ENDESA Reports First Quarter Net Income of Euro 662 Million

Business Wire, May 12, 2008

MADRID, Spain -- 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:

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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.

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(*) 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.

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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.

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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.

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(*) 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.