• The effort to reduce fixed costs (106 million euros), couple with lower variable costs due to a lower average cost of electricity and fuel purchases, have partially offset the negative impacts of the aforementioned revision of the Royal Decree draft, of regulatory measures and of the cost of 41.61% of the subsidised rate ("bono social") borne by Endesa.

• Net income from Endesa's Latin American operations stood at 464 million euros, a 9.9% decrease on the first nine months of 2013. This decline was driven by the substantial depreciation of Latin American currencies against the euro, and the extraordinary revenues posted in Argentina in 2013, that were not repeated in 2014. The tax rate increase on deferred taxes in Chile also had a negative impact on net income in the amount of 32 million euros.

• As a result of the above factors, Endesa net income declined by 21.4% on the corresponding period of 2013. Madrid, October 31st, 2014.- Endesa posted 1,219 million euros net income in the first nine months of 2014, a 21.4% decrease compared to the figure posted in the first nine months of 2013. 

Net income in Spain and Portugal declined by 27.1% to 755 million euros. This decline is largely attributable to the retroactive impact of regulatory measures including a change in the Royal Decree draft regulating revenues from extrapeninsular systems (with an impact of 114 million euros). Losses of 96 million euros were also reported from the stakes in Elcogas and Nuclenor.

Net income from the Latin American business was 464 million euros or 9.9% less than the figure posted in the first nine months of 2013. Such a decline was attributable to the substantial depreciation of Latin American currencies on the euro, and the extraordinary revenues posted by Argentina in 2013 that were not repeated in 2014. Another negative factor was the increase in the tax rate in Chile on deferred taxes reported in that country. Additionally, there was also a restatement of the amount to be recovered by distribution companies in Brazil at the end of the concession, resulting in a decrease in financial assets (144 million euros) and stranded costs for energy purchases by the Brazilian distribution companies not offset by the tariff in the first nine months of 2014 (106 million euros).

Endesa's power generation in the first nine months of 2014 stood at 96,811 GWh, a 0.1% increase on the first nine months of 2014, while electricity sales stood at 117,949 GWh, similar to the result posted in the corresponding period in 2013.

On October 23rd, the sale of the company's Latin American assets to Enel Energy Europe was finalized. This is why operations in Spain and Portugal are reported as "continuing activities" and operations in Latin America as "discontinued activities" in the information below.

Continuing activities (Spain and Portugal operations)

Electricity demand in the peninsula declined by 0.9% in the first nine months of 2014 compared to the figure posted in the same period in 2013 (+0.3% after adjusting for working days and temperature).

Endesa's mainland ordinary regime output totalled 42,570 GWh in the first nine months of 2014, 0.2% lower than in the corresponding period of 2013 due to lower hydro (-10.4%) and nuclear (-6.7%) output, which was almost entirely offset by higher output at its coal-fired (+13.7%) and combined cycle (+20.4%) plants. Power generation from extrapeninsular systems stood at 9,134 GWh, a decline of 1.3% on the first nine months of 2013.

In the first nine months of 2014, Endesa posted a market share of 37.2% in peninsular ordinary regime generation, 43.2% in distribution and 37.3% in sales to customers on the free market.

Revenues from continuing activities stood at 15,542 million euros in the first nine months of 2014, a decrease of 692 million euros on the corresponding period in 2013 (-4.3%). Of this amount, 14,707 million euros were accounted for by sales (-5.1%) and 835 million euros by other operating revenues (+12.2%).

As previously highlighted, the performance of Spain and Portugal operations was affected by the new draft Royal Decree regulating extrapeninsular systems, which Endesa received for comments in July. Said draft decree has a 259 million euro retroactive negative impact on 2012 and 2013 results. Endesa had already accounted for a 97 million euro impact for 2013, based on the previous Royal Decree draft, whereby the impact for the first nine months of 2014 was 162 million euros.

Additionally, Endesa's results for the first nine months of 2014 include the negative effects of certain regulatory and tax measures approved by the Spanish government in 2013 that were not reflected in results for the first nine months of that year and also 41.61% of the cost of the subsidised rate ("bono social") borne by Endesa, equivalent to a negative impact of 375 million euros.

All the above impacts, that are not related to ordinary business, have been at least partially offset by the following factors:

  • The company made a huge effort to achieve operational improvements, which at least partially offset the negative impact of all the measures applied since 2012, reducing fixed costs by 6.3% (106 million euros).
  • Meanwhile, the average electricity wholesale price declined by 4.6% during the period due to higher hydro and wind generation, resulting in a lower average cost of electricity purchased by Endesa.
  • Against this backdrop, sales in the free market in Spain and Portugal increased by 3.1% to 5,958 million euros.

