Endesa S.a. · BME:ELE
Endesa — Investor Day (December 2009)
151 slides from Endesa's investor day presentation, Dec 11, 2009
Slide 1: Educational Investor Day: Latam
Madrid Friday, December 11th 2009 Educational Investor Day: Latam 1 1
Slide 2: General Note
General Note General Note The following presentations provide a description of Endesa assets in Latin America, the macroeconomic environment, regulatory issues and the functioning of our different markets. The objective of this presentations is to improve and to increase the knowledge of the Endes
Slide 3: Latin America in Enel Group
Madrid Friday, December 11th 2009 Latin America in Enel Group Luigi Ferraris, CFO ENEL 1 1
Slide 4: Group overview
Latin America in Enel Group Group overview Enel Group 1 Endesa LatAm 2 Capacity: 96.2 GW Capacity: 15.7 GW Clients: 61 mn Clients: 12.7 mn Endesa LatinAmerica: a key area of growth in Enel group 1.Enel Group 9M09 pro-forma figures with Endesa 100% consolidated 2. Endesa 100% 2
Slide 5: Endesa Latam offers a strong contribution to Enel Group
Latin America in Enel Group Endesa Latam offers a strong contribution to Enel Group 9M 2009 1 2 47.3 22% Production (TWh) Revenues 6,177 13% Ebitda (€ mn) 2,379 16% 3 Net profit (€ mn) 438 9% Strong contribution of the area to Group’s results 1. Endesa 100% - Endesa’s GAAP figures 2. Enel Group 9M09
Slide 6: Endesa in Latin America
Madrid Friday, December 11th 2009 Endesa in Latin America Andrea Brentan, CEO ENDESA 1 1
Slide 7: Contents
Endesa in Latin America Contents Strong and competitive position Well-balanced presence Long term commitment to the region Proven ability to manage the business Structural positive evolution of Latin American countries Positive long-term prospects 2
Slide 8: Contents
Endesa in Latin America Contents Strong and competitive position Well-balanced presence Long term commitment to the region Proven ability to manage the business Structural positive evolution of Latin American countries Positive long-term prospects 3
Slide 9: Endesa's presence in Latin America
Strong and competitive position Endesa's presence in Latin America SIEPAC Cartagena El Guavío Termozipa Codensa Cadena Vieja Betania Cadena Nueva Coelce Piura Fortaleza Hiunco Yanango Matucana Chimay KEY OPERATING DATA Callahuanca KEY FINANCIAL DATA Moyopampa Etevensa (2008) Huampaní (2008 €M) Edeln
Slide 10: Strong position in Latin American electricity markets
Strong and competitive position Strong position in Latin American electricity markets SIEPAC Cartagena #x Market position Colombia El Guavío % Market share Codensa #1 Termozipa Cadena Vieja 2,895 MW (21%) Betania Cadena 2.3 M clients (24%) Nueva Coelce Piura Fortaleza Brazil Hiunco Yanango Matucana
Slide 11: Endesa has built a strong platform for growth
Strong and competitive position Endesa has built a strong platform for growth Installed capacity (GW) Electricity customers (million) 15.7 12.7 12.0 9.1 8.6 10.1 6.3 4.9 5.6 5.3 3.2 4.0 1.6 1.0 Endesa AES Iberdrola CPFL GN+UNF* EdP Suez Duke Endesa AES Suez Iberdrola GN+UNF Duke CPFL EdP (*) Excludi
Slide 12: A key role in Endesa
Strong and competitive position A key role in Endesa 15.7 40% Installed capacity (GW) Assets (€M) 18,581 32% Customers (million) 12.7 52% Generation output (TWh) 47.3 45% EBITDA (€M) 2,379 41% Net income (€M) 438 14% 9M09 figures 7
Slide 13: Contents
Endesa in Latin America Contents Strong and competitive position Well-balanced presence Long term commitment to the region Proven ability to manage the business Structural positive evolution of Latin American countries Positive long-term prospects 8
Slide 14: Geographical diversification reduces risk exposure
Well-balanced presence Our geographical diversification allows to reduce the risk of exposure to individual markets % of installed capacity in LatAm by country 100% 89% 71% 72% 53% Weight of largest 35% 29% country operation on portfolio AES ENDESA DUKE SUEZ GN+UNF IBERDROLA EDP Together with AES,
Slide 15: Balanced business mix and generation structure
Well-balanced presence Balanced business mix and competitive generation structure Diversified Business Profile Diversified Generation Mix EBITDA 9M09 (Installed capacity) Wind Fuel-Gas 0.1% 16.6% 38% 62% Hydro CCGT 55% 24.9% Liberalized business Regulated business Coal 3.4% The bulk of our capacity
Slide 16: Contents
Endesa in Latin America Contents Strong and competitive position Well-balanced presence Long term commitment to the region Proven ability to manage the business Structural positive evolution of Latin American countries Positive long-term prospects 11
Slide 17: Long term commitment to the region
Long term commitment to the region Endesa has started to operate in the region 17 years ago continuously optimizing its portfolio Enersis rights issue-(Endesa's stake: 60.6%) Disposal of Rio Maipo, Canutillar, Infraestructura Dos Mil, Gas Atacama. Capital Additional stake in CERJ and reduction in Ch
Slide 18: A solid and deeply rooted position in local markets
Long term commitment to the region A solid and deeply rooted position in the local markets Long standing relationship with Presence in Stock Markets Corporate Social Responsibility Partners • Institutional international and local investors • Since 2000, Endesa has • 10 listed companies in local inve
Slide 19: Contents
Endesa in Latin America Contents Strong and competitive position Well-balanced presence Long term commitment to the region Proven ability to manage the business Structural positive evolution of Latin American countries Positive long-term prospects 14
Slide 20: Track record in managing the Latam business
Proven ability to manage the business Endesa has a track record in managing the Latam business Operational Growth % CAGR 05-09* •Capacity : +1,200 MW •Generation Sales: +1,8% •Distribution Sales: +3,4% •Number of Customers: +3,1% Quality of Service Results % 05-Sept 09 % CAGR 05-09* •SAIDI •EBITDA:
Slide 21: Sound Financial Position
Proven ability to manage the business Sound Financial Position Financial strength highlights Access to international and local financial markets Financial risk management and balanced debt structure Solid financial ratios Strong liquidity position 16
