REG-International Endesa Final Results <Origin Href="QuoteRef">ELE.MC</Origin> - Part 3
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regulatory period as at 1 January 2016.
On 17 June 2016, Ministerial Order IET/980/2016, of 10 June 2016, was
published in the Official State Gazette, setting remuneration on distribution
activity for 2016 and awarding ENDESA a remuneration for the development of
this activity of Euros 2,032 million (Euros 2,040 million considering
incentives), of which Euros 2,014 million and Euros 2,023 million,
respectively, corresponded to ENDESA Distribución Eléctrica, S.L.U. On 15
September 2017, the announcement of the Deputy Head of Resources, Claims and
Relations with the Ministry of Justice was published in the Official State
Gazette (BOE), informing of the hearing procedures for the order issued by the
Ministry of Energy, Tourism and Digital Agenda, initiating the procedure to
file a declaration of adverse effect on the public interest of Ministerial
Order IET/980/2016, of 10 June.
On the other hand, recently, the Ministry of Energy, Tourism and Digital
Agenda has initiated the application of the Order by which the remuneration of
the distribution activity for 2017 is established, corresponding to ENDESA a
remuneration for the development of this activity of Euros 2,116 million
(Euros 2,092 million considering the incentives), of which Euros 2,094 million
and Euros 2,070 million, respectively, correspond to ENDESA Distribución
Eléctrica, S.L.U. (see Section 2.2. Analysis of results and 2.3. Segment
Information in this Consolidated Management Report).
Royal Decree on the methodology for calculating the trading margin to be added
to the Small Consumer Voluntary Price.
On 25 November 2016 the Official State Gazette (BOE) published Royal Decree
469/2016 of 18 November establishing the methodology for calculating the
trading margin on the Small Consumer Voluntary Price, thus complying with
various rulings handed down by the Supreme Court that annulled the trading
margin contained in Royal Decree 216/2014 of 28 March establishing the
procedure for calculating Small Consumer Voluntary Prices for electricity and
the legal framework for contracting power.
On 24 December 2016 Ministerial Order ETU/1948/2016 was published - this came
into force on 1 January 2017, and establishes the trading margin on the Small
Consumer Voluntary Price. On 25 March 2017 Ministerial Order ETU/258/2017 was
published, coming into force on 26 March 2017, and modifying the trading
margin on the Small Consumer Voluntary Price to include the cost of
contribution to the Energy Efficiency National Fund.
2017 electricity tariff
On 29 December 2016, the Official State Gazette (BOE) published Order
ETU/1976/2016 of 23 December, which establishes the access tariffs for 2017.
In accordance with this Order, the access tariffs remained unchanged.
2018 electricity tariff
On 27 December 2017 the Official State Gazette (BOE) published Order
ETU/1282/2017 of 22 December, which establishes the access tariffs for 2018.
In accordance with this Order, the access tariffs remained unchanged.
Natural gas tariff for 2017
Under Order ETU/1977/2016 of 23 December access tariffs in force in 2016 were
largely maintained, having updated the Last Resort Tariffs with an average
reduction of 9% resulting from lower raw material costs.
Natural gas tariff for 2018
Under Order ETU/1283/2017 of 22 December access tariffs in force in 2017 are
largely maintained, having updated the Last Resort Tariffs with an average
increase of 5% resulting from higher raw material costs.
Energy Efficiency.
Law 18/2014, of 15 October 2014, approving urgent measures to boost growth,
competitiveness and efficiency, created, in the context of energy efficiency,
the Energy Efficiency National Fund with the aim of achieving energy savings.
Order ETU/258/2017 of 24 March entailed a contribution by ENDESA to the Energy
Efficiency National Fund of Euros 29.3 million, corresponding to its 2017
obligations.
The Ministry of Energy, Tourism and Digital Agenda has started processing the
proposed contribution for 2018. The amount proposed for ENDESA stands at Euros
28.5 million.
Renewable energy auction.
On 1 April 2017 the Official State Gazette (BOE) published Royal Decree
359/2017 of 31 March, establishing a call for assigning the specific
remuneration system for new renewable energy production facilities through an
auction with a maximum installed power limit of 3,000 MW.
This Royal Decree was enacted by Order ETU/315/2017 of 6 April, regulating the
procedure for assigning the specific remuneration system in each auction, in
addition to the remuneration parameters for reference and standard facilities,
and characteristics of the auction, and the Resolutions issued by the
Secretary of State for Energy on 10 April 2017 approving the call for an
auction and the terms and conditions thereof.
As a result of this auction, which took place on 17 May 2017, ENDESA, through
ENEL Green Power España, S.L.U. (EGPE), was awarded 540 MW of wind power
capacity (see Section 2.4. Scope of Consolidation and 4.5. Investments in this
Consolidated Management Report).
