlook, and Fitch recently confirmed the A- rating with a stable outlook. And now let's give a more granularity on the sustainability finance on Slide #27. During 2020, Endesa is engaged in an intensive activity to boost sustainable finance with EUR 5.8 billion in sustainability-linked transaction. Some of these transactions have represented a major breakthrough in sustainable finance generally, namely the first listed corporate SDG Euro Commercial paper program in Europe and the first sustainability link confirming lines in the energy sector in Spain. Sustainable finance accounts for 45% of total gross financial debt. Considering solid third-party debt, this percentage increased to 76%. And now let me hand over to Pepe for his final remarks. -------------------------------------------------------------------------------- José Damián Bogas Gálvez, Endesa, S.A. - CEO & Executive Director [4] -------------------------------------------------------------------------------- Thank you, Luca. Our achievement rendered significant value creation for our shareholders, considering a 100% payout of net ordinary income in 2020, the Board of Directors will propose, subject to general shareholders meeting approval, total gross EPS payment of EUR 2.014 per share against 2020 results. After an interim dividend of EUR 0.7 per share paid in January, the final dividend of EUR 1.36 per share is expected to be paid in July 2021. This outstanding dividend is 6% above our updated DPS guidance and represents a 37% increase over last year DPS. Moving on to Slide #30, as shown throughout this presentation we can be proud of succeeding once again in beating the ambitious target we have set for 2020, considering that we had to face all COVID-19 headwinds. We believe that the figures presented today represent an important milestone in Endesa S.A.’s story, where we are laying the foundation that will allow us to fulfill our 2030 vision while delivering sustainable shareholder returns over the long term. To close this presentation on Slide #31, I would like to share some final remarks on our performance during the year. First, the continuous and timely delivery, once again, beating our financial targets. Second, the resiliency of our integrated business model based on coupling the stability of regulated EBITDA, a consistent liberalized business, a long customer position and a sound financial structure allowed us to overcome COVID impacts. Third, we are convinced of the adequacy of our strategy and are fully committed to an ongoing effort of (inaudible) to successfully address the challenge ahead. And last, in such a context the outstanding dividend yield in 2020 is the strongest evidence of sound value creation for our shareholders. And moreover, the sound set of results paves the way to an even higher dividend yield in 2021 of around 9%. And ladies and gentlemen, this concludes our full year 2020 results presentation. Thank you very much for your attention, and we are ready to take some questions. -------------------------------------------------------------------------------- Mar Martinez, Endesa, S.A. - Head of IR [5] -------------------------------------------------------------------------------- Okay. Thank you, Pepe. Thank you, Luca. Now we can open the Q&A session. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) -------------------------------------------------------------------------------- Mar Martinez, Endesa, S.A. - Head of IR [2] -------------------------------------------------------------------------------- So the first question comes from Harry Wyburd from Bank of America Merrill Lynch. -------------------------------------------------------------------------------- Harry Peter Wyburd, BofA Securities, Research Division - VP and Junior Analyst [3] -------------------------------------------------------------------------------- I appreciate we're tight for time here. So I'll just keep it to one question. Just on the unitary margins, and Luca, I apologize a little distracted with one of your peers whilst you were going through these particular slides. But I noticed that unitary margin, I think, was 34 for 2020. And I think as recently as November, you’d cut it to 32. That obviously sort of seems to set things up quite well as we go into 2021, but also you've had some very significant spikes in spot prices in the first quarter. So I apologize if I'm going over things that you already mentioned and I missed because I was distracted earlier. But could you just help us understand why unitary margin was so much better in the last few months of 2020 and what that means for this year's unitary margins, particularly in the context of the spot price spikes and, of course, good hydro volumes so far this year? -------------------------------------------------------------------------------- Luca Passa, Endesa, S.A. - CFO and GM of Administration, Finance & Control [4] -------------------------------------------------------------------------------- Sure, let me take this. Harry, this is Luca. Yes, unitary margin has been 34 now. As we mentioned, we