ENDESA Reports First Quarter Net Income of Euro 662 Million

CONSOLIDATED RESULTS ENDESA reported net income of Euro 662 million in 1Q08, a year-on-year growth of 4.6%. This figure does not include capital gains or other one-off items and therefore corresponds to 100% of the profit generated as part of the Group’s ordinary activities during the quarter. While the Spanish and Portuguese business accounted for 66% of total net income, the Latin American business was the fastest growing: it generated net income of Euro 128 million in 1Q08, up 33.3% on 1Q07. The table below depicts the breakdown of net income by region and the change year-on-year: ENDESA FIRST QUARTER 2008 CONSOLIDATED NET INCOME     Euro million   % chg. vs. 1Q07   % contrib. to total net income Spain and Portugal   437   -   66 Latin America   128   33.3   19.3 Rest   97   (3)   14.7 TOTAL   662   4.6   100 Generation and electricity sales Total electricity generated by ENDESA, excluding power generated by the power plants in the process of being sold to E.On, amounted to 37,941 GWh, down 0.8% on 1Q07. In addition, the plants to be sold to E.On produced 10,323 GWh of electricity during the quarter. Electricity sales, excluding power sold by the companies and assets to be sold to E.On, amounted to 44,137 GWh, 0.5% more than in 1Q07. ELECTRICITY OUTPUT AND SALES IN 1Q08 (*)     Output   Sales     GWh   % chg vs. 1Q07   GWh   % chg vs. 1Q07 Spain and Portugal   22,232   0.6   28,217   (0.7) Latin America   15,519   (2.6)   15,730   3.0 Rest   190   (14)   190   (14) TOTAL   37,941   (0.8)   44,137   0.5 (*) Excluding output and sales at companies and assets to be sold to E.On. Revenues growth (+28.1%) and stable operating expenses (+1.2%), despite higher generation costs The Company’s first quarter revenue amounted to Euro 5,450 million, a growth of 28.1% on 1Q07. Revenue growth was underpinned by higher sales prices driven up by higher generation costs, due to lower rainfall and higher cost of fuel and CO2 emission. As a result, variable costs increased by 67.5% between January and March 2008. Revenues growth was not sufficient to fully offset the growth in variable expenses due to a drop in revenues from the generation business in Spain as a result of the deduction from generation revenues of the cost of CO2 emission rights under Royal Decree 11/2007; the impact of this measure during the quarter totalled Euro 106 million. This regulatory factor meant that EBITDA fell 3.2%, or Euro 54 million, year-on-year to Euro 1,631 million. Nonetheless, EBIT advanced 1.2% to Euro 1,228 million because the 1Q07 depreciation charge included a Euro 61 million provision recognised to restate CO2 emission rights acquired by the Group from third parties to cover its emissions deficit to fair value. The table below breaks down EBITDA and EBIT by region and depicts the trend year-on-year.     Revenues   EBITDA   EBIT     Euro million   % chg. vs. 1Q07   Euro million   % chg. vs. 1Q07   Euro million   % chg. vs. 1Q07 Spain and Portugal   3,109   26.9   968   (4.3)   708   5.5 Latin America   2,019   18.9   660   (0.8)   518   (3.2) Rest   322   200.9   3   (62.5)   2   (71.4) TOTAL   5,450   28.1   1,631   (3.2)   1,228   1.2 Net Financial Expenses: Euro 271 million ENDESA reported net financial income of Euro 313 million in 1Q08, 42.9% more than in 1Q07. Net financial expense amounted to Euro 271 million, i.e., Euro 45 million more than in 1Q07, while currency fluctuations generated net losses of Euro 42 million compared to net gains of Euro 7 million in 1Q07. When comparing net interest expense year-on-year, it is important to remember that the increase in interest rates in 1Q07 triggered a Euro 50 million gain in this heading due to the reduction in the present value of provisions recognised, mainly to cover commitments assumed as part of early retirement programs. On the other hand, the fall in interest rates during the first quarter of 2008 led to a negative impact on this heading in this connection in the amount of Euro 10 million. Stripping out the impact of discounting provisions to present value, net interest expense would have fallen 5.4%. Income from discontinued operations: Euro 148 million After-tax income from discontinued operations totalled Euro 148 million during 1Q08, a year-on-year growth of 11.3%. The enterprise value of assets to be sold to E.On and classified as discontinued operations, set by investment banks, amounts to Euro 11,500 million. This value will serve as the basis for calculating the price to be paid by E.On. The debt associated with the assets to be sold and the value of the minority interests in some of the companies for sale must be netted from this figure. E.On accepted this valuation and the transaction is expected to close following completion of certain steps that need to be taken prior to the sale. Cash flow from operating activities: Euro 1,226 million Cash flow from operating activities amounted to Euro 1,226 million in the first quarter of 2008, a drop of 6.6% vs. 1Q07. CASH FLOW FROM OPERATING ACTIVITIES     Euro million   % chg vs. 1Q07 Spain and Portugal   608   (8.6) Latin America   452   7.8 Rest   166   (27.5) TOTAL   1,226   (6.6) However, net cash flows provided by operating activities, which includes the change in working capital, jumped 34.5% year-on-year during the first quarter of 2008 to Euro 1,447 million. Investments: Euro 634 million, 68.3% in Spain and Portugal ENDESA invested a total of Euro 634 million in the first quarter of 2008. Of this figure, Euro 534 million was capex and the remaining Euro 100 million corresponded to financial investments. INVESTMENT(*)     Euro million   Capex and intangible assets   Financial   TOTAL Spain and Portugal   341   92   433 Latin America   188   8   196 Rest   5   -   5 TOTAL   534   100   634 (*) Excludes capex at the companies and assets to be sold to E.On and expenditure on the renewable energy assets to be contributed to a joint venture with Acciona. In addition, ENDESA invested Euro 332 million in assets classified as held for sale. Of this amount, Euro 132 million corresponded to investment in renewable energy assets to be contributed to a joint venture with Acciona. Financial situation At 31 March 2008, ENDESA’s net debt, excluding net debt held with third parties corresponding to companies that will be sold to E.On, stood at Euro 21,479 million, an