Slide 22: Integrated risk management capability
Proven ability to manage the business Integrated risk management capability Forward energy sales strategy stabilises margins in spite of market volatility Effective policy to manage hydrological volatility risk Latin America % estimated output already committed as of 30/09/09 Successful bidding
Slide 23: Contents
Endesa in Latin America Contents Strong and competitive position Well-balanced presence Long term commitment to the region Proven ability to manage the business Structural positive evolution of Latin American countries Positive long-term prospects 18
Slide 24: Population growth and urbanisation in Latin America
Structural positive evolution of Latin American countries The Latin American population is undergoing sustained growth with large concentrations in urban areas Population growth (1990-2009) Urban growth Urban population 450 Population 400 . Increase of 78 million 95% Increase of 69 million 350 inhab
Slide 25: Favourable evolution of inflation and exchange rates
Structural positive evolution of Latin American countries Favourable evolution of inflation and exchange rates Exchange rates evolution Urban Inflation rates Local currencies against € Population . 17% €/Brazilian Real 10 €/Chilean Peso 4.000 CPI Chile €/Argentinian Peso €/Colom bian Peso 15% 9 €/Pe
Slide 26: Government expenditure under control, reducing public debt
Structural positive evolution of Latin American countries The implementation of orthodox policies has put government expenditure under control reducing public debt Net public debt LatAm vs. Developed nations Public debt - aggregate LatAm 5 (% of GDP) (% of GDP) 115.0% 57% 60% 88.1% -2,062 bp 76.2% 7
Slide 27: Positive evolution of institutional and regulatory framework
Structural Positive evolution of Latin American countries Positive evolution of institutional and regulatory framework 1 Consolidated Frameworks 2 Profitability Regulation and Laws All markets consider since 1982. regulated rate equal or over 10% (real pre-tax). Exclusive long term concessions. Pric
Slide 28: Lower country risk
Structural positive evolution of Latin American countries Lower country risk as a consequence of political and economic stability Credit risk Country risk (EMBI bp) Government debt 2000 Moody’s S&P 18 0 0 Chile A1 A+ 16 0 0 Brazil Baa3 BBB- 14 0 0 Peru Ba1 BBB- 12 0 0 Colombia Ba1 BB+ 10 0 0 Argenti
Slide 29: Increase in FDI flows into the region
Structural positive evolution of Latin American countries The increase in FDI flows into the region reflect confidence among international investors Gross FDI stock (in million USD) 350.000 +99% 300.000 250.000 Economic and business growth 200.000 Reduction in public debt Development of intern
Slide 30: Sound fundamentals support faster recovery
Structural positive evolution of Latin American countries Sound fundamentals mean that Latin American economies are able to recover more rapidly GDP growth rates Latin-American economies have GDP growth estimates responded well to the crisis… Countries where Endesa GDP growth in Latin operates are s
Slide 31: Contents
Endesa in Latin America Contents Strong and competitive position Well-balanced presence Long term commitment to the region Proven ability to manage the business Structural positive evolution of Latin American countries Positive long-term prospects 26
Slide 32: Electricity demand has great growth potential
Positive long-term prospects Electricity demand has a great growth potential Electricity demand growth (1990-2009) Per capita power consumption Consumption: kWh 2007 Colombia 940 Perú 982 Brazil 2,154 TWh +169% +107% +208% +90% +150% Argentina 2,658 200 Chile 3,326 150 Italy 5,718 100 UK 6,142 50 Sp
Slide 33: Perspectives for the electricity industry in Latin America
Positive long-term prospects Perspectives for the electricity industry in Latin America Significant investment needs Availability of Resources 2008-2030 2008 Projections for Latin America Hydro 579 430,000 MW of potential capacity 2009-2030 ~ 2.5x of total existing overall hydro Total investme
Slide 34: Scope for organic growth in generation and distribution
Positive long-term prospects Latin America will provide scope for organic growth of our generation and distribution businesses System Capacity (GW) System Demand (TWh) CAGR 2008-17: + 4.6% CAGR 2008-17: + 4.7% 242 961 11 19 56 76 161 22 81 635 5 29 14 54 13 53 155 599 103 393 26 35 106 149 2008 2017
Slide 35: Endesa Latin America: Business platform and solid prospects
Madrid Friday, December 11th 2009 Endesa Latin America Business platform and solid prospects Ignacio Antoñanzas Alvear General Manager Endesa Latin America 1
Slide 36: Business platform and solid prospects
Business platform and solid prospects Contents Endesa has consolidated a unique business platform in Latin America Our businesses offer solid prospects, with stable and visible cash flows Going forward, we will capture the best profitable and sustainable growth opportunities 2
Slide 37: Business platform and solid prospects
Business platform and solid prospects Contents Endesa has consolidated a unique business platform in Latin America Our businesses offer solid prospects, with stable and visible cash flows Going forward, we will capture the best profitable and sustainable growth opportunities 3
Slide 38: Endesa is leader in four of five countries
Endesa has consolidated a unique business platform in Latin America Endesa is leader in four of the five Latin American countries where it operates Colombia 2,895 MW #1 Brazil: 21% market share in generation 987 MW Output 9M09: 9,922 GWh 1% market share in generation Output 9M09: 2,445 GWh 2.3 milli
Slide 39: Endesa Group assets in Chile
Endesa has consolidated a unique business platform in Latin America Endesa Group assets in Chile Generation: 5,540 MW Market Share: 38% Tarapacá ENDESA CHILE Los Molles: 18 MW Rapel-Sauzal: 466 MW Hydro D. Almagro–Taltal Maule: 882 MW 3,461 MW Laja: 938 MW Huasco (62%) Ralco-Pangue: 1,157 MW Los Mol
Slide 40: Endesa Group assets in Colombia