Additionally, on 17 June 2017, Royal Decree 650/2017, of 16 June 2017, was
published in the Official State Gazette (BOE), establishing a new installed
capacity quota of 3,000 MW for new plants that generate power using renewable
energy sources, enacted by Order ETU/615/2017, of 27 June, that establishes
the assignment procedure and remuneration parameters for the auction, the
Resolution issued by the Secretary of State for Energy on 30 June 2017,
calling for an auction for the assignment of the specific remuneration regime
for new renewable energy production facilities, pursuant to Royal Decree
650/2017, of 16 June.
As a result of this auction, which took place on 26 July 2017, ENDESA, through
ENEL Green Power España, S.L.U. (EGPE), was awarded 339 MW of photovoltaic
capacity (see Section 2.4. Scope of Consolidation and 4.5. Investments in this
Consolidated Management Report).
Fee for the use of continental waters to generate electricity.
On 10 June 2017, Royal Decree Law 10/2017 of 9 June was published in the
Official State Gazette (BOE), establishing specific urgent measures to
mitigate the effects of drought in certain river basins, amending the current
Water Law.
Among other aspects, this Royal Decree Law modifies the tax on the fee for
using continental waters to produce electric power from 22% to 25.5%, with a
reduction for plants with capacity of up to 50 MW to offset the tax increase.
Social Bonus (or Social Tariff).
Law 24/2013, of 26 December 2013, required that the subsidised electricity
tariff cost must be assumed, as a public service obligation, by parent
companies or vertically-integrated groups of companies carrying out
electricity generation, distribution and supply activities, to assume the cost
of the subsidised electricity tariff in proportion to a percentage based on
both their number of supply connections to distribution grids and the number
of customers supplied, set for ENDESA at 41.10% in 2016 under Ministerial
Order IET/1451/2016, of 8 September.
Despite the foregoing, in the Ruling of 24 October 2016 the
Contentious-Administrative Section of the Supreme Court declared the Social
Bonus financing system established by article 45.4 of Law 24/2013 of 26
December to be inapplicable, since it was incompatible with Directive
2009/72/EC of the European Parliament and of the Council, of 13 July 2009,
concerning common rules for the internal market in electricity, and
acknowledged the right of companies to recover the amounts paid. The State
authorities submitted an application for dismissal of the Supreme Court
ruling, which was overruled in a ruling dated 14 December 2016, and on 2
February 2017, an appeal was submitted against this decision before the
Constitutional Court (see Note 17.3 to the Consolidated Financial Statements
for the year ended 31 December 2017).
On 3 October and 27 December 2017 Order ETU/929/2017, of 28 September and
Order ETU/1288/2017, of 22 December, were published, implementing the
different rulings handed down in this respect and the Spanish Markets and
Competition Commission (CNMC) was ordered to pay the amounts corresponding to
the Social Bonus for 2014, 2015 and 2016 (see Section 2.2. Analysis of results
and 2.3. Segment Information in this Consolidated Management Report).
In 2017, the Company recognised this income in the consolidated income
statement for the amount of Euros 222 million under “Other variable
procurements and services” and Euros 15 million under “Financial
income”, which has been collected in full at the date of preparation of this
Consolidated Management Report (see Notes 26 and 30 to the Consolidated
Financial Statements for the year ended 31 December 2017).
On 24 December 2016, Royal Decree-Law 7/2016 of 23 December was published to
regulate the financing of the costs of the Social Bonus and other measures to
protect vulnerable electricity consumers According to this Royal Decree Law
the social bonus will be financed by the parents of company groups that carry
out energy supply activities, or by the companies themselves if they do not
form part of a corporate group, in the percentage corresponding to their
customer share. This percentage will be calculated annually by the CNMC.
The sole transitionary provision of the Royal Decree Law establishes the
percentage distribution for the Social Bonus to be applied since it came into
effect, with 37.7% corresponding to ENDESA in 2017.
In January 2018, the Spanish Markets and Competition Commission (CNMC)
published the proposed percentage of financing for 2018, with 37.14%
corresponding to ENDESA.
On 7 October 2017 Royal Decree 897/2017, of 6 October, was published,
regulating the figure of the vulnerable customer, the Social Bonus and other
protection measures for domestic electricity consumers, in addition to Order
ETU/943/2017, of 6 October, enacting Royal Decree 897/2017, of 6 October.
Among other aspects, three categories of vulnerable customers have been
identified based on the average income level through the Spanish Public Income
Index (IPREM), establishing different discount percentages according to each
category. The three categories are:
* Vulnerable customers (25% discount).
* Severely vulnerable customers (40% discount).
* Severely vulnerable customers at risk of social exclusion (100% discount),
classified as severely vulnerable customers for which the social services can
be proved to be paying at least 50% of their invoice.
This Royal Decree also regulates other aspects relating to supply and, among
others, raises from two to four months the term for cutting off of supply to
vulnerable customers (severely vulnerable customers at risk of social
exclusion cannot be cut off as power is considered to be a basic supply).
Availability service.