increase of Euro 647 million on year-end 2007. BREAKDOWN OF NET DEBT BY BUSINESS LINE     Euro million         31/03/08   31/12/07   Change   % chg. Business in Spain and Portugal   14,528   14,015   513   3.7 Business in Latin America   5,504   5,570   (66)   (1.2) -Enersis Group   4,873   5,014   (141)   (2.8) -Other   631   556   75   13.5 Rest   1,447   1,247   200   16 TOTAL   21,479   20,832   647   3.1 When assessing ENDESA’s debt level, it must be remembered that at 31 March, 2008, ENDESA had the recognised right to collect Euro 3,913 million in connection with several regulatory matters: Euro 2,061 million for financing the revenue shortfall from regulated activities and Euro 1,852 million in compensation for stranded costs in non-mainland generation. These receivables increased by Euro 528 million in 1Q08. Factoring in these regulatory items, ENDESA’s net debt at the end of March 2008 was Euro 17,566 million, just Euro 119 million more than at year-end 2007. The average cost of ENDESA’s total debt, excluding net debt held with third parties corresponding to companies that will be sold to E.On, was 6.16% in 1Q08, while the average cost of the debt corresponding to the ENERSIS Group was 9.59%. Stripping out Enersis Group debt, the average cost of ENDESA’s debt was 4.96%. STRUCTURE OF ENDESA’S NET DEBT     ENDESA and direct subsidiaries   Enersis Group   Total ENDESA Group     Euro million   % of total   Euro million   % of total   Euro million   % of total Euro   16,524   100   -   -   16,524   77 Dollar   29   -   1,928   40   1,957   9 Other currencies   53   -   2,945   60   2,998   14 TOTAL   16,606   100   4,873   100   21,479   100 Fixed rate   6,068   37   3,873   80   9,961   46 Hedged   1,544   9   168   3   1,712   8 Floating   8,974   54   832   17   9,806   46 TOTAL   16,606   100   4,873   100   21,479   100 Avg. life (years)   4.4   5.1   4.6 Although the table above indicates that 54% of ENDESA’s net debt is fixed-rate or hedged, ENDESA’s true exposure to interest rate fluctuations is just 33% since the regulatory receivables accrue interest at floating rates, thereby mitigating the impact of interest rate fluctuations on the Group’s interest expense. At 31 March 2007, ENDESA in Spain had liquidity of Euro 4,583 million, of which Euro 4,181 million corresponded to undrawn sums on unconditional credit lines. These balances are sufficient to cover maturities for the next 12 months. The Enersis Group also held cash and cash equivalents totaling Euro 796 million and Euro 365 million in undrawn, unconditional credit lines, covering debt maturities for the next 12 months. As of the date of release of 1Q08 earnings, ENDESA’s long-term debt ratings are A- at Standard & Poor's and A at Fitch, both on negative creditwatch, while Moody’s A3 rating was under review for a possible downgrade. Equity: Euro 17,998 million ENDESA’s consolidated equity was Euro 17,998 million at 31 March, 2008, Euro 868 million more than at year-end 2007. Of this amount, Euro 12,625 million was owned by ENDESA S.A. shareholders, and Euro 5,373 million corresponded to minority shareholders of Group companies. Equity attributable to shareholders of ENDESA, S.A. increased by Euro 636 million on year-end 2007, while equity attributable to minority interests rose by Euro 232 million. Financial leverage The increase in Group equity more than offset the increase in net debt to put leverage at 119.3% at 31 March 2008, down from 121.6% at 31 December 2007. Shareholder remuneration ENDESA’s Board of Directors has agreed to propose a dividend payment of Euro 1.531 per share against 2007 earnings, for a total of Euro 1,621 million, at the Company’s General Shareholders’ Meeting. Following payment on 2 January 2008 of an interim dividend of Euro 0.50 per share, upon approval of this proposal, the final dividend will amount to Euro 1.031 per share. Accounting presentation criteria Under the terms of the commitment assumed by Acciona and Enel in their condition as shareholders of ENDESA, in the coming months ENDESA will sell to E.On the bulk of its European assets outside Spain and Portugal in addition to the Los Barrios and Tarragona power stations in Spain. In addition, also in the coming months, Acciona and ENDESA will contribute their renewable generation assets to a joint venture which will be at least 51%-owned by Acciona. As a result of these agreements, IFRS 5 stipulates that in its financial statements for 1Q08 ENDESA present the effect of the balances and transactions involving these assets separately, as described in greater detail below, in line with the way its 2007 consolidated financial statements were presented: The consolidated balance sheet recognises the assets to be sold to E.On and those to be contributed to the joint venture with Acciona (classified as assets held for sale) in a single heading called "Assets held for sale”. The assets classified under this heading are not depreciated. The liabilities associated with these assets are also grouped into a single heading called "Liabilities associated with assets held for sale and discontinued operations”. The consolidated income statement recognises the after-tax income generated by the assets to be sold to E.On (classified as discontinued operations) in a single heading called "Income from discontinued operations”. The consolidated income statement for 1Q07 presented for comparative purposes has been modified relative to the one originally released to restate the after-tax profit generated by these assets during 1Q07 under the same heading. In the cash flow statement each heading includes the cash flows from assets reclassified as held for sale or discontinued.   Below follows disclosure of the cash flows generated by discontinued operations in 1Q08:   Cash flows from operating activities   Euro 257 million   Cash flows used in investing activities Euro (204) million.   