had basically a contribution from what we call the managing of the share position of about EUR 200 million for the full year. Netting of this contribution, unitary margin will be in the EUR 31 megawatt hour. However, as you just said, good performance. And the last quarter has basically been very similar to the performance of the third quarter when it comes to the liberalized business. Now you need to take into account that the major effect on unitary margin besides the short position is volumes. So now to calculate, obviously, this number, we have lower volumes for the overall year that is in the range of 9 terawatt hours on sales, and that is what is affecting the increase in unitary margin. When it comes to 2021, our guidance for unitary margin is in the range of EUR 29 megawatt hour to EUR 30 megawatt hour and that is driven by the fact, obviously, of higher volumes expected, but also taking into account the evolution of pool price for the first part of this year. As we all observed, the (inaudible) that we experienced in January obviously affected the pool price heavily, but also affected commodity price and in particular, gas that is the driving technology when it comes to the marginal market in Spain. As far as the impact of this cold snap on – and in this now what I can mention as we entered the year with a slightly open show position, which was positive for about EUR 30 million. This EUR 30 million in terms of the position has been basically neutralized by stacking power prices, but we also put on some hedges on a long basis on some commodities, in particular, CO2 brand, which are yielding positively through the beginning of this year. So net-net between these 2 impact, I would say that we had no impact from the cold snap in the beginning of the year. So we're basically planning to hit between 29 and 30 depending on volumes, as unitary margins for 2021. -------------------------------------------------------------------------------- Mar Martinez, Endesa, S.A. - Head of IR [5] -------------------------------------------------------------------------------- Okay. Next question comes from Alberto Gandolfi from Goldman Sachs. -------------------------------------------------------------------------------- Alberto Gandolfi, Goldman Sachs Group, Inc., Research Division - Head of European Utilities Research [6] -------------------------------------------------------------------------------- I'll keep it to two myself. The first one is on supply market share. We are hearing that some of the oil majors are starting to gain up to 100,000 customers a week. So I was wondering if you can comment. I haven't had really time sorry to see the customer evolutions for you in Q4. What are you seeing in the early weeks of this year? And how do you plan to retain customers if you're losing them? Or how much would it cost to get new ones? So just a little bit high level, your strategy on customer evolution. And the second question, I mean, you have a very good slide detailing 42 gigawatt growth pipeline, your 3 billion hydrogen. It looks like we are hearing from some competitors of yours that the Spanish government is planning to upgrade the renewable 2030 target. And soon enough, we'll start to talk about beyond 2030. So I was wondering if you're still standing by your less than 1 gigawatt a year additions to 2030, which was seen as a disappointment last year at the CMD or if you're gearing up to grow well above that level? -------------------------------------------------------------------------------- José Damián Bogas Gálvez, Endesa, S.A. - CEO & Executive Director [7] -------------------------------------------------------------------------------- Okay. Thank you. Alberto, I will try just to give you some ideas, and then Luca could complement what I really have to say. First of all, with regard to the customer evolution, and let me say, the competitive landscape in Spain. Well, it is absolutely true that the competitive intensity in Spain during the last years and especially during the second half of the previous year 2020. And the beginning of the year is very important. And this is based just because we have a strong presence of small supply companies. And also, we have new entrants and new operator, mainly from the oil sector, but also coming from the telecom and new producer, renewable producer. And on top of that, there are the traditional incumbents. As I have said since mid-2020, a change in the competition landscape because the reaction of one of the main incumbents just trying to go ahead with a price war instead of doing what we think should be the answer in this kind of situation. Well, what we saw was an increase in the churn rate in free market, more than -- -- -- if I'm right, more than 4 points. And I think that competition will be even tougher than the one that we have today because while the new entrants -- and also, I would say this renewal generation looking to back their generation business with customers. So we are living in a very, very intensive competition. Having said that, well, we have been