Endesa has consolidated a unique business platform in Latin America Endesa Group assets in Colombia Generation: 2,895 MW Market Share: 21% EMGESA Guavio: 1.213 MW Hydro Betania: 541 MW 2,451 MW Río Bogotá: 697 MW (87%) Cartagena Thermal Cartagena: 208 MW Termozipa: 236 MW 444 MW (13%) Distribution:
Slide 41: Endesa Group assets in Peru
Endesa has consolidated a unique business platform in Latin America Endesa Group assets in Peru Generation: 1,791 MW Market Share: 31% EDEGEL Cuenca Río Rímac: 551 MW Yanango: 43 MW Hydro Chimay: 151 MW 745 MW Ventanilla: 493 MW Thermal Santa Rosa: 422 MW 915 MW Piura • EEPSA (Gx) PIURA Malacas: 131
Slide 42: Endesa Group assets in Brazil
Endesa has consolidated a unique business platform in Latin America Endesa Group assets in Brazil Generation: 987 MW Market Share: 1% CACHOEIRA Cachoeira: 665 MW Hydro 665 MW Fortaleza FORTALEZA Fortaleza: 322 MW Thermal 322 MW Distribution: Market Share: 5% Rio de Janeiro AMPLA Distribution area: R
Slide 43: Endesa Group assets in Argentina
Endesa has consolidated a unique business platform in Latin America Endesa Group assets in Argentina Generation: 4,522 MW Market Share: 17% EL CHOCÓN Hydro El Chocón: 1,328 MW 1,328 MW COSTANERA Thermal 9 Costanera: 2,324 MW 2,324 MW CIEN Line (2x1.050 MW) DOCKSUD Interconnection with Brazil Thermal
Slide 44: Corporate structure: Enersis, holding vehicle for Latin America
Endesa has consolidated a unique business platform in Latin America Corporate structure: Enersis, holding vehicle for Latin America ENDESA 100,00% ENDESA LATINOAMÉRICA 60,62% ENERSIS 59,98% 99,08% 28,48% 22,06% ENDESA Endesa CHILE EndesaChile Chile Endesa Chilectra CHILECTRA Chilectra 36,27% Brasil
Slide 45: Corporate structure and contribution from direct holdings
Endesa has consolidated a unique business platform in Latin America Corporate structure and contribution from direct holdings ENDESA ENDESALATINOAMÉRICA INTERNACIONAL Direct Holdings % Endesa EBITDA associated to 60.6% direct stake our economic interest ENERSIS Enersis Direct Codensa 26.7% 67 Enersi
Slide 46: Unique asset portfolio in the region
Endesa has consolidated a unique business platform in Latin America Endesa has developed a unique asset portfolio in the region Generation Population Installed capacity at Sept. 2009 20 (Million people) 15,735 MW 16 Endesa’s presence Wind; 18 14 Fuel-Gas; 2,609 8 8 5 Hydro; CCGT; 8,650 3,920 2 1.6 1
Slide 47: Highly diversified assets by country and activity
Endesa has consolidated a unique business platform in Latin America Endesa owns highly diversified assets by country and type of activity Generation sales 9M09 Distribution sales 9M09 53,701 GWh 47,141 GWh Peru Peru Argentina 9% Argentina 13% 24% 26% Colombia 19% Colombia Brazil 23% 10% Chile Brazil
Slide 48: Recurrent growth of Endesa's financials
Endesa has consolidated a unique business platform in Latin America Recurrent growth of Endesa’s financials EBITDA (M€) Net income (1) (M€) CAGR 05’-08’: + 17% CAGR 05’-08’: + 25% 101 2,968 471 506 2,534 2,379 438 2,188 361 1,878 262 2005 2006 2007 2008 9M09 2005 2006 2007 2008 9M09 Ordinary Extraor
Slide 49: Improvements in quality of service and losses
Endesa has consolidated a unique business platform in Latin America Consistent improvements in quality of service and losses Quality of service, interruption time (Hours) Losses (%) -28% -7% 11.8 10.2 9.9 9.6 8.3 7.4 11.2 11.2 10.8 11.0 2005 2006 2007 2008 9M09 2005 2006 2007 2008 9M09 Interruption
Slide 50: Investing while preserving financial discipline
Endesa has consolidated a unique business platform in Latin America And keep on investing but preserving its financial discipline Capex Net consolidated debt M€ M€ 3,969 M€ -16% 6,109 1,058 875 869 5,618 600 5,519 5,272 5,136 567 2005 2006 2007 2008 9M09 2005 2006 2007 2008 9M09 Note: financial cape
Slide 51: Contents
Business platform and solid prospects Contents Endesa has consolidated a unique business platform in Latin America Our businesses offer solid prospects, with stable and visible cash flows Going forward, we will capture the best profitable and sustainable growth opportunities 17
Slide 52: Stable regulatory frameworks in generation
Generation business Stable regulatory frameworks in generation with long-term signals for investment 1 Regulated market 2 Free market Long-term tenders that Supply of specific needs of promote expansion industrial customers • Prices indexed to inflation and fuel prices • Prices indexed to marginal c
Slide 53: Maintain leadership through organic growth
Generation business Maintain leadership through organic growth New 1,200 MW in the last four years Annual capex in generation (€M) Chile: Perú: TG Quintero +257 MW Ventanilla +141 MW Perú: Colombia: Santa Rosa +193 MW +450 15,735 390 Cartagena +142 MW 225 293 +187 +390 106 167 +222 14,485 160 124 12
Slide 54: Commercial policy to reduce volatility of margins
Generation business Careful commercial policy to reduce volatility of margins Risk variables affecting margins Target output and sales in 2009 (TWh) Hydrology Demand growth Fuel prices 63.5 Exchange rates Extreme hydro Inflation volatility Spot 36,5 Hydro Commercial policy Our gross marg
Slide 55: Short and medium term contracts with fixed prices
Generation business A significant volume of short and medium term contracts with fixed prices and indexation mechanisms Energy contracts with established prices Price of contracts (energy & capacity) (TWh) in 3Q 2009 (USD/MWh) 46.2 Argentina 41.9 Price Indexation 38.6 36.1 Colombia Inflation (USA)
Slide 56: Lower generation costs than peers
Generation business Endesa enjoys lower generation costs than its peers Endesa Rest of the sector(1) Average output cost January-September 2009 (USD/MWh) 47.7 41.0 29.8 23.6 12.9 9.2 8.6 10.0 2.1 1.9 Chile - CIS Colombia Peru Argentina Brazil Hydro capacity 2008 Endesa 66% 85% 47% 29% 67% Sector tot
Slide 57: Stable distribution regulation promoting investment
Distribution business Regulation in distribution is stable, applied with technical criteria to promote investment 2 3 Stable regulatory Attractive returns frameworks • Defined by law (Chile, Peru) or • Frameworks established in 1984 calculated based on technical criteria (Chile), 1992 (Colombia), 19