On 23 November 2017, Order ETU/1133/2017, of 21 November, was published,
amending Order IET/2013/2013, of 31 October, regulating the competitive
mechanism for assigning the management service for interruptibility demand.
Among other aspects, the Order amends the remuneration for the availability
service, extends the service to the first half of 2018 and eliminates hydro
facilities from the collection of this availability service during this
period.
4. Liquidity and Capital Resources.
4.1. Financial Management.
As part of an efficient cost management and optimisation policy, the finance
function in Spain is centralised in ENDESA.
At the date of authorisation of this Consolidated Management Report, the
Company had the necessary liquidity and access to medium/long-term financial
resources to ensure the availability of the funds required to meet its future
investment obligations and debt maturities.
ENDESA maintains the same principles of prudence as applied to date in its
financial structure: obtaining medium/long-term funding that enables it to
adjust its maturity calendar to the capacity of cash-flow generation envisaged
in the business plan. To do this, it:
* Uses external financing, especially through the banking and capital markets.
* Obtains funds from public authorities that offer attractive terms for very
long-term loans.
* Has short-term financing in place that helps optimise the management of its
working capital requirements and improve the cost of its debt. This financing
is obtained through bank credit facilities with leading financial institutions
or through the issue of Euro Commercial Paper (ECP).
ENDESA's also carries out transactions with ENEL Group companies in which the
applicable transfer pricing regulations are followed.
Financial position.
In 2017, European sovereign debt interest rates rose from 2016 lows. The
Spanish 10-year bond yield increased from 1.38% at the start of the year to
1.56% at year-end 2017, in line with the German 10-year bond yield, which
increased by 22 basis points to 0.42%. As a result, country risk for Spain
(the spread with the German 10-year bond) closed 2017 at 114 basis points, a
similar level to that seen at year-end 2016. In other peripheral euro zone
countries, the Italian risk premium stood at 158 basis points, in line with
2016, while the Portuguese risk premium fell to 149 basis points, from 354
b.p. at year-end 2016.
In 2017, the European Central Bank (ECB) kept interest rates in the euro zone
at the historic low of 0% and opted for an alternative method to reduce
quantitative expansion (QE), trimming back its monthly asset purchases to
Euros 30,000 million but extending the programme at least until September
2018.
In 2017, euro long-term interest rates (10-year swap) rose from 0.66% at the
beginning of the year to 0.89% by year-end. The short-term interest rate
(3-month Euribor) remained at -0.33%. The long-term interest rate on the US
dollar (USD) (10-year swap) rose slightly in 2017 from 2.34% to 2.40%, while
the short-term interest rate on the US dollar (USD) increased from 1.00% to
1.69%.
In 2017, the euro strengthened by 14% against the US dollar (USD), causing the
EUR/USD exchange rate to rise from 1.05 at the beginning of the year to 1.20
at year-end, affected by the waning of the bullish effect of Trump's tax
reform on the USD, the reduction of political risk in the euro area and the
convergence between the economic cycles in euro area and the United States.
Financial debt.
As of 31 December 2017, ENDESA had net financial debt of Euro 4,985 million,
an increase of Euro 47 million (+1%) compared to the debt at 31 December 2016.
The reconciliation of ENDESA's gross and net financial debt at 31 December
2017 is as follows:
Millions of Euros
Reconciliation of financial debt
31 December 2017 31 December 2016 Difference % Var.
Non-current interest-bearing loans and borrowings 4,414 4,223 191 4.5
Current interest-bearing loans and borrowings 978 1,144 (166) (14.5)
Gross financial debt ((1)) 5,392 5,367 25 0.5
Cash and cash equivalents (399) (418) 19 (4.5)
Derivatives recognised as financial assets (8) (11) 3 (27.3)
Net financial debt 4,985 4,938 47 1.0
(1) At 31 December 2017 this includes Euros 12 million corresponding to
financial derivatives recognised under financial liabilities (Euros 17 million
at 31 December 2016).
For the purposes of assessing net debt in 2017, it must also be borne in mind
that on 2 January 2017 ENDESA paid shareholders an interim dividend against
2016 profits of Euro 0.70 per share, entailing a disbursement of Euros 741
million, and on 3 July 2017 it paid an additional gross dividend against 2016
profits of Euro 0,633 per share, entailing a disbursement of Euros 670
million.
The structure of ENDESA's gross financial debt at 31 December 2017 and 2016,
was as follows:
Millions of Euros
Structure of gross financial debt
31 December 2017 31 December 2016 Difference % Var.
Euro 5,392 5,367 25 0.5
TOTAL 5,392 5,367 25 0.5
Fixed rate 3,611 3,661 (50) (1.4)
Floating rate 1,781 1,706 75 4.4
TOTAL 5,392 5,367 25 0.5
Average life (years) ((1)) 6.1 6.5 - -
Average cost (%) ((2)) 2.1 2.5 - -
Eç
(1) Lifespan of gross financial debt (years) = (principal * number of days of
term) / (principal in force at 31 December * 365 days).