Cash flows used in financing activities Euro (117) million. On another matter, in 2008 ENDESA decided to change the accounting criteria used to consolidate jointly controlled investments. These investments were consolidated using the equity method until 31 December 2007. From 1 January 2008 they will be accounted for by proportionate consolidation. The consolidated balance sheet at 31 December 2007, the income statement and the cash flow statement for the three months ended 31 March 2007 presented here for comparative purposes have been modified in relation to the originally issued statements in order to restate jointly controlled entities using proportional consolidation. ANALYSIS BY BUSINESS BUSINESS IN SPAIN AND PORTUGAL Net income - Spain and Portugal: Euro 437 million Net income from this business was Euro 437 million in 1Q08, in line with the year ago figure and equivalent to 66% of the Company’s overall bottom line. EBITDA fell 4.3% to Euro 968 million and EBIT rose by 5.5% to Euro 708 million. Highlights The Spanish electricity sector in general was characterised during the first quarter by a general increase in generation costs as a result of scant rainfall and higher fuel and CO2 emission rights costs. Higher generation expenses gave rise to an average increase in wholesale prices of 62.1%. ENDESA sold 54% of its mainland output under ordinary regime to deregulated customers: 17.2% in regulatory stipulated auctions and the remainder on the wholesale market. Nonetheless, revenues booked by applying the corresponding tariffs were reduced by Euro 106 million under Royal Decree Law 11/2007 which stipulates that generation revenues must be reduced because of the internalization of the CO2 cost. At the date of authorising the first quarter financial statements RD 11/2007 is not developed, anyway ENDESA’s financial statements was the result of applying conservative accounting criteria, in keeping with the principle of prudence. Endesa has used the same formula approved by the Government to calculate the deduction for 2006 and 2007 under RD 3/2006. However, Endesa has appealed this formula showing its disagreement. Endesa believes discount included in RD 11/2007 should be eliminated and specifically not be applied to bilateral contracts since these sales do not cause deficit. Should this criteria be considered, ENDESA’s discount would only amount to Euro 50 million therefore 1Q08 revenues and EBITDA would have been Euro 56 million higher. Despite the rise in costs, electricity tariffs were put up by just 3.3%. As a result, it is estimated that the first quarter sector wide tariff deficit amounted to Euro 1,146 million, that it is to say Euro 866 million higher than the accrued deficit in 1Q07. Of this amount, Euro 506 million corresponded to ENDESA. Demand for electricity in the Spanish mainland grew by 2.1% in 1Q08. This growth in demand was met with a 12.5% increase in energy generated from renewable sources, which accounted for 23.7% of the total, and a 3.1% increase in ordinary regime output, something which enabled a 599.4% surge in the export balance with international interconnections. Key operating highlights Maintaining leadership ENDESA maintained its leading position in the Spanish electricity market in the first quarter of the year. The Company boasts a 31.2% market share in ordinary regime electricity generation, a 41.8% share in distribution, 46.6% in sales to deregulated customers and 42.1% in total sales to final customers. Competitive advantages in generation relative to peers Nuclear and hydro powered energy represented 49.5% of the Company’s mainland generation mix, compared to 27.9% for the rest of the sector. Furthermore, the load factor at its thermal facilities was also higher than at its competitors: 69.2% vs. 52.2%, respectively. Further improvements in quality of supply The Quality Plan implemented by ENDESA over the last few years has led to a significant improvement in service supply quality and this was once again evident during 1Q08. The system average interruption duration index (SAIDI or TIEPI) for 1Q08 was 19 minutes, 26% better than in 1Q07. The twelve-month period from 1 April 2007 to 31 March 2008 reflected an improvement of 7.2%. These results were been achieved thanks to technical enhancements to ENDESA’s network, topology and management systems, and to significant investments carried out by the Company in recent years. Related capex in 1Q08 totalled Euro 191 million. In terms of customer service, ENDESA's retention rate for customers switching to the deregulated market is 102.1%, which implies that the net balance between customers captured and customers lost is positive. This rate is higher than that of its peers and reflects strong loyalty to the Company. Investment in renewable energies Last January ENDESA inaugurated the Alto Palencia I and II wind farms in the province of Castellón with combined capacity of 74 MW. These wind farms, in addition to the Mazorral, Cerro Rajola, Casillas I & II and Alto Palancia III wind farms (ENDESA holds stakes in all of them), form part of a 203 MW area known as "Zone 6” of the Valencia region’s wind energy plan which entails aggregate investment of more than Euro 200 million. ENDESA is participating in the Valencia wind energy development plan with a total of 498 MW divided among three areas to be developed over the next two years and which will require a combined investment by ENDESA of more than Euro 500 million. Proyectos Eólicos Valencianos S.A., majority-owned by ENDESA and whose shareholders also include Bancaja and Sedesa, is undertaking the construction and development of the wind farms. Carbon credit purchases Under the umbrella of its strategy to acquire carbon credits through participation in so-called Clean Development Mechanisms (CDMs) undertaken in developing economies, ENDESA has agreed to purchase 100% of the certified reductions in greenhouse gas emissions through to 2012 in three projects to be carried out at the Chinese company Jiangsu Shagang, which will involve cutting CO2 emissions by over five million tonnes in this period. The reductions obtained thanks to these projects are measured and verified by UN accredited bodies and may be used to meet European companies’ Kyoto Protocol greenhouse gas reduction targets. Revenues: Euro 3,109 million Revenues from business in Spain and Portugal totalled Euro 3,109 million in 1Q08, up 26.9% on 1Q07. Of this amount, sales accounted for Euro 2,882 million, a year-on-year growth of 21.4%. SPAIN AND PORTUGAL SALES     Euro million         Jan-Mar 2008   Jan-Mar 2007   Change   % chg. Mainland generation under Ordinary Regime   1,247   990   257   26 Sales to deregulated customers   677   558   119   21.3 Sales in auctions   198   -   -   NA Sales in the OMEL   478   440   38   8.6 Deductions under RDL 11/2007 and 3/2006   (106)   (8)   