Slide 58: Regulatory frameworks recognise US$11.7 bn of assets
Distribution business The regulatory frameworks recognise Endesa´s US$11.7 bn worth of assets, with attractive returns Return on investment recognized in the regulatory Regulatory asset base RAB (US$ Bn) framework Gross RAB Net RAB Range of variation Regulated rate 30 Sep 09 Real pre-tax US 10Y bond
Slide 59: Potential to exceed regulated return
Distribution business Potential to exceed the regulated return through operational incentives schemes Regulated returns Operating drivers for additional value creation % Return Increase in profitability Reduction in losses with partial pass-through of annual efficiencies + Cost optimization + Regula
Slide 60: Efficient operating levels leave room for profitability
Distribution business Efficient operating levels leaves room for additional profitability OPEX (€/customer) CAPEX (€/customer) 60.0 56.5 41.0 42.9 43.6 34.4 Endesa Latam 1st Quartile Dx Average Dx Endesa Latam 1st. Quartile Average Dx 2008 Latam Latam 2008 Latam One of the most efficient companies i
Slide 61: Steady organic growth with sustained returns
Distribution business Steady organic growth with sustained returns Distribution sales (GWh) CAGR +4.4% Annual capex in distribution (€M) 62,805 55,246 47,141 297 2005 2008 3T09 253 267 171 166 Distribution customers ('000) 216 214 246 202 153 CAGR +3.1% 2005 2006 2007 2008 jan-sep 09 272 12,689 443
Slide 62: Business platform and solid prospects
Business platform and solid prospects Contents Endesa has consolidated a unique business platform in Latin America. Our businesses offer solid prospects, with stable and visible cash flows. Going forward, we will capture the best profitable and sustainable growth opportunities. 28
Slide 63: Main action lines
Capture the best profitable and sustainable opportunities growth Main action lines Maintain our leadership position in Chile, Colombia and Peru Achieve efficiencies and set best practice standards Implementation of regulatory agreements in Argentina 29
Slide 64: Project portfolio designed to retain leadership
Maintain our leadership position in Chile, Colombia and Peru Project portfolio designed to retain leadership Peru: Santa Rosa open-cycle gas plant (193 MW) Start-up Chile: Quintero open-cycle gas plant (257 MW) 9M 09 Chile: Quintero regasification plant: 20% stake and 33% access to gas (from m
Slide 65: Bocamina II (Chile)
Maintain our leadership position in Chile, Colombia and Peru Bocamina II (Chile) Coal Coal power power plant plant located located next next to to Bocamina Bocamina II plant plant (Region (Region VIII): VIII): Capacity: Capacity: 370 370 MW MW Average Average annual annual output: output: appr
Slide 66: Quimbo hydro plant (Colombia)
Maintain our leadership position in Chile, Colombia and Peru Quimbo hydro plant (Colombia) First large-scale hydroelectrical project built by a private company in Colombia: Installed capacity of 400 MW (Francis, 2 x 200 MW) Located in the upper basin of the Magdalena river, 12km upstream from th
Slide 67: HidroAysén Project (Chile)
Maintain our leadership position in Chile, Colombia and Peru HidroAysén Project (Chile) Project overview: Ownership: Endesa 51%, Colbún 49% 5 hydroelectric stations with total capacity of 2,750 MW, expected start-up between 2017 and 2025 Location: region XI. Use of Baker and Pascua river basin
Slide 68: Synergy and Efficiency Plan
Achieve efficiencies and set best practice standards Synergy and Efficiency Plan Targets (M€) By the end of third 171 quarter 2009, we had 9 Energy management achieved 75% of the annual target Distribution 105 82 3 Synergies 44 Generation 13 achieved 3Q09 16 Purchases 18 61 M€ 8 28 Structure & other
Slide 69: Increased synergies in Generation and Distribution
Achieve efficiencies and set best practice standards Work in progress on increased synergies in Generation and Distribution Generation O&M optimization plan Fuel procurement Fixed cost reduction plan • Power plant availability improvement • LNG purchases optimization • Function centralization • LTSA
Slide 70: Argentina's financials do not reflect its activity levels
Implementation of regulatory agreements in Argentina Argentina’s financials do not reflect its activity levels We have high quality assets Argentina's contribution to Endesa Latinoamérica business in 2008 2.2 million customers in Buenos Aires High consumption of 7,200 kWh/customer/year High de
Slide 71: Contents
Business platform and solid prospects Contents Endesa has consolidated a unique business platform in Latin America Our businesses offer solid prospects, with stable and visible cash flows Going forward, we will capture the best profitable and sustainable growth opportunities 37
Slide 72: Regulation in Latin America
Madrid Friday, December 11th 2009 Regulation in Latin America Marcelo Castillo, Regulation Director Endesa Latinoamérica 1 1
Slide 73: Contents
Contents Regional overview Generation and distribution regulation Future challenges 2
Slide 74: Current market conditions and average prices
Regional overview The current market conditions and the regulation in force in Latin America determine the following prices Average Price for Customers in 2009 Approximate values for US$/MWh Endesa concessions (before tax). 150 Distribution 135 (average VAD) 29 125 125 108 62 51 91 44 40 Generation
Slide 75: Distribution regulatory frameworks provide incentives
Regional overview Regulatory frameworks for distribution provide incentives to assure the adequate provisioning of services Long term concessions Long experience in tariff revisions First implementation Indefinite. Decree with Force of Law 1/82 1984, 7 Rev. Indefinite. Law 25.844/92. 1997, 4 Rev. Ad
Slide 76: Generation regulatory framework fosters expansion
Regional overview The regulatory framework for generation fosters stable functioning and creates incentives to ensure expansion Markets with audited costs Technical calculation of capacity payment increase transparency avoids discrimination among technologies Spot markets with audited costs Revenue