(2) Average cost of gross financial debt (%) = (cost of gross financial debt)
/ gross average financial debt.
Eç
At 31 December 2017, 67% of the Company's gross financial debt accrued
interest at fixed rates, while the remaining 33% accrued interest at floating
rates. At this date, 100% of the Company's gross financial debt was
denominated in euros.
Information concerning the maturities of ENDESA's gross financial debt is set
out in Note 18 to the Consolidated Financial Statements for the year ended 31
December 2017.
Main financial transactions.
Within the framework of the financial transaction (ENDESA Network
Modernisation) concluded with the European Investment Bank (EIB) in 2014,
Tranches B and C (each one of Euros 150 million) were available on 18 January
2017 and 20 February 2017, thus completing the provision of the transaction
for a total amount of Euros 600 million. Both provisions are variable, with a
12-year maturity payable as of 2021.
In 2017, ENDESA, S.A. concluded agreements with different financial
institutions for the extension to three years with a possibility of extending
to five years of most of its credit lines for Euros 1,985 million.
On 30 June 2017 ENDESA, S.A. successfully renegotiated the conditions of the
irrevocable and committed inter-company credit facility arranged with ENEL
Finance International N.V. for the amount of Euros 1,000 million, extending
its maturity to 30 June 2020 and reducing the margin and fee applicable, if
the facility is not used, to 55 b.p. and 18 b.p. respectively. At 31 December
2017, this committed line of credit had not been drawn down.
On 21 December 2017, ENDESA, S.A. subscribed to financing, yet to be paid at
the date of preparation of this Consolidated Management Reports, with the
European Investment Bank for the amount of Euros 500 million, maturing in 12
years and offering a three-year grace period.
On 28 December 2017, ENDESA S.A. renewed the uncommitted inter-company credit
facility arranged with ENEL Finance International N.V., for Euros 1,500
million, extending the maturity to 28 December 2018, with the rest of the
terms unchanged. At 31 December 2017, this uncommitted line of credit had not
been drawn down.
In 2017, ENDESA maintained the Euro Commercial Paper (ECP) programme through
International ENDESA, B.V., and the outstanding balance at 31 December 2017
was Euros 889 million, renewable with the backing of irrevocable lines of bank
credit.
Liquidity.
As of 31 December 2017, ENDESA's liquidity stood at Euros 3,495 million (Euros
3,620 million at 31 December 2016) as detailed below:
Millions of Euros
Liquidity
31 December 2017 31 December 2016 Difference % Var.
Cash and cash equivalents 399 418 (19) (4.5)
Unconditional availability in lines of credit ((1)) 3,096 3,202 (106) (3.3)
TOTAL 3,495 3,620 (125) (3.5)
Coverage of maturities (number of months) (2) 29 17 - -
(1) At 31 December 2017 and 2016, Euros 1,000 million were accounted
for by the committed and irrevocable line of credit arranged with
ENEL Finance International, N.V.
(2) Coverage of debt maturities (number of months) = maturity period
(number of months) for vegetative debt that could be covered with
the liquidity available.
Treasury investments considered as “Cash and cash equivalents” are high
liquidity and entail no risk of changes in value, mature within 3 months from
their contract date and accrue interest at the market rates for such
instruments. Information on ENDESA's cash and cash equivalents is set out in
Note 14 to the Consolidated Financial Statements for the year ended 31
December 2017.
Any restrictions that may affect the drawing of funds by ENDESA are set out in
Notes 14 and 15.1.12 to the Consolidated Financial Statements for the year
ended 31 December 2017.
4.2. Capital Management.
ENDESA's capital management focuses on maintaining a solid financial structure
that optimises the cost of capital and the availability of financial resources
to guarantee business continuity over the long term. This policy of financial
prudence makes it possible to maintain an adequate level of value creation for
shareholders while guaranteeing ENDESA's liquidity and solvency.
ENDESA considers its consolidated leverage ratio to be an indicator of its
ongoing financial position. Details of this ratio at 31 December 2017 and 2016
are as follows:
Millions of Euros
Leverage ((1))
31 December 2017 31 December 2016
Net financial debt: 4,985 4,938
Non-current financial debt 4,414 4,223
Current financial debt 978 1,144
Cash and cash equivalents (399) (418)
Derivatives recognised as financial assets (8) (11)
Equity: 9,233 9,088
Of the Parent 9,096 8,952
Of non-controlling interests 137 136
Leverage (%) 53.99 54.34
(1) Leverage (%) = Net financial debt /equity.
The Company's directors consider that its leverage will enable it to optimise
the cost of capital while maintaining a high solvency ratio. Therefore, in due
consideration of expectations of earnings and the investment plan, the future
dividend policy will maintain a leverage ratio to achieve the aforementioned
capital management target.
At the date on which this Consolidated Management Report was drawn up, ENDESA
had no commitments to obtaining funds through its own sources of finance.