98   NA Renewable/CHP generation   91   69   22   31.9 Regulated revenues from distribution   516   498   18   3.6 Non-mainland generation and supply   633   454   179   39.4 Supply to deregulated customers outside Spain   53   88   (35)   (39.8) Gas supply   293   205   88   42.9 Regulated revenues from gas distribution   14   21   (7)   (33.3) Other sales and services rendered   35   48   (13)   (27.1) TOTAL   2,882   2,373   509   21.4 Mainland generation ENDESA’s mainland electricity output, excluding the power stations to be sold to E.On, totalled 18,202 GWh, 1% less than in 1Q07. Of this amount, 17,334 GWh corresponded to ordinary regime output, 1.3% less than in 1Q07. Meanwhile ENDESA generated 868 GWh of energy from renewable sources, a year-on-year increase of 5.5%. In addition, the plants to be sold to E.On generated 1,685 GWh of electricity in 1Q08. The average pool price rose 62.1% to Euro 71.51/MWh in 1Q08. The average sales price fetched at auctions, in which ENDESA sold 3,328 GWh of electricity in 1Q08, was Euro 59.5/MWh. The price trends detailed above, together with the 13.2% price hike applied to deregulated customers, led to a 35.5% year-on-year increase in mainland ordinary regime sales in 1Q08. However, recognised revenues rose by just 26% due to the deduction of Euro 106 million under Royal Decree 11/2007 compared to just Euro 8 million netted from revenues in this connection in 1Q07. Supply to deregulated customers ENDESA had 1,152,322 customers on the deregulated market at the end of 1Q08: 1,075,690 in the Spanish mainland market, 75,581 on the non-mainland systems and 1,051 in European deregulated markets other than Spain. ENDESA’s sales to these customers totalled 10,265 GWh in the first three months of 2008, up 6.5%. Of this amount, 9,513 GWh were sold on the Spanish deregulated market, an increase of 12.6%, and 752 GWh on other deregulated European markets, a drop of 36.4%. Sales to deregulated customers in Spain (excluding tolls paid to Endesa Distribución), totalled Euro 721 million, a 22.6% increase on 1Q07. Of this amount, Euro 677 million corresponded to the mainland deregulated market and Euro 44 million to the non-mainland system. Revenues from supply to deregulated European markets other than Spain amounted to Euro 53 million. The average selling price to end customers increased by 13.2%. ENDESA’s CHP/renewables generation Renewable and CHP companies fully consolidated by ENDESA generated 868 GWh in 1Q08, a year-on-year increase of 5.5%. ENDESA also has holdings in other companies which generated 226 GWh during the same period. Revenues from sales of renewable/CHP energy generated by consolidated companies totalled Euro 91 million, 31.9% more than in 1Q07. EBITDA in this segment rose 40.8% to Euro 69 million. Non-mainland generation ENDESA’s output in non-mainland systems was 3,650 GWh in 1Q08, a year-on-year growth of 3.8%. Related sales rose 38.9% to Euro 589 million, as sales prices internalised higher generation costs. Distribution ENDESA distributed 30,510 GWh of electricity in the Spanish market through March, a growth of 2.8%. Revenues from regulated distribution activities totalled Euro 516 million, up 3.6% on 1Q07. Gas distribution and supply ENDESA’s consolidated companies sold a total of 12,044 GWh of natural gas in 1Q08, a growth of 33.1%. Of this amount, 11,803 GWh were sold through fully consolidated companies, representing growth of 29.3%. Also, 10,759 GWh were sold to customers on the deregulated market, an increase of 34.3%, and 1,044 GWh to customers on the regulated market, 6.3% less than in 1Q07. The 12,044 GWh sold in both regulated and deregulated markets, together with the 6,120 GWh consumed in ENDESA’s own generation plants, amount to a total of 18,164 GWh, implying a market share of 14.3%. Revenues from gas sales in the deregulated market rose 42.9% to Euro 293 million in 2007. Other operating revenues Other operating revenues in 1Q08 came to Euro 227 million, Euro 150 million more than in 1Q07. This heading includes Euro 150 million corresponding to the 1Q08 portion of CO2 emission rights allocated to ENDESA within the scope of the Spanish National Allocation Plan for emissions (NAP), which are recognised under revenues. This figure is Euro 139 million higher than that recognised under revenues in 1Q07, due mainly to the sharp increase in the market price of these rights. However, this jump in revenues was fully offset by the higher expense recognised for use of the emission rights allocated under NAP. Operating expenses The breakdown of operating expenses in the Spanish and Portuguese business in 1Q08 is provided below: OPERATING EXPENSE IN SPAIN AND PORTUGAL     Euro million         1Q08   1Q07   Change   % chg. Purchases and services   1,617   941   676   71.8 Power purchases   452   253   199   78.7 Fuel consumption   638   472   166   35.2 Power transmission expenses   151   136   15   11 Other supplies and services   376   80   296   370 Personnel expenses   304   297   7   2.4 Other operating expenses   246   239   7   2.9 Depreciation and amortisation   260   341   (81)   (23.8) TOTAL   2,427   1,818   609   33.5 Power purchases Power purchases jumped 78.7% year-on-year to Euro 452 million. This growth reflects the impact of the higher cost of operating in the wholesale generation market as a result of higher average pool price as well as higher gas purchases for supply to the deregulated market, compounded by higher gas prices. Fuel consumption Fuel consumption rose 35.2% to Euro 638 million in 1Q08. This jump was due to higher raw material costs in international markets and higher output from thermal sources during the quarter. Other supplies and services Other supplies and service expense totalled Euro 376 million, Euro 296 million more than in 1Q07. Of this amount, Euro 139 million corresponds to the higher value assigned to freely allocated emission rights in 1Q08 vs. 1Q07, as described in the section "Other operating revenues” and Euro 68 million to the higher cost of rights acquired from third parties to cover the emission deficit, essentially as a result of higher market prices. Personnel and other fixed operating expenses Fixed costs amounted to Euro 550 million in 1Q08, just up 2.6% year-on-year. Depreciation and amortisation Depreciation and amortisation charges totalled Euro 260 million, Euro 81 million less than