Slide 77: Antitrust regulations allow Endesa to grow
Regional overview Antitrust regulations allow Endesa to grow in the long term Limits to horizontal concentration Example: Concentration in Gx Gx Tx Dx Cx HHI* Country Endesa Gx Market share ≥15% requires authorization 2,250 31% ≥20% 1 2,250 1% or revenues ≥ US$ 220M per year Not explicit 2,200 38% 2
Slide 78: Regulation promoting security of supply in each country
Regional overview Regulation has adapted to the lack of regional integration promoting security of supply in each country Electricity Interconnections Gas Interconnections Main Interconnection Existing LNG SIEPAC LNG Under construction Proposed LNG - Gas Pipeline - Ceará, 5M m³/day, 2009 Río de Jane
Slide 79: Regulatory changes to guarantee supply and expansion
Regional overview In short, important regulatory changes have been undertaken by governments to guarantee security of supply and expansion Catalysts Main Changes (2003-2008) Highly dependent on hydro energy sources (2006) “Reliability charge” based on tenders of firm energy contracts, up to 20 years
Slide 80: Contents
Contents Regional overview Generation and distribution regulation Future challenges 9
Slide 81: Distribution regulated tariff components
Distribution regulation Regulated tariffs are comprised of specific items and are based on efficient costs to provide the service Regulated Operation and Tariff Return Pass-Through Maintenance Final on investment (Non manageable costs) customer (O&M) Return on Recognition of Energy & Capacity assets
Slide 82: Two models to determine return on investment
Distribution regulation Two models are used to determine the return on investment Economic Return on = RAB x FRC(TRrai,n) investment RAB : Regulatory Asset Base Regulatory FRC : Capital recovery factor Models TRrai : Real regulated rate before taxes n : Useful life (years). Accounting Return on = RA
Slide 83: Regulated rate set using clear criteria
Distribution regulation The regulated rate is set using clear criteria, both when determining its value and its methodology By Law WACC/CAPM Every 4 Every 5 Since 1982 Since 1992 years years Real pre-tax 10% 12% 15% 13.9% To be defined Rate DFL. No 1/82 DS. 25844/92 Res. ANEEL 259/07 Res. CREG 093/0
Slide 84: Scale economies shared between company and customer
Distribution regulation In distribution there are interesting scale economies that are allowed to be shared between the company and the customer Price Cap Model Adjustment Factor Market growth Profitability % Company Profits Regulated Rate WITH Efficiency adjustments WITHOUT Efficiency adjustments 2
Slide 85: Distribution tariffs and recognition of assets
Distribution regulation The application of the regulatory framework determines attractive distribution tariffs and recognition of assets RAB 2009 (US$ Bn) VAD 2009 (US$/MWh) Coelce 60% 1.9 Coelce 8 TWh 64 Ampla 70% 2.3 Ampla 9 TWh 62 Codensa 2.6 Codensa 12 TWh 51 Edelnor 1.0 Edelnor 6 TWh 36 Chilect
Slide 86: Mechanisms to insure generation revenues
Generation regulation The regulation establishes different mechanisms to insure generation revenues Revenues of a Generation company Endesa Example Capacity Capacity Payment Fixed payment in exchange for plant availability 20% Energy Supply and demand determine marginal Spot market 15% hourly cost A
Slide 87: Capacity payment
Generation regulation Capacity All the frameworks grant, either directly or indirectly, a set Payment capacity payment, in order to remunerate the investment Capacity Payment Set by the regulator US$/MWh US$/MW/y It corresponds to an efficient investment cost of a gas Argentina 2 14,000 turbine (O&M
Slide 88: Spot market prices based on audited costs
Generation regulation Spot Spot market prices are mainly based on audited costs, market which allows for greater predictability and stability in prices Example Chile Range of US$/MWh Demand Supply Peak Turbine Marginal hourly cost 160-180 US$/MWh Diesel-Fuel 100-130 US$/MWh LNG Combined Cycle 70-80
Slide 89: Regulated price
Generation regulation Regulated Regulated prices are calculated by the regulator, as a projection Price of future marginal spot prices. Only applies to regulated customers Bar price Node price Seasonal price 1 year 6 months 3 months Example: Node price - Chile Regulation has reflected the real 119 c
Slide 90: Tenders for regulated demand
Generation regulation Tenders for regulated demand provide long term stability in a Tenders competitive framework. Only applies to regulated customers Latin American Tenders Years Indexation Regulated ceilings US$/MWh 15T Commodities/IGPM Defined by regulator 80 30H Fuels/IPC 20 Defined by generator
Slide 91: Gradual liberalization of free customers
Generation regulation Free The gradual liberalization of markets Customers has reached adequate levels Minimum Since stay 1 > 30 kW < 30 kW year 1992 > 3,000 kW < 3,000 kW 5 > 500 kW renewable < 500 kW renewable years 1995 4 > 500 kW < 500 kW years 1982 1 > 100 kW < 100 kW year 1994 > 200 kW < 200 k
Slide 92: Non-conventional renewable energy policies
Generation regulation Despite the important hydro component in Latin America, regulators are developing non-conventional renewable energies policies Colombia Brazil • Tax and duty benefits • Proinfa I y II • Reliability Payments for minor power plants • Tenders by technology with price ceilings (105
Slide 93: Distribution tariff review timeline
Generation and distribution regulation - Agenda Following the 2009 reviews, Endesa has set distribution tariffs at US$ 6 Bn for the coming years 2009 2010 2011 2012 2013 2014 Ampla CIEN Ampla Tariff review Toll Definition Tariff review Coelce Tariff review Coelce Definitive close 2007 Tariff review
Slide 94: Contents
Contents Visión Regional Regulación de Distribución y de Generación Future challenges 23
Slide 95: Brazil: CIEN remuneration negotiations
Brazil We are about to initiate regulatory negotiations to determine stable remuneration for the Argentina - Brazil interconnection (CIEN) From a commercial scheme to a regulatory solution… Approval of Law 16/2009 will allow the company to request remuneration similar to that of Brazil's basic grid.