Information on capital management is provided in Note 15.1.11 to the
Consolidated Financial Statements for the year ended 31 December 2017.
4.3. Credit Rating Management.
2017 was a relatively quiet year on the fixed income market, even though
central banks started to plan adjustments to normalise monetary market after
ten years of expansive policy.
The Spanish risk premium, which compares the Spanish and German bonds, closed
the year at 114 basis points, 2 less than at the start of 2017. The annual
high was observed in February, when it hit 156.5 basis points, and on 4
October 2017, days after the Catalonia independence referendum, it rose again,
to 132.5 basis points.
This scenario of relative calm, despite the political uncertainty caused by
the situation in Catalonia, was reflected by the main rating agencies. On 21
July 2017, Fitch Ratings raised the outlook for its sovereign rating from
stable to positive, maintaining its BBB+ rating, and on 29 September 2017
Standard & Poor´s confirmed its rating of BBB+/A-2 for Spain, also with a
positive outlook. On 19 January 2018, Fitch raised its sovereign rating to A-,
with a stable outlook.
With regard to the electricity sector, fundamentals remained healthy both in
terms of stability of demand and tariff sufficiency.
Standard & Poor´s raised its rating for ENDESA from BBB to BBB+ on 7
December 2017, maintaining the stable outlook which it had downgraded from
positive in May. This review formed part of a general review of ENEL's rating
following the presentation of its Strategic Plan for 2018-2020 and was based
on the Group's capacity to optimise its cost structure through digitalisation
programmes, its focus on regulated business and the renewables sectors, and
the simplification of its shareholder structure.
The other rating agencies that cover ENDESA affirmed their ratings in 2017. On
16 May 2017, Fitch Ratings confirmed its BBB+ rating, with a stable outlook,
and on 31 August 2017, Moody´s confirmed its Baa2 rating, also with a stable
outlook.
Developments in ENDESA's credit ratings in 2017 were as follows:
Credit rating
31 December 2017 ((1)) 31 December 2016 ((1))
Long term Short term Outlook Long term Short term Outlook
Standard & Poor’s BBB+ A-2 Stable BBB A-2 Stable
Moody’s Baa2 P-2 Stable Baa2 P-2 Stable
Fitch Ratings BBB+ F2 Stable BBB+ F2 Stable
(1) At the respective dates of authorisation of the Consolidated
Management Report.
ENDESA's credit rating is conditioned by the rating of its parent company ENEL
according to the methods employed by rating agencies and, as of 31 December
2017, has been classified as “investment grade” by all the rating
agencies.
ENDESA works to maintain its investment grade credit rating to be able to
efficiently access money markets and bank funding, and to obtain preferential
terms from its main suppliers.
4.4. Cash Flows.
At 31 December 2017, cash and cash equivalents stood at Euros 399 million
(Euros 418 million at 31 December 2016).
At 31 December 2017 and 2016, ENDESA's net cash flows, broken down into
operating, investing and financing activities, were as follows:
Millions of Euros
Statement of cash flows
2017 2016 Difference % Var.
Net cash flows from operating activities 2,438 2,995 (557) (18.6)
Net cash flows used in investing activities (1,115) (2,317) 1,202 (51.9)
Net cash flows used in financing activities (1,342) (606) (736) 121.5
In 2017, net cash flows from operating activities (Euros 2,438 million) helped
cover the net investment required to conduct ENDESA's businesses (Euros 1,115
million), in addition to net cash flows from financing activities (Euros 1,342
million), while cash and cash equivalents fell Euros 19 million during the
period.
Information on ENDESA's consolidated statements of cash flow is set out in
Note 33 to the Consolidated Financial Statements for the year ended 31
December 2017.
Cash flow from operating activities.
In 2017, net cash flow from operating activities totalled Euros 2,438 million,
a decrease of Euros 557 million (-18.6%) compared to 2016 (Euros 2,995
million) and present the detail that appears below:.
Millions of Euros
2017 2016
Profit before tax 1,900 1,710
Adjustments for: 1,579 1,840
Depreciation and amortisation, and impairment losses 1,511 1,467
Other adjustments (net) 68 373
Changes in working capital (370) 217
Trade and other receivables (387) (57)
Inventories (241) (162)
Current financial assets (554) 336
Trade payables and other current liabilities 812 100
Other cash flows from/(used in) operating activities: (671) (772)
Interest received 44 27
Dividends received 27 22
Interest paid (134) (128)
Income tax paid (350) (346)
Other receipts from and payments for operating activities (258) (347)
NET CASH FLOWS FROM OPERATING ACTIVITIES 2,438 2,995
Concerning the variations in the different items determining the net cash
flows from to operating activities:
* In 2017, the net cash flows from operating activities include the
incorporation of ENEL Green Power España S.L.U. (EGPE) and Eléctrica del
Ebro, S.A.U. to the consolidation scope for the amount of Euros 195 million
and Euros 6 million respectively (Euros 65 million and Euros 1 million,
respectively in 2016 from their respective takeover dates) (see Section 2.4
Consolidation Scope of this Consolidated Management Report).