doing that, doing a lot of time. We, Endesa, remains being the market leader. And in that sense, we will have -- or we have a strategy that look for -- to retain or to maintain the market share more or less on our margins. That is the way which we think it should be answered. This situation being, as I have said, the main player that is defending our market share and margin. We neither want to -- nor are we interested in entering in a price war. To defend our market share, our margin, our strategy is based on the value proposal adapted to the customer with a maximum personalization, focus on loyalty and retention and our commercial capacity, trying to develop strength in the current channels, creating new channels, strategic alliance and corporate commercial campaigns. And also the third pillar, I would say, that it would be the efficiency because it's very, very important us to be to success in the future. All in all, I should say that we have lost in the free market more than 100,000 customers, but we continue increasing the value of our customer base. And with regard to the second question about -- if I remember well, about the renewables. But I have written here 42 gigawatts. -------------------------------------------------------------------------------- Luca Passa, Endesa, S.A. - CFO and GM of Administration, Finance & Control [8] -------------------------------------------------------------------------------- The pipeline. -------------------------------------------------------------------------------- José Damián Bogas Gálvez, Endesa, S.A. - CEO & Executive Director [9] -------------------------------------------------------------------------------- The pipeline. Yes. Yes, the pipeline. Well, I'm not sure -- excuse me, Alberto about the question, I don't remember well. But in any case, let me say, about our pipeline. Ah, now I remember, not also the pipeline about our ambitions in the future. Yes. Well, let me say, well, we set in our vision after the year 2030, that we will deploy more than 10 gigawatt. We explained indication of the presentation of our steel plan that it would be closer to 15 than 10 gigawatt, you have a very simple figures. That means something like 1.5, between 1 and 1.5 gigawatt each year. We will see what happened. I think that the best -- the national energy and climate plan in Spain is very, very ambitious and very challenging. But in any case, very difficult just to really fulfill because it takes a lot of work for (inaudible). But we think that we are very well prepared with these figures between 1 and 1.5. Nevertheless, we will try to do our best to increase this figure if it is possible, but we think that we should be cautious and try to do our best. But Luca, could you really put figures, numbers or… -------------------------------------------------------------------------------- Luca Passa, Endesa, S.A. - CFO and GM of Administration, Finance & Control [10] -------------------------------------------------------------------------------- Sure. Yes, just some additional data on the first question. So churn rate on the free market for electricity and gas in 2020 has increased from 9% to 13.2%. And when it comes only to power customer, has increased to -- by 4.7 basis points to 14.4. So competition is clearly increasing. The total customer loss in power for us has been 215,000 customers, and the trend, I think is clear also for 2021. Obviously, as Pepe said, we have, let's say, an action plan in order for us to retain our market share. When it comes to renewables, let me say that in our industrial plan, we point out 3.9 gigawatt of additional capacity in 3 years, with, let's say, a trend that goes from 700 this year to 1.4 gigawatt next year to 1.7 in 2023, which means an average yearly installation rate of 1.4. The ambition for us is to maintain this average installation rate beyond 2023, which will lead to the 15 or more than 15 gigawatts that Pepe was mentioning before 2030. And when you compare this with the same ambitions of other players which recently have plans, I think we are far ahead of everyone. There is only 1 (inaudible) that gets closer to this installation rates for the forthcoming years. -------------------------------------------------------------------------------- Mar Martinez, Endesa, S.A. - Head of IR [11] -------------------------------------------------------------------------------- We have now Enrico Bartoli from Stifel. -------------------------------------------------------------------------------- Enrico Bartoli, Stifel Europe, Research Division - MD [12] -------------------------------------------------------------------------------- Two questions on my side. The first one is also -- is on net debt, EUR 6.9 billion, it was significantly lower than the EUR 7.3 billion that you guided in November. So I wondered what was better than expected. And if you can give us some indication of the expected evolution by the end of 2021 for net debt. The second one is related to this hydrogen project that you announced. Can you give us some details about the possible