Slide 96: Argentina: Integral Tariff Revision
Argentina The Integral Tariff Revision (RTI) is an important milestone in the recomposition of Edesur’s concession and its tariffs The agreement “Acta Acuerdo” signed in June 2005 set the framework for the recomposition of distribution tariffs. VAD US$/MWh >30 Up to date RTI +58% 21 Highlights: 18 A
Slide 97: Argentina: recomposition of generation
Argentina Argentina The agreements with the government envisage the recomposition of generation, starting with the rollout of the FONINVEMEM combined cycle plants in 2010 Regulatory Commitments US$/MWh Demand (Res. 1.427/04) Supply240 The seasonal price shall reflect the real spot price to eliminate
Slide 98: Conclusions
Conclusions To recap, regulations in Latin America facilitate the profitable recovery of long term investments, with reduced risk Regulations are stable, but improved constantly in order to obtain better 1 transparency for agents. Regulation is a part of governments' competitive strategy to attract
Slide 99: Risk Management in Latin America
Madrid Friday, December 11th 2009 Risk Management in Latin America José Venegas M, Energy Management Director Latam. 1 1
Slide 100: Contents
Risk Management in Latin America Contents Description of risk management in Latin America The value of risk management Current status and prospects Fuel policy Conclusions 2
Slide 101: Contents
Risk Management in Latin America Contents Description of risk management in Latin America The value of risk management Current status and prospects Fuel policy Conclusions 3
Slide 102: Electricity business risks classification
Description of risk management in Latin America Electricity business risks classification Risk Typology Control Instruments Measures Electricity Business Risks: Water availability and Demand Actions to Manageable Pattern Comparison Reduce Risk and Fuels, Exchange Rates, Inflation Risk and Inte
Slide 103: Key risk problem in hydro-based countries
Description of risk management in Latin America Key risk problem in countries with high level of hydro generation 50 140 Demand supply in SIC by type of generation for each hydrological year 120 otros 40 gas diesel 32.4 100 carbón US$/MWh TWh 30 Δ+ = 4.7 TWh 80 Generación, hidro 27,7 Generation, Δ-
Slide 104: Methodology for managing hydrological risk
Description of risk management in Latin America Endesa has defined a methodology for managing hydrological risk Hydraulic Few contracts Many contracts In a very dry year In a very humid year Variable Margin MMUS$ rice 0% 55% 100% ted margin with > p contracts optimal contracts xpec Average e DMExp E
Slide 105: Margin at Risk methodology
Description of risk management in Latin America Margin at Risk Methodology considers our diversity of countries, companies and currencies 1. Hydrology Variable Margin Diversification Argentina Models Brasil F(X) MMUS$ Chile Colombia 61% 2. Fuels, demand, exchange rate Perú VARIABLES: Variable analys
Slide 106: Contents
Risk Management in Latin America Contents Description of risk management in Latin America The value of risk management Current status and prospects Fuel policy Conclusions 8
Slide 107: Commercial policy and risk management created value in Chile
The value of risk management Commercial policy and risk management helped Chile to create value US$/MWh MMUS$ Variable Margin Financial crisis, oil prices reduction and 250 demand contraction. 2.000 1.800 200 Global rising of Oil prices. 1.600 Long position designed for dry years 1.400 Argentina N
Slide 108: Long position benefits from spot prices in Chile and Peru
The value of risk management Long position allows to benefit from attractive spot prices in Chile and Peru 2004-2009 Sales Balance of surplus production to the spot MgC < Pr. Contracts MgC > Pr. Contracts Long position in spot sales has produced margins in the changing scenario of Chile and Peru, as
Slide 109: Redesign of sales contracts with risk pass through
The value of risk management The redesign of sales contracts with total or partial risk pass through clauses has brought significant benefits Benefit due to risk clauses in CHILE 35 (Without considering the effect in regulated prices) 30 Price clauses with spot price monitoring 25 threshold: MMUS$ 2
Slide 110: Contents
Risk Management in Latin America Contents Description of risk management in Latin America The value of risk management Current status and prospects Fuel policy Conclusions 12
Slide 111: Risk position in line with targets
Current status and prospects Risk position in line with targets Optimal Volume Latin America 2010 In 2010 in global Latam. ENDESA will sell 73% of its production to regulated and non regulated clients. The other portion will be sold to spot markets. Variable, Margin 62.8 TWh 61.5 TWh Gas Spot 22.3 T
Slide 112: Distribution companies have covered future energy requirements
Current status and prospects Endesa’s distribution companies have covered their future energy requirements Contratacting Needs LATAM 2010 - 2014 [GWh] 100.000 75.000 50.000 25.000 0 -25.000 -50.000 2010 2011 2012 2013 2014 Energy Requirement 60.658 62.632 65.352 68.321 71.451 Contracts 46.523 48.089
Slide 113: Chile: energy and risk management
Current status and prospects: Chile Energy and risk management aims to maintain and improve current competitive position. Diesel 2013: VCP of Endesa Assets and Marginal Cost Chile SIC 613 MW 60 11 GWh 40 Look for better prices with Unit Cost of Energy 20 clients monitoring the risk 00 “Careful” Mana
Slide 114: Chile: reserve margin will increase