in 1Q07. This reduction is the result of the recognition in 1Q07 of a Euro 61 million charge to restate the value of CO2 emission rights acquired from third parties to fair value at 31 March 2007. The rest of the reduction is due to the fact that renewable energy assets to be contributed to a joint venture with Acciona, classified as held for sale, were not depreciated. Net interest expense: Euro 156 million Net finance expense in 1Q08 amounted to Euro 164 million, an increase of Euro 90 million. This increase is mainly a reflection of the effect of interest rate trends on the recognised carrying amount of provisions for contingencies, essentially provisions for early retirement programs, which are measured at present value. The rise in interest rates in 1Q07 resulted in a reduction in net interest expense in the amount of Euro 50 million, while the fall in rates in 1Q08 triggered a charge of Euro 10 million. Meanwhile foreign exchange differences produced a loss of Euro 8 million, versus a gain of Euro 3 million in 1Q07. Net debt at the Spanish and Portuguese business at 31 March, 2008 stood at Euro 14,528 million vs. Euro 14,015 million at 31 December, 2007. Of this amount, Euro 3,913 million was incurred to finance regulatory receivables: Euro 2,061 million to finance the revenue shortfall from regulated activities and Euro 1,852 to fund non-mainland generation deficit. These figures are Euro 528 million higher than those recognised at year-end 2007 as a result of the portion of the 1Q08 sector tariff deficit financed by ENDESA. Netting out these regulatory receivables, net debt would have fallen by Euro 15 million in 1Q08. Cash flow from operating activities: Euro 608 million Cash flow from operating activities from Spanish and Portuguese electricity business totalled Euro 608 million through 31 March, a drop of 8.6% on the same period last year. However, net cash flows provided by operating activities (i.e., including the change in working capital), jumped 32.3% year-on-year during the first quarter of 2008 to Euro 930 million. Investment: Euro 433 million Investments in Spain and Portugal totalled Euro 433 million in 1Q08, 13.1% higher than in 1Q07. 75.3% of this figure corresponds to capex for development or improvement of electricity generation and distribution facilities. TOTAL INVESTMENT IN SPAIN AND PORTUGAL     Euro million         Jan-Mar 2008   Jan-Mar 2007   % chg. Capex   326   332   (1.8) Intangible   15   13   15.4 Financial   92   38   142.1 Total investments   433   383   13.1   CAPEX IN SPAIN AND PORTUGAL     Euro million         Jan-Mar 2008   Jan-Mar 2007   % chg. Generation   124   102   21.6 Distribution   199   227   (12.3) Other   3   3   - Total   326   332   (1.8) (*) Excludes capex at the companies and assets to be sold to E.On and expenditure on the renewable energy assets to be contributed to a joint venture with Acciona. The breakdown of capex reflects the substantial effort made by the Company to improve service quality in Spain, and, notably, to increase generation capacity. In addition, during the first quarter ENDESA invested Euro 132 million in renewable energy assets to be contributed to a joint venture with Acciona. BUSINESS IN LATIN AMERICA Net income of Euro 128 million In Latin America, first quarter net income rose 33.3% year-on-year to Euro 128 million euros. Highlights The economic environment in ENDESA’s Latin American operating markets led to more moderate growth in demand during the first quarter, although demand in Peru jumped a noteworthy 9.4%. In Chile demand grew by 5% while in Argentina it advanced by 3.8%, in Brazil by 3.3% and lastly, in Colombia, by 1.6%. These demand trends underpinned total electricity sales by these subsidiaries of 15,730 GWh, up 3% vs. 1Q07. By country, sales growth was more pronounced in Peru (up 8%) and Colombia (4.9%). The generation business continued to suffer from gas supply issues during the first three months of 2008 and also lower rainfall which led to a fall in hydro and an increase in liquid fuel output. Output in Latin America was 2.6% lower in 1Q08 at 15,519 GWh. Growth in output in Colombia (up 5%) and Peru (3.7%) only partially mitigated lower generation in the other countries. OUTPUT AND SALES IN THE LATIN AMERICAN BUSINESS     Output (GWh)   Sales (GWh)     Jan-Mar 2008   % chg vs. 2007   Jan-Mar 2008   % chg vs. 2007 Chile   5,143   (5)   3,171   0.4 Argentina   4,511   (3.5)   4,083   2.5 Peru   2,197   3.7   1,396   8 Colombia   2,882   5   2,884   4.9 Brazil   786   (20)   4,196   2.7 TOTAL   15,519   (2.6)   15,730   3 Improvement in generation margins Scant rainfall and continuing gas supply issues triggered higher load factors at the fossil fuel powered stations, specifically high use of liquid fuels which in turn pushed generation costs higher. Nonetheless, ENDESA’s favourable generation mix in Latin America and higher sales prices led to a 35% increase in the unit margin to USD40.1/MWh. Generation margins, measured in dollars, rose most significantly in Brazil (+146.1%) and in Argentina (+69.5%), due to higher sales prices in their respective markets. In Chile, the increase in sales price also drove a 22.4% increase in the average margin despite a poorer production mix shaped by lower hydro output and higher thermal output using diesel. In Colombia meanwhile the unit margin was 20% higher. In Peru the weight of fossil fuel production rose; this effect was compounded by a reduction in the average sales price. These factors drove average margins 7% lower year-on-year. In distribution, the moderate growth in energy sales (+3%) was not enough to offset higher non-recurring power purchase costs in Brazil, as explained below, which triggered a deterioration in operating metrics. In terms of the comparison, it is worth noting that in Argentina the 1Q07 financial statements recognised the one-off retroactive application of the tariff increase. In all, the unit margin in the distribution business dropped 9% to US$39.4/MWh in 1Q08. On a like-for-like basis, the unit margin rose 0.5%. Reduction in distribution losses Energy distribution losses were 10.4% in 1Q08, an improvement of 0.7 percentage points on the same period last year. We would highlight the 1.7 percentage point improvement in Brazil due to the development and application of a loss contention program at Ampla. New capacity development In 1Q08 