Due to the above factors, EBITDA totalled 2,484 million euros, a decrease of 6.4% compared to the first nine months of 2013, while EBIT stood at 1,317 million euros, down 7.7%.

EBITDA posted in Spain and Portugal by Endesa would have remained stable excluding the retroactive effects of the new draft Royal Decree on extrapeninsular generation and in spite of the new measures contained in Royal Decree Law 9/2013 that came into force after closing the accounts of the first nine months of 2013.

Net income from Endesa's continuing activities amounted to 755 million euros in the first nine months of 2014, down by 281 million euros on the corresponding period of 2013, equivalent to a 61.9% contribution to Endesa's total net income.

Discontinued activities (Latin America operations)

Net income from Endesa's Latin America operations in the first nine months of 2014 stood at 464 million euros, a 9.9% decrease on the same period in 2013.

The trend in net profit from Latin American operations was due to the following factors:

  • The negative impact of the strong currency depreciation in Latin American markets where Endesa operates, resulting in a decline in net income converted in euros.
  • The lower results in the Argentinian distribution business: in the first nine months of 2013 a 333 million euro total compensation for cost variations not transferred to the tariff between 2007 and February 2013 achieved through the Cost Monitoring Mechanism (MMC) adjustment was recognized to Edesur. Such a compensation had a 94 million euro positive impact on 2013 net income.
  • Additionally, the amount to be recovered by distribution companies in Brazil at the end of their concessions was restated, resulting in a decrease in financial assets (144 million euros) and stranded costs for energy purchases by the Brazilian distribution companies not offset by the tariff in the first nine months of 2014 (106 million euros), although these costs must be offset in the following periods. Both measures had a negative impact of 81 million euros on net income in the period.
  • The decline in results posted by generation assets  in Chile caused by adverse hydro conditions and the halt of the Bocamina II plant, along with the impact on deferred taxes of the increase in the tax rate in the country which had a negative impact of 88 million euros (32 million euros on net income in the period).

These negative impacts were partially offset by the reporting of a tax revenue of 228 million euros arising from the recognition of a deferred tax asset due to the lower book value related to the tax value in Chile of Endesa's direct 20.3% stake in Enersis, since the prescribed requirements for not reporting this deferred tax ceased to apply when Endesa's Board of Directors received the proposal for acquisition from Enel Energy Europe on July 30th, 2014.

Financial position

Net financial debt of Endesa's continuing operations stood at 1,293 million euros as of September 30th, 2014, a decrease of 3,044 million euros compared to the figure posted at the end of 2013. In analysing this change, it has to be taken into account the transfer on July 31st, 2014 of the financial debt of the company's Latin American operations to discontinued activities.  Financial debt of Latin American operations amounted to 3,432 million euros as of September 30th, 2014.

As of December 31st, 2013 the net financial debt of Endesa's operations in Spain and Portugal stood at 1,435 million euros, therefore the debt posted by this business line declined by 142 million euros in the first nine months of 2014.

As of September 30th, 2014 Endesa still had collection rights amounting to 2,502 million euros related to several items provided for under the Spanish electricity regulation. Of this amount, 1,376 million euros were due to the financing for the revenue shortfall from regulated activities prior to December 31st, 2013; 427 million euros were due to the financing for the shortfall generated in the first nine months of 2014 due to the transitory imbalance arising from application of the new shortfall financing mechanism established in Law 24/2013 of December 26th; and 699 million euros in compensation for output in extrapeninsular electricity systems.

Cash flow and investments

Operating cash flow in the first nine months amounted to 2,485 million euros, compared to 2,315 million euros in the same period of 2013.

Operating cash flow from continuing activities in the first nine months amounted to 1,640 million euros, compared to 1,204 million euros in the same period of 2013. This increase was mainly attributable to improved working capital, which offset the lower income posted in the period.

Operating cash flow from discontinued activities amounted to 845 million euros in the first nine months of 2014, compared to 1,111 million euros in the same period of 2013. This decrease was mainly attributable to the lower income posted in the period.Endesa's gross investment amounted to 1,386 million euros in the first nine months of 2014, compared to 1,456 million euros in the same period of 2013.

Additionally, in the Latin America business (discontinued activities) companies were consolidated through acquisitions of equity stakes, for a total amount of 741 million euros, comprising the acquisition of an additional 50% in Inversiones GasAtacama Holding, Ltd. (227 million euros); the acquisition of 15.18% of Companhia Energética do Ceará, S.A. (181 million euros): and the purchase of an additional 39% stake in Generandes Perú, S.A. (333 million euros).

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