* The changes in working capital between both periods for the amount of Euros
587 million, resulting mainly from the reduction of Euros 833 million in net
receipts from corresponding to the compensation for extra-costs corresponding
to Non-mainland Territories generation (TNP) (see Section 3. Regulatory
Framework of this Consolidated Management Report and Notes 4, 13, 19.1.1 and
23 to the Consolidated Financial Statements for the year ended 31 December
2017).
* These changes also reflect the amount pending receipt of the Social Bonus as a
result of the passing of several rulings relating thereto (see Notes 4, 17.3,
26 and 30). (see Section 3. Regulatory Framework of this Consolidated
Management Report and Notes 4, 17.3, 26 and 30 to the Consolidated Financial
Statements for the year ended 31 December 2017).
* In 2017 the Company has also continued with its active policy concerning the
management of current assets and liabilities, focusing on, among other
aspects, the improvement of processes, the factoring of accounts receivable
(see Note 13 to the Consolidated Financial Statements for the year ended 31
December 2017) and agreements extending payment periods with suppliers (see
Note 23 to the Consolidated Financial Statements for the year ended 31
December 2017).
* The changes in other operating activity receipts and payments in both periods
for the amount of Euros 89 million, mainly as a result of the lower payments
for provisions, corresponding to workforce restructuring plans (see Note 17.2
to the Consolidated Financial Statements for the year ended 31 December 2017).
At 31 December 2017 and 2016 working capital broke down as follows:
Millions of Euros
31 December 2017 31 December 2016
Current assets ((1)) 5,131 5,015
Inventories ((2)) 1,267 1,202
Trade and other receivables ((3)) 3,100 3,452 ((4))
Current financial assets 764 ((5)) 361 ((6))
Current liabilities ((7)) 6,557 6,377
Current provisions ((8)) 425 567
Trade and other payables ((9)) 6,132 ((10)) 5,810 ((11))
(1) Excluding "Cash and cash equivalents" and Financial derivative
assets corresponding to financial debt.
(2) See Note 12 to the Consolidated Financial Statements for the
year ended 31 December 2017.
(3) See Note 13 to the Consolidated Financial Statements for the year ended 31
December 2017.
(4) Includes the acquisition price of the systems and
telecommunications activity (ICT) paid on 29 December 2016,
totalling Euros 246 million (see Section 2.5. Acquisition of the
systems and telecommunications activity (ICT) in this Consolidated
Management Report).
(5) Includes Euros 222 million relating to collection rights for financing of
the deficit in regulated activities, Euros 70 million relating to remuneration
on distribution activity and Euros 304 million relating to compensation for
extra-costs in Non-mainland Territories generation (TNP) (see Note 19.1.1 to
the Consolidated Financial Statements for the year ended 31 December 2017).
(6) Includes Euros 258 million relating to collection rights for financing of
the deficit in regulated activities and Euros 32 million relating to
remuneration on distribution activity (see Note 19.1.1 to the Consolidated
Financial Statements for the year ended 31 December 2017).
(7) Excluding Current Financial Debt and Financial Derivative
Liabilities corresponding to financial debt.
(8) See Note 24 to the Consolidated Financial Statements for the year ended 31
December 2017.
(9) See Note 23 to the Consolidated Financial Statements for the year ended 31
December 2017.
(10) Includes the interim dividend with a charge against 2017 profits of Euros
741 million, paid on 2 January 2018).
(11) Includes the interim dividend with a charge against 2016 profits of Euros
741 million, paid on 2 January 2017 and Euros 296 million relating to
compensation for extra-costs in Non-mainland Territories generation (TNP) (see
Note 19.1.1 to the Consolidated Financial Statements for the year ended 31
December 2017).
Net cash flows used in investment activities.
In 2017 net cash flows used in investing activities stood at Euros 1,115
million, down 51.9% compared to 2016 (Euros 2,317 million) and include, among
others:
* The net cash payments for the acquisition of property, plant and equipment and
intangible assets for the amount of Euros 971 million (Euros 1,144 million in
2016) (see Section 4.5. Investments in this Consolidated Management Report).
* The payments of the investments and/or collections of the disposals in
shareholdings in Group Companies as detailed below:
Millones de Euros
Sections 2017 2016
Investments in shareholdings in Group Companies (2) (1,196)
Corporate transactions related to capacity awarded in renewable 2.4 (1) -
power auctions
Eléctrica de Jafre, S.A. 2.4 (1) -
ENEL Green Power España, S.L.U. (EGPE) 2.4 - (1,178)
Eléctrica del Ebro, S.A.U. - (18)
Disposals in shareholdings in Group Companies 16 135
Aquilae Solar, S.L., Cefeidas Desarrollo Solar, S.L., Cephei 2.4 16 -
Desarrollo Solar, S.L., Desarrollo Photosolar, S.L., Fotovoltaica
Insular, S.L. and Sol de Media Noche Fotovoltaica, S.L.