Endesa Chile continued with construction of the San Isidro II (Chile) CCGT power plant which will have installed capacity of 379 MW. In January, phase II of this project was successfully completed lifting installed capacity to 353 MW. Work also continued on the Aysén project which entails the construction, starting in 2009, of five hydro plants with total installed capacity of 2,750 MW, the last of which is currently estimated to come on stream towards the end of 2021. Endesa Chile and Colbún hold 51% and 49% stakes, respectively, in this project. Construction work also began on two new power stations in Chile: the Bocamina II coal-fired plant which will have an estimated installed capacity of 350 MW and is slated to be commissioned in 2010 and the 250 MW open cycle TG Quintero gas plant, expected to come on stream in 2009. In April, preliminary work began for the construction of hydro station Los Cóndores, with 150 MW estimated installed capacity expected for 2012. Endesa Eco continued construction of the 9 MW Ojos de Agua mini hydro station, also in Chile. In Peru, last January contract for the enlargement of Santa Rosa plant was awarded. This contract considers the construction of a 187 MW open cycle, which it is expected to come on stream in 2010. Lastly, in Colombia, the upgrade of the second unit of the Termocartagena plant was just completed, therefore it adds 61 MW to the plant’s current 142 MW capacity. Regulatory update On 14 April 2008 the regulator released its proposed ‘busbar’ price for setting tariffs in Peru between May 2008 and April 2009 of US$40.55/Mwh, an increase of 3.6% over the prevailing average benchmark price. Ampla’s tariff review culminated on 15 March with a 6.5% increase in its DVA. This review also recognised additional energy purchase costs incurred in January and February in the amount of Euro 30 million. This amount is to be collected over the next 12 months and was recognised under revenues. The average energy purchase price to be recognised from mid-March was increased from RBL105/MWh to RBL158.9/MWh for energy not purchased under contract, mitigating the negative impact of high spot prices for the rest of the year. In Chile, the Non-conventional Renewable Energy Law came into effect on 1 April, 2008. This legislation stipulates that 5% of total power be generated from renewable sources between 2010 and 2014. This mandatory threshold will be increased by 0.5% per annum from 2015 to a maximum of 10% in 2024, after which it will stay at 10%. Lastly, the definitive node price report for the May-October half year was published in Chile, setting the node price plus surcharges at US$137.36/MWh. Finally, the Coelce tariff review concluded mid-April with an average increase in the end customer sales price of 8.43%. EBITDA: Euro 660 million EBITDA in the Latin American business totalled Euro 660 million in 1Q08, 0.8% less than in 1Q07. EBIT fell 3.2% to Euro 518 million. EBITDA & EBIT IN LATIN AMERICA     EBITDA (Euro million)   EBIT (Euro million)     1Q08   1Q07   % chg.   1Q08   1Q07   % chg. Generation and transmission   411   337   22   335   262   27.9 Distribution   258   349   (26.1)   193   295   (34.6) Other   (9)   (21)   NA   (10)   (22)   NA TOTAL   660   665   (0.8)   518   535   (3.2) For comparison purposes, it is worth noting that the 1Q07 figures included a one-off gain of Euro 40 million under distribution revenues in Argentina in connection with the retroactive application of the tariff review. Stripping this out, EBITDA would have climbed 5.6% and EBIT, 4.6%. The earnings performance in the generation and distribution businesses highlight the risk mitigation and earnings stability created as a result of ENDESA’s vertical integration in the region. The table below shows the breakdown of EBITDA and EBIT of ENDESA’s fully consolidated subsidiaries by business line and country: BREAKDOWN OF EBITDA AND EBIT IN LATAM BY BUSINESS LINE AND COUNTRY Generation and transmission     EBITDA (Euro million)   EBIT (Euro million)     1Q08   1Q07   % chg.   1Q08   1Q07   % chg. Chile   172   171   0.6   140   139   0.7 Colombia   72   48   50   61   37   64.9 Brazil   76   38   100   71   33   115.2 Peru   35   42   (16.7)   23   30   (23.3) Argentina   58   38   52.6   46   27   70.4 TOTAL Generation   413   337   22.6   341   266   28.2 Interconnection Brazil-Argentina   (2)   -   NA   (6)   (4)   NA TOTAL Generation and transmission   411   337   22   335   262   27.9   Distribution     EBITDA (Euro million)   EBIT (Euro million)     1Q08   1Q07   % chg.   1Q08   1Q07   % chg. Chile   48   51   (5.9)   41   45   (8.9) Colombia   67   58   15.5   50   41   22 Brazil   94   154   (39)   66   137   (51.8) Peru   25   25   -   18   17   5.9 Argentina   24   61   (60.7)   18   55   (67.3) TOTAL Distribution   258   349   (26.1)   193   295   (34.6) Generation and transmission Chile Output fell 5% in 1Q08 to 5,143 GWh, due to low rainfall which led to a less optimal generation mix. Lower rainfall and rising fuel costs pushed variables expenses 85.5% higher. However, higher node and spot prices pushed EBITDA to Euro 172 million and EBIT to Euro 140 million, a year-on-year growth of 0.6% and 0.7%, respectively. Colombia EBITDA and EBIT at the Colombian generation business amounted to Euro 72 and Euro 61 million, respectively, in 1Q08, growth of 50.0% and 64.9%. Of this increase, Euro 14 million corresponds to the lower impact this year of the asset tax due to the lower tax base in the wake of the merger effected last year between Emgesa and Betania. The rest of the improvement corresponds to the higher gross margin on electricity sales. Brazil ENDESA’s subsidiaries in Brazil generated a total of 786 GWh in 1Q08, 20% less than in 1Q07 due lower rainfall. Despite the drop in output, high spot prices provided a very significant boost to ENDESA’s revenues from hydro generation in Brazil, driving EBITDA to Euro 76 million and EBIT to Euro 71 million, a year-on-year growth of 100% and 115.2%, respectively. Peru ENDESA’s subsidiaries in Peru generated total output in 1Q08 of 2,197 GWh, 3.7% more than in 1Q07. However, the increase in output failed to fully offset the fall in sale prices on the back of higher rainfall; as a result revenues fell 8.3%. This drop drove EBITDA 16.7% lower to Euro 35 million and EBIT down 23.3% to Euro 23 million. Argentina EBITDA was Euro 58 