timing and the returns that you expect? I guess that there is almost nothing in the current business plan, if you can also confirm that. -------------------------------------------------------------------------------- Luca Passa, Endesa, S.A. - CFO and GM of Administration, Finance & Control [13] -------------------------------------------------------------------------------- Okay. Thank you, Enrico. I'll take the first one and leave Pepe to comment the second one. So net debt evolution, the better performance in 2020 has been mainly by a lower regulatory working capital towards the end of the year. As you probably remember, we have assumed EUR 1.2 billion. In the end, we are at EUR 900 million, and so that's there basically the improvement versus guidance. As far as 2021, we are guiding to EUR 8 billion on the net debt at the end of the year with an assumption of about EUR 900 million of regulatory working capital. And Pepe, you want to comment on the hydrogen plan? -------------------------------------------------------------------------------- José Damián Bogas Gálvez, Endesa, S.A. - CEO & Executive Director [14] -------------------------------------------------------------------------------- Yes. Thank you, Luca. Enrico, well, first of all, I should say that the hydrogen project in my point -- in our point of view, it will be a complement. Today, let's say, if the best way of the big organization of the economy which is the electrification. So hydrogen is a complement to electrification and not a competitor, let's say, to decarbonize and have (inaudible) sector, I would say. The second thing is that it is real that now it is expensive just to use the so-called green hydrogen. It's because it's around 2x the cost of this not green hydrogen production. So in the next -- in my opinion, in the next 3 years, we will see, for sure, the hydrogen will be one very important element in the future. But in the next 3 years, we will see how fast we will be able just to deploy this new project. Having said that, what we have presented to the Spanish authorities is 23 projects. Some of them based on the supply of this green hydrogen to final customer. Some of them, a very big one, especially in 3 areas, industrial areas. But also, we are looking for -- use this hydrogen in the island in the sense in two ways. One of them is just to allow a faster penetration of renewables in the island. And the second is it's possible just to replace the gas oil, the fuel that we are consuming by this green hydrogen. I think that we will see, as I have said, if -- when it would be possible just to implement that. And in my opinion, we will see these changes at the end of this decade because it would take some time just really to adjust prices, costs, et cetera. But it is very, very important to start working now just to prepare and to pave the way to this -- to the second half of the decade. -------------------------------------------------------------------------------- Luca Passa, Endesa, S.A. - CFO and GM of Administration, Finance & Control [15] -------------------------------------------------------------------------------- And probably, Enrico, just a few data on this point, so the 20 projects amount to a total of EUR 2.9 million of CapEx to bring basically 340 megawatt of electrolyzers and about 2 gigawatt of renewable energy additions capacity which is currently not in our business plan. The returns that we are seeking for these projects is the same returns we are seeking for the new generation capacity, so spread to work of about 200 basis points. This means that for this project to be in that ballpark, it needs more or less on average between 50% and 55% of basically grants through the Euro (inaudible) fund. So that's basically the plan. Nothing -- basically nothing is in our business plan until 2023. And obviously, these projects in terms of execution will depend on receiving the funds at the European level. -------------------------------------------------------------------------------- Mar Martinez, Endesa, S.A. - Head of IR [16] -------------------------------------------------------------------------------- The next question is coming from Jorge Alonso from Societe Generale. -------------------------------------------------------------------------------- Jorge Alonso, Societe Generale Cross Asset Research - Research Analyst [17] -------------------------------------------------------------------------------- Sorry. One question because we are running out of time. So I would just like to know what is the expected impact on EBITDA from all the provisions you have taken and by when we could see that additional EBITDA? -------------------------------------------------------------------------------- Luca Passa, Endesa, S.A. - CFO and GM of Administration, Finance & Control [18] -------------------------------------------------------------------------------- Thank you, Jorge. This is Luca. So obviously, we have took on several provisions. We have already a positive impact in 2020 of about between EUR 80 million and EUR 90 million of