Current status and prospects: Chile Reserve margin in Chile will increase reflecting capacity additions TWh Total Generation TWh - Reserve Margin %RM Chile SIC 60 100% 90% 50 80% • Consistent policy of indexation formulas in 40 70% contracts with customers to hedge 60% generation cost volatility 30
Slide 115: Argentina: maximizing margin with asset portfolio
Current status and prospects: Argentina Maximizing margin with asset portfolio 2013: VCP of Endesa Assets and Marginal Cost Argentina 40 20 Diesel Unit Cost of Energy 00 Revaluation of 240 price. 1.210 MW Rise the limit. 2.131 GWh Revaluation 80 of O&M 60 Marginal Cost 40 more gas and Hydraulic Gas
Slide 116: Argentina: gas transportation and availability
Current status and prospects: Argentina Despite slow increase in capacity, key factor will be availability and gas transportation TWh Total Generation TWh - Reserve Margin %RM Argentina 140 100% 90% 120 80% • Emphasis on realigning final consumer 100 70% prices with spot prices adjustment 80 60% 50%
Slide 117: Brazil: competitive thermal assets
Current status and prospects: Brazil Competitive thermal assets but profitability depends highly on NG and LNG government policies 2013: VCP of Endesa Assets and Marginal Cost Brasil 40 20 Unit Cost of Energy CDSA Contracting 00 Monitoring the risk 80 Gas 322 MW 60 2.013 GWh Marginal Cost 40 Hydraul
Slide 118: Brazil: pressure on reserve margins in dry years
Current status and prospects: Brazil High hydraulic Brazilian system increases pressure on reserve margins in dry years TWh Total Generation TWh - Reserve Margin %RM Brazil 600 100% 90% 500 80% • Brazil´s pricing contract system and 400 70% 60% generation costs associated with local 300 50% costs of
Slide 119: Colombia: hydro generation is main source of margin
Current status and prospects: Colombia Hydro generation is Emgesa´s main source of margin Diesel 208 MW 2013: VCP of Endesa Assets and Marginal Cost Colombia 90 GWh 70 Contracting at better prices 60 monitoring the risk Unit Cost of Energy 50 Coal Marginal 40 236 MW Cost 738 GWh Improve 30 availabil
Slide 120: Colombia: more stable reserve margins
Current status and prospects: Colombia Less volatile hydrological sources implies more stable reserve margins TWh Total Generation TWh - Reserve Margin %RM Colombia 70 100% 90% • Short term contracts energy prices linked to 60 80% inflation 50 70% 40 60% • Single buyer model proposed for bid 50% pro
Slide 121: Peru: regulation keeps NG prices frozen
Current status and prospects: Perú Regulation keeps NG prices frozen affecting marginal income 2013: VCP of Endesa Assets and Marginal Cost Peru 50 25 Reduce sales in the spot Diesel 00 and look for better prices 230 MW Unit Cost of Energy 75 with clients monitoring risk 6 GWh 50 ¿Free gas prices? 2
Slide 122: Peru: dry hydrology and gas pipeline congestion
Current status and prospects: Perú Dry hydrology and gas pipelines congestions might affect supply costs system TWh Total Generation TWh - Reserve Margin %RM Peru 40 100% 35 90% 80% 30 70% 25 Subsidized NG for domestic consumption 60% 20 50% suggest regulated and non regulated 15 40% contracts with
Slide 123: Contents
Risk Management in Latin America Contents Description of risk management in Latin America The value of risk management Current status and prospects Fuel policy Conclusions 25
Slide 124: Availability and price of NG will affect regional prices
Fuel policy Availability and price of NG will affect prices in the region Balance 2009 Balance 2011 [million m3/d] [million m3/d] LNG LNG 25 68 98 3 34.3 0.25 9.5 9.5 16 37 61 45 LNG 33 6.2 22.8 30 9 7 LNG 5.3 LNG LNG 6 2 4 0.25 3 0 Years 0 LNG 0 24 130 LNG 2.5 0.2 7.5 0 104 0 33 0.9 LNG Even with L
Slide 125: Fuel policy linked to asset features and market position
Fuel policy Fuel policy linked to assets features and market position Lower prices than competitors Efficient “base” operation Improve efficiencies Coal in Chile and Colombia Negotiate bulk NG in Peru Take advantage of synergies CCGT in Argentina Fuels Policy aimed at Ensure continuo
Slide 126: Contents
Risk Management in Latin America Contents Description of risk management in Latin America The value of risk management Current status and prospects Fuel policy Conclusions 28
Slide 127: Energy risk management improved and preserves margins
Conclusions Energy risk management improved and preserve margins Hydrological volatility risk is key in Latam. Risk model implemented to achieve margins stability in volatile markets Successful bidding and pricing for regulated and non regulated clients Fuel acquisition policies built consid
Slide 128: Main business value drivers in Latin America
11 | 1Madrid 2|09 Friday, December 11th 2009 Main valuation drivers Main business value drivers in Latin America Paolo Bondi, Chief Financial Officer 1 1
Slide 129: Contents
Contents Valuation of the Latin American business Sound financial position Attractive shareholder remuneration Valuation of the Latin American business Value drivers of the Latin American business Value drivers of the distribution business Value drivers of the generation business Other
Slide 130: Access to financial markets
Sound financial position Access to financial markets Operative affiliates access to financial markets on stand alone basis Macroeconomic strength in the region allows local financial markets development, sourcing 61% of the total debt Enersis and Endesa Chile (both BBB/Baa3) access internation
Slide 131: Debt structure and financial risk management
Sound financial position Debt structure and efficient financial risk management Debt currency PEN 6% Net debt Endesa Latin COP Euros Debt currencies in line with 19% America 9M09: €5,136M 15% operating cash flows BRL 12% Generation in Chile and Peru ARS >90% linked to US$ 1% USD CLP 33% 14% Inte