million, up 52.6% on 1Q07, while EBIT amounted to Euro 46 million, growth of 70.4%. Of this amount, Euro 11 million corresponds to the collection at Dock Sud of damages from its insurance company which were recognised under revenues. The rest of the topline growth was driven by higher sales prices. Interconnection between Argentina and Brazil This interconnection registered losses of Euro 2 million at the EBITDA level and Euro 6 million at the EBIT level in 1Q08, as the line was inactive during the period. Cien, the line operator, is making progress on the modification of its business model for the operation of this interconnection. The goal is to turn it into an asset subject to regulated remuneration to ensure positive returns and prevent revenues from being dependent on fluctuating line usage. Distribution Chile Despite a modest 0.4% increase in energy sold, revenues jumped 43.8% thanks to higher unit prices deriving from changes in the tariff indexation. However, topline growth was eroded by the 63.8% increase in electricity purchases on the back of sharp growth in generation costs, driving EBITDA 5.9% lower to Euro 48 million and EBIT 8.9% lower to Euro 41 million. Colombia EBITDA and EBIT rose 15.5% and 22%, respectively, in the Colombian distribution business, primarily as a result of 4.9% higher sales volume and revenues from ancillary activities. Brazil The moderate growth registered in distribution sales in Brazil (+3.2%) was not sufficient to offset higher power purchase costs (+34.3%) which could not be passed on to the sales price this quarter, leaving EBITDA 39% lower at Euro 94 million and EBIT 51.8% lower at Euro 66 million in 1Q08. However, as explained above, the regulator has recognised Euro 30 million in surplus energy purchase costs incurred in January and February 2008 which will be recognised by Ampla via higher tariffs in the coming 12 months. Peru In the Peruvian distribution business the main financial indicators were flat. EBITDA was flat year-on-year at Euro 25 million while EBIT was Euro 1 million higher than in 1Q07 at Euro 18 million. Argentina Both EBITDA and EBIT narrowed by Euro 37 million in Argentina in 1Q08. This reflects the recognition in 1Q07 of Euro 40 million of prior year revenues in connection with the retroactive application to November 2005 of the tariff hike finally enacted that quarter. Stripping this item out, EBITDA was 14.3% higher at Euro 24 million, while EBIT amounted to Euro 18 million, growth of 20%. Net financial income: Euro 150 million ENDESA’s Latin American business incurred net financial income of Euro 150 million in 1Q08, Euro 8 million more than in 1Q07. The net exchange gains of Euro 5 million in 1Q07 narrowed by Euro 39 million in 1Q08 to net exchange losses of Euro 34 million. Net financial expense totalled Euro 116 million in 1Q08, Euro 31 million, or 21.1%, less than in 1Q07. Net debt at ENDESA’s Latin American business stood at Euro 5,504 million at 31 March, 2008, a reduction of Euro 66 million since year-end. Cash flow from operating activities: +7.8% Cash flow generated by ENDESA’s business in Latin America totalled Euro 452 million in the first three months of 2008, an increase of 7.8% on 1Q07. Net cash flows provided by operating activities, i.e., including the change in working capital, jumped 62.1% year-on-year during the first quarter of 2008 to Euro 316 million. Cash returns: Euro 50 million Cash returns from ENDESA’s Latin American business to the parent company in 1Q08 totalled Euro 50 million. Investment: Euro 196 million Investment in Latin America in 1Q08 totalled Euro 196 million, of which Euro 188 million was capex. The breakdown of capex is as follows: CAPITAL EXPENDITURE IN LATIN AMERICA     Euro million         Jan-Mar 2008   Jan-Mar 2007   % chg. Generation   54   55   (1.8) Distribution and transmission   113   79   43 Other   21   16   31.3 TOTAL   188   150   25.3 STATISTICAL APPENDIX KEY FIGURES               Electricity Generation Output (GWh)   1Q08   1Q07   % chg. Business in Spain and Portugal   22,232   22,099   0.6 Business in Latin America   15,519   15,931   (2.6) Rest of Europe   190   221   (14.0) TOTAL   37,941   38,251   (0.8)               Electricity Generation Output in Spain and Portugal (GWh)   1Q08   1Q07   % chg. Mainland   18,202   18,383   (1.0) Nuclear   7,546   6,873   9.8 Coal   7,108   7,375   (3.6) Hydro   1,042   1,910   (45.4) Combined cycle (CCGT)   1,620   1,304   24.2 Fuel oil   18   98   (81.6) Renewables/CHP   868   823   5.5 Non-mainland   3,650   3,515   3.8 Portugal   380   201   89.1 TOTAL   22,232   22,099   0.6               Electricity Generation Output in Latin America (GWh)   1Q08   1Q07   % chg. Chile   5,143   5,412   (5.0) Argentina   4,511   4,674   (3.5) Peru   2,197   2,118   3.7 Colombia   2,882   2,745   5.0 Brazil   786   982   (20.0) TOTAL   15,519   15,931   (2.6)               Electricity sales (GWh)   1Q08   1Q07   % chg. Business in Spain and Portugal   28,217   28,419   (0.7) Regulated market   17,952   18,785   (4.4) Deregulated market   10,265   9,634   6.5 Business in Latin America   15,730   15,268   3 Chile   3,171   3,157   0.4 Argentina   4,083   3,985   2.5 Perú   1,396   1,292   8 Colombia   2,884   2,750   4.9 Brazil   4,196   4,084   2.7 Rest   190   221   (14) TOTAL   44,137   43,908   0.5               Gas sales (GWh)   1Q08   1Q07   % chg. Regulated market   1,044   1,114   (6.3) Deregulated market   10,759   8,011   34.3 TOTAL   11,803   9,125   29.3               Workforce   31/03/08   31/03/07   % chg. Business in Spain and Portugal   13,604   13,634   (0.2) Rest of Europe   91   55   65.5 Business in Latin America   12,292   12,050   2.0 TOTAL   25,987   25,739   1.0 FINANCIAL DATA Key figures   1Q08   1Q07   % chg. EPS (Euro)   0.63   0.60   4.6 CFPS (Euro)   1.16   1.24   (6.6) BVPS (Euro)   11.92   11.32(1)   5.3               Net financial debt (Euro million)   31/03/08   31/12/07   % chg. Business in Spain and Portugal   14,528   14,015   3.7 Business in Latin America   5,504   5,570   (1.2) Group   4,873   5,014   (2.8) Rest of Europe   631   556   13.5 Business in Europe   1,447   1,247   16.0 TOTAL   21,479   20,832   3.1               Financial leverage (%)   119.3   121.6   - Interest coverage by operating cash flow (times)   4.2   4.2   - Ratings (12/05/08)   Long term   Short term   Outlook Standard & Poor’s   A-   A -2   