lower basically OpEx. This obviously will pan out in the following years. We have roughly, I would say, between EUR 50 million and EUR 60 million per year in terms of higher or lower personnel cost, obviously, depending on when people will exit the company. -------------------------------------------------------------------------------- Mar Martinez, Endesa, S.A. - Head of IR [19] -------------------------------------------------------------------------------- Next question comes from Sara Piccinini from Mediobanca. -------------------------------------------------------------------------------- Unidentified Analyst, [20] -------------------------------------------------------------------------------- Just one, please. It's regarding the first renewable auction, we have seen low prices awarded at a EUR 25 per megawatt hour. So how do you see the profitability of these projects? And are you willing to accept similar or lower prices at the next auctions? Or would you rather find another possibility for your new capacity such as BPAs or going merchant? -------------------------------------------------------------------------------- José Damián Bogas Gálvez, Endesa, S.A. - CEO & Executive Director [21] -------------------------------------------------------------------------------- Let me say, first of all, that it's a very good news, this EUR 25 per megawatt hour. To be honest, I am a little bit surprised with this very low price that is -- we are seeing because I think that in my opinion, we are thinking about prices along the life of these power plants, talking about solar, something lower than 35, but higher than 30 and talking about wind closer to -- close to 40. I would say something between 36, 37 to 40. So -- but these prices well, there are a lot of factors that should be considered, the live, the prices beyond the float years of the auction and many, many, many things. So well, again, first of all, it’s a very good news. We will see what's happened in the future. You should take into account also that more than 6.7 gigawatts was not included in the auction. So that means that with prices higher, let's say, than EUR 30 per megawatt hour. So we will see. But good news, a very good signal. And Luca, could you add something? -------------------------------------------------------------------------------- Luca Passa, Endesa, S.A. - CFO and GM of Administration, Finance & Control [22] -------------------------------------------------------------------------------- Yes. I mean in terms of, let's say, our stance, as you know, we won 50 megawatts at the higher price, and that's on the basis of the returns we're willing to accept on our projects. So we went into the auctions, requiring basically the same returns on the project that we hedge with our customer base. And that's why basically we are not willing at the moment to get to the median level of the prices of the last auction. -------------------------------------------------------------------------------- Mar Martinez, Endesa, S.A. - Head of IR [23] -------------------------------------------------------------------------------- Okay. Next question comes from Javier Garrido from JPMorgan. -------------------------------------------------------------------------------- Javier Fernandez Garrido, JPMorgan Chase & Co, Research Division - Head of Utilities and Senior Analyst [24] -------------------------------------------------------------------------------- Just a quick question on the active ruling of the European Court of Justice on the expanding 7% energy tax. What would be the impact for you, for your numbers if the tax were to be anew? And what would be the impact on the tariff and the system? -------------------------------------------------------------------------------- José Damián Bogas Gálvez, Endesa, S.A. - CEO & Executive Director [25] -------------------------------------------------------------------------------- Let me say, Javier, that, first of all, being honest, I think that the impact would be nothing in the sense that the 7%, in my opinion, that we have charged to the customer -- we have charged to the customers. So the real thing is that we are not -- we will not benefit for this change with the 7%. So we will see what happens or not and it would be, in my opinion, bad news for the system, but not for the rest of the companies and utilities. So trying to summarize this 7%, well, we will see what’s happened. -------------------------------------------------------------------------------- Mar Martinez, Endesa, S.A. - Head of IR [26] -------------------------------------------------------------------------------- Okay. This was the last question of our call. So thank you to all of you. And as always, our department will be available in case you need or you have some follow-up question. Have a nice day. -------------------------------------------------------------------------------- Luca Passa, Endesa, S.A. - CFO and GM of Administration, Finance & Control [27] -------------------------------------------------------------------------------- Thank you.