Energía de La Loma, S.A. and Energías de la Mancha Eneman, S.A. - 21
ENEL Insurance N.V. - 114
Net cash flows using in financing activities.
In 2017, net cash flows used in financing activities stood at Euros 1,342
million, a rise of 121.5% compared to 2016 (Euros 606 million) and mainly
include the following:
* Proceeds from the following non-current borrowings:
Millions of Euros
Sections 2017 2016
Proceeds from Tranches B and C of European Investment Bank (EIB) 4.1 300 -
Proceeds from Credit Line - 90
Other proceeds 15 19
* Repayments of the following non-current borrowings:
Millions of Euros
2017 2016
Repayments of Bonds issued by International ENDESA B.V. 20 -
Repayments of Loans with Natixis 21 -
Repayments of Credit Line - 105
Other repayments 33 13
* Payment of the following dividends:
Millions of Euros
Sections 2017 2016
Dividends of the Parent Paid 13.2 1,411 1,086
Dividends to Non-controlling Interests Paid ((1)) 4 3
(1) Corresponding to companies of ENEL Green Power España, S.L.U.
(EGPE).
* The net payment of Euros 3 million relating to the acquisition of
non-controlling interests in the companies Productor Regional de Energía
Renovable, S.A. and Productor Regional de Energías Renovables III, S.A. (see
Note 2.3.1 and 15.2 to the Consolidated Financial Statements for the year
ended 31 December 2017).
4.5. Investments.
In 2017, gross investment by ENDESA totalled Euros 1,175 million (Euros 1,221
million in 2016), of which Euros 978 million related to Investments in
property, plant and equipment, Euros 133 million to investments in intangible
assets, and Euros 64 million to financial investments, as follows:
Millions of Euros
Investments ((1))
2017 ((2)) 2016 ((3)) % Var.
Generation and supply 358 388 (7.7)
Distribution 610 595 2.5
Others 10 2 400.0
TOTAL PROPERTY, PLANT AND EQUIPMENT 978 985 (0.7)
Generation and supply 48 57 (15.8)
Distribution 47 55 (14.5)
Others 38 31 22.6
TOTAL INTANGIBLE ASSETS 133 143 (7.0)
FINANCIAL INVESTMENTS 64 93 (31.2)
TOTAL GROSS INVESTMENT 1,175 1,221 (3.8)
TOTAL NET INVESTMENTS ((4)) 982 1,028 (4.5)
(1) Does not include business combinations made during the year (see
Sections 2.4. Consolidation Scope and 2.5. Acquisition of the
systems and telecommunications activity (ICT) in this Consolidated
Management Report).
(2) Includes gross investments made by ENEL Green Power España, S.L.U. (EGPE)
amounting to Euros 24 million.
(3) Includes gross investments made by ENEL Green Power España, S.L.U. (EGPE)
since the takeover date on 27 July 2016, in the amount of Euros 14 million.
(4) Net investments = Gross investments - Capital grants and transferred
facilities.
Investments in property, plant and equipment
Gross generation investments in 2017 related largely related to plants that
were already operating at 31 December 2016, as well as investments in the
Litoral coal plant in the amount of Euros 39 million and the As Pontes coal
plant in the amount of Euros 34 million in connection with the Industrial
Emissions Directive, which extended their useful lives. It also includes
investment in upgrading major components of renewable technology assets.
ENDESA, through ENEL Green Power España, S.L.U. (EGPE), was awarded 540 MW of
wind power capacity and 339 MW of photovoltaic capacity in the auctions
conducted by the Ministry of Energy, Tourism and Digital Agenda on 17 May 2017
and 26 July 2017, respectively, and expects to invest approximately Euros 870
million in constructing the awarded capacity, of which Euros 7 million had
already been spent at 31 December 2017 (see Section 3. Regulatory Framework in
this Consolidated Management Report).
Gross investments in supply mainly related to the development of the
activities related to added-value products and services (PSVAs).
Gross investments in distribution are related to network extensions and
expenditure aimed at optimising the functioning and quality of the network to
boost efficiency and quality of service. It also included investment for the
widespread installation of remote management smart meters and their operating
systems.
Investment in Intangible Assets.
Gross investment in intangible assets in 2017 correspond, mainly to software
and ongoing investments in the ICT activity, including the adaptation of the
ERP system to the new Evolution for Energy (E4E) SAP.
Financial investments.
Financial investments in 2017 corresponds mainly to the contribution of funds
of Euros 38 million to Nuclenor, S.A.