Negative Moody’s   A3   P-2   Creditwatch (-) ENDESA’s main fixed-income issues   Spread over IRS (bp)     31/03/08   31/12/07 4.3Y GBP 400M 6.125% Mat. June 2012   78   54 4.9Y Euro 700M 5.375% Mat. Feb. 2013   63   66 Stock market data   31/03/08   31/12/07   % chg. Market cap (Euro million)   35,172   38,486   (8.6) Number of shares outstanding   1,058,752,117   1,058,752,117   -- Nominal share value (Euro)   1.2   1.2   --               Stock market data   2008   2007   % chg. Trading volumes (shares)     Madrid stock exchange   52,881,891   1,275,964,794   (95.9) Average daily trading volume (shares)             Madrid stock exchange   852,934   20,253,409   (95.8) Share price   1Q08 high   1Q08 low   31/03/08   31/12/07 Madrid stock exchange (Euro)   37.20   30.01   33.22   36.35 Dividends (Euro cents/share)   Against 2007 earnings Interim dividend (02/01/08)   50.00 Final dividend (2)   103.10 Total DPS (2)   153.10 Pay-out (%)   60.60 Dividend yield (%)   4.2 (1) January-December 2007 (2) Pending approval at the General Shareholders' Meeting. Important legal disclaimer This document contains certain "forward-looking" statements regarding anticipated financial and operating results and statistics and other future events. These statements are not guarantees of future performance and they are subject to material risks, uncertainties, changes and other factors that may be beyond ENDESA’s control or may be difficult to predict. Forward-looking statements include, but are not limited to, information regarding: estimated future earnings; anticipated increases in wind and CCGTs generation and market share; expected increases in demand for gas and gas sourcing; management strategy and goals; estimated cost reductions; tariffs and pricing structure; estimated capital expenditures and other investments; estimated asset disposals; estimated increases in capacity and output and changes in capacity mix; repowering of capacity and macroeconomic conditions. For example, [the synergy and EBITDA (gross operating profit as per ENDESA's consolidated income statement) targets and the planned capex program] referred to in this document are forward-looking statements and are based on certain assumptions which may or may not prove correct. The main assumptions on which these expectations and targets are based are related to the regulatory setting, exchange rates, divestments, increases in production and installed capacity in markets where ENDESA operates, increases in demand in these markets, assigning of production amongst different technologies, increases in costs associated with higher activity that do not exceed certain limits, electricity prices not below certain levels, the cost of CCGT plants, and the availability and cost of the gas, coal, fuel oil and emission rights necessary to run our business at the desired levels. In these statements we avail ourselves of the protection provided by the Private Securities Litigation Reform Act of 1995 of the United States of America with respect to forward-looking statements. The following important factors, in addition to those discussed elsewhere in this document, could cause actual financial and operating results and statistics to differ materially from those expressed in our forward-looking statements: Economic and industry conditions: materially adverse changes in economic or industry conditions generally or in our markets; the effect of existing regulations and regulatory changes; tariff reductions; the impact of any fluctuations in interest rates; the impact of fluctuations in exchange rates; natural disasters; the impact of more stringent environmental regulations and the inherent environmental risks relating to our business operations; the potential liabilities relating to our nuclear facilities. Transaction or commercial factors: any delays in or failure to obtain necessary regulatory, antitrust, internal and other approvals for our proposed acquisitions, investments or asset disposals, or any conditions imposed in connection with such approvals; our ability to integrate acquired businesses successfully; the challenges inherent in diverting management's focus and resources from other strategic opportunities and from operational matters during the process of integrating acquired businesses; the outcome of any negotiations with partners and governments. Delays in or impossibility of obtaining the pertinent permits and rezoning orders in relation to real estate assets. Any delays in or failure to obtain necessary regulatory approvals, including environmental to construct new facilities, repowering or enhancement of existing facilities; shortages or changes in the price of equipment, materials or labour; opposition of political and ethnic groups; adverse changes in the political and regulatory environment in the countries where we and our related companies operate; adverse weather conditions, which may delay the completion of power plants or substations, or natural disasters, accidents or other unforeseen events; and the inability to obtain financing at rates that are satisfactory to us. Political/governmental factors: political conditions in Latin America; changes in Spanish, European and foreign laws, regulations and taxes. Operating factors: technical difficulties; changes in operating conditions and costs; the ability to implement cost reduction plans; the ability to maintain a stable supply of coal, fuel and gas and the impact of fluctuations on fuel and gas prices; acquisitions or restructurings; the ability to implement an international and diversification strategy successfully. Competitive factors: the actions of competitors; changes in competition and pricing environments; the entry of new competitors in our markets. Further details on the factors that may cause actual results and other developments to differ significantly from the expectations implied or explicitly contained in this document are given in the Risk Factors section of the current ENDESA Share Registration Statement filed with the Comisión Nacional del Mercado de Valores (the Spanish securities market watchdog or the "CNMV” for its initials in Spanish). No assurance can be given that the forward-looking statements in this document will be realised. Except as may be required by applicable law, neither ENDESA nor any of its subsidiaries intends to update these forward-looking statements.