Slide 132: Solid financial ratios
Sound financial position Solid financial ratios… Net debt/EBITDA 3 2,5 2.6x 2 2.2x Endesa Latin 1,5 1.8x America Enersis' investment 1.6x 1 grade status 0,5 restored 0 2006 2007 2008 30/09/09* EBITDA/Net financial expenses Endesa Latin 9 8.1x America 8 7 6 5.6x 5.7x 5 4 3 4.3x Enersis' investment 2
Slide 133: Strong liquidity position
Sound financial position …and strong liquidity position Endesa Latin America: Gross balance of maturities with third parties outstanding at 30 September 2009: €5,760M Endesa’s Latin America Liquidity Bonds Bank debt and others 2,519 Undrawn 2,241 289 Committed Credit 577 Lines 2.643 892 2,230 Cash 1
Slide 134: Contents
Contents Valuation of the Latin American business Sound financial position Attractive shareholder remuneration Valuation of the Latin American business Value drivers of the Latin American business Value drivers of the distribution business Value drivers of the generation business Other
Slide 135: Good share price performance by listed subsidiaries
Attractive shareholder remuneration Good share price performance by listed subsidiaries Enersis and Endesa Chile share price performance 250 200 NYSE ADR Enersis: +92% 150 NYSE ADR Endesa Chile: +68% 100 S&P Utilities -3% S&P500 -11% 50 0 30/12/05 30/06/06 30/12/06 30/06/07 30/12/07 30/06/08 30/12/0
Slide 136: Cash flows received by Endesa Latin America
Attractive shareholder remuneration Cash flows received by Endesa Latin America Endesa Latin America: cash flows via dividends and capital reductions €M Dividends Equity reductions 177 896 70 253 177 253 317 6 826 311 149 64 85 2006 2007 2008 30-Sep-09 Total Endesa Latin America has received ~€900
Slide 137: Contents
Contents Valuation of the Latin American business Sound financial position Attractive shareholder remuneration Valuation of the Latin American business Value drivers of the Latin American business Value drivers of the distribution business Value drivers of the generation business Other
Slide 138: Financial indicators by country and business line
Valuation drivers Financial indicators by country and business line (*) Last Twelve Months (1 oct 08-30 sept 09) 11
Slide 139: Value perimeter of the Latin American business
Value perimeter of the Latin American business Direct shareholdings represent 25%-30% of Endesa Latin America's value Contribution of direct stakes to Endesa's value €M 7,123 1.55 x 2,151 4,589 Direct stakes 1,386 60.62% of Enersis 4,972 Enersis 1.55 x 3,203 Book value 30/09/09 Market value 30/09/09
Slide 140: Operating data of the distribution business
Value drivers of the distribution business Operating data of the distribution business (*) Last Twelve Months (1 oct 08-30 sept 09) 13
Slide 141: Regulatory systems recognise over US$11.7 bn of assets
Value drivers of the distribution business The regulatory systems recognise remuneration to Endesa of over US$11.7 bn worth of assets Regulatory asset base (RAB) (US$M) Return on investment at 30 September 2009 Regulated rate Real pre-tax US 10Y bond Edelnor 1.0 Nominal after in local yield+EMBI tax
Slide 142: Operating data of the generation business
Value drivers of the generation business Operating data of the generation business (*) Last Twelve Months (1 oct 08-30 sept 09) 15
Slide 143: Multiples valuation must factor in plant efficiency
Value drivers of the generation business The multiples valuation of Latin American assets must factor in plant efficiency Endesa output 9M 09 Hours of operation at full capacity - Hydro plants 1980-2007 5,055 5,062 4,834 4,654 4,359 +19% +23% +28% +36% +51% 3,770 3,533 3,563 3,353 2,965 41% 59% 2,28
Slide 144: Other assets that provide a source of value
Other sources of value Other assets that provide a source of value Unaccrued RM RM88: 88:Cumulative Cumulativedifference differencedue dueto tothe the Unaccrued obligation of generating companies to Amount outstanding as of 30/09/09 regulatory obligation of generating companies to regulatory grant g
Slide 145: Argentina: limited exposure and strong growth potential
Argentina in a normalised situation Argentina: limited exposure and strong growth potential 3% 3%of ofGroup GroupEBITDA EBITDAinin9M09 9M09 Limited <1% <1%of ofnet netattributable attributableincome incomeinin9M09 Limitedexposure exposure 9M09 Accounting Accountingrisk riskatat30/09/09: 30/09/09:€25
Slide 146: Integration benefit and Synergies Plan
Integrated within a large industrial group Integration benefit and Synergies Plan Integration benefits • Critical mass • Transference of best practices • Geographic and business diversification • Integrated risk management Synergies capture Annual efficiencies Areas of synergies achievement €171 M •
Slide 147: Endesa Latin America is worth more
Conclusion Endesa Latin America is worth more • Distribution value > RAB • High quality generation assets and commercial strategy • Other sources of value • Argentina upside potential • Integration benefits + €M ~ 8,100 7,123 Direct stakes value 4,589 60.62% Enersis Book value 30-09-09 Market value
Slide 148: Conclusions
Madrid Friday, December 11th 2009 Conclusions Andrea Brentan, CEO ENDESA 1 1
Slide 149: Educational Investor Day conclusions
Conclusions Educational Investor Day conclusions Excellent business platform Strong presence in the region Optimal country and business diversification Solid and rooted presence Proven ability to manage the business Sound financial position Profitable growth potential: Positive structura
Slide 150: Legal Disclaimer
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 othe
Slide 151: Educational Investor Day: Latam
Madrid Friday, December 11th 2009 Educational Investor Day: Latam 4 4