4.6. Contractual Obligations and Off-Balance Sheet Operations.
Information concerning future purchase commitments is provided in Notes 6, 8
and 12 to the Consolidated Financial Statements for the year ended 31 December
2017, broken down as follows:
Millions of Euros
Future electricity purchase commitments
31 December 2017 31 December 2016
Property, plant & equipment 364 338
Intangible assets 7 2
Financial assets - -
Purchases of fuel stocks and others 18,739 20,652
Purchases of fuel stocks 18,656 20,596
Electricity purchases 17 -
Purchases of carbon dioxide (CO(2)) emission rights, 66 56
Certified Emission Reductions
CERs and ERUs
TOTAL 19,110 20,992
ENDESA has no special purpose entities, understood as entities that ENDESA,
even when it does not hold a controlling interest, effectively controls,
understood as the fact that it substantially obtains most of the profits
earned by the entity and retains most of the risks involved.
4.7. Dividend policy.
The Board of Directors of ENDESA, S.A. operates an economic-financial strategy
to generate a significant amount of cash to maintain Company debt levels and
maximise shareholder remuneration. This is also a guarantee of sustainability
for the business project undertaken.
As a result of this economic-financial strategy, unless any exceptional
circumstances arise, which will be duly announced, at a meeting on 21 November
2017 the Board of Directors of ENDESA, S.A. approved the following shareholder
remuneration policy for 2017-2020:
* 2017 to 2020: the ordinary dividend per share distributed against these years
will be the equivalent to 100% of ordinary net profit attributable to the
Parent company set down in the Consolidated Financial Statements of the Group
headed by this company, with a minimum of Euros 1.32 per share, gross, in 2017
and Euros 1.33 per share, gross in 2018.
* The intention of the Board of Directors of ENDESA, S.A. is that the ordinary
dividend will be paid solely in cash in two instalments (January and July) on
a given date to be determined in each case, which will be duly notified.
However, ENDESA's capacity to pay out dividends to its shareholders depends on
numerous factors, including the generation of profit and the availability of
unrestricted reserves, and, therefore, the Company cannot ensure that
dividends will be paid out in future years or the amount of such dividends if
paid.
In respect of 2017, at a meeting on 21 November 2017 ENDESA's Board of
Directors agreed to pay its shareholders a gross interim dividend against 2017
profits of Euros 0.70 per share, which gave rise to a pay-out of Euros 741
million on 2 January 2018.
The proposed distribution of profit in 2017 to be presented for approval at
the General Shareholders' Meeting by ENDESA's Board of Directors will be a
total gross dividend of Euros 1.382 per share.
Taking into account the interim dividend referred to in the preceding
paragraph, the complementary dividend in respect of 2017 profits will be a
gross amount of Euro 0.682 per share.
Alternative Performance Measures
Alternative Performance Measures (APMs) Unit Definition Reconciliation of Alternative Performance Measures (APMs) Relevance of use
31 December 2017 31 December 2016
EBITDA Millions of Euros Income - Procurements and services + Work carried out by the Group 3,542 MM€ = 20,057 MM€ - 14,569 MM€ + 222 MM€ - 917 MM€ – 1,251 MM€ 3,432 MM€ = 18,979 MM€ - 13,327 MM€ + 117 MM€ - 1,128 MM€ – 1,209 MM€ Measure of operating return excluding interest, taxes, provisions
for its assets - Personnel expenses - Other fixed operating expenses. and amortisation
EBIT Millions of Euros EBITDA - Depreciation and amortisation, and impairment losses. 2,031 MM€ = 3,542 MM€ – 1,511 MM€ 1,965 MM€ = 3,432 MM€ – 1,467 MM€ Measure of operating return excluding interest and taxes
Contribution margin Millions of Euros Revenue - Procurements and services 5,488 MM€ = 20,057 MM€ – 14,569 MM€ 5,652 MM€ = 18,979 MM€ – 13,327 MM€ Measure of operating return including direct variable production
costs
Procurements and Services Millions of Euros Energy purchases + Fuel consumption + Transport expenses + Other 14,569 MM€ = 4,933 MM€ + 2,294 MM€ + 5,652 MM€ + 1,690 MM€ 13,327 MM€ = 4,056 MM€ + 1,652 MM€ + 5,813 MM€ + 1,806 MM€ Goods and services for production
variable procurements and services.
Net financial gain/(loss) Millions of Euros Financial income - Financial expense + Net exchange differences. (123) MM€ = 51 MM€ - 178 MM€ + 4 MM€ (182) MM€ = 44 MM€ - 222 MM€ - 4 MM€ Measure of financial cost
Net investment Millions of Euros Gross investments - Capital grants and transferred facilities 982 MM€ = 1,175 MM€ – 193 MM€ 1,028 MM€ = 1,221 MM€ – 193 MM€ Measure of investment activity
Net financial debt Millions of Euros Non-current financial liabilities + Current financial liabilities – 4,985 MM€ = 4,414 MM€ + 978 MM€ - 399 MM€ - 8 MM€ 4,938 MM€ = 4,223 MM€ + 1,144 MM€ - 418 MM€ - 11 MM€ Short and long-term financial debt, less cash and financial
Cash and cash equivalents – Financial derivatives recognised under investment cash equivalents
assets
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