Endesa SA

MAD:ELE

Earnings Call Transcript 2018-Q1

[Mar Martina]

Good morning, and welcome to our first quarter 2018 results presentation, which will be presented by our CEO, José Bogas; and by our recently appointed CFO, Luca Passa. Following the presentation, we will have the Q&A session open to those connected both on the call and on the web. Thank you for your attention, and now let me hand over to José Bogas.

[José Damián Bogas Gálvez, CEO & Executive Director]

Okay. Thank you, Mar. Good morning, ladies and gentlemen, and thank you for joining us today. Let me introduce you to Luca Passa, I think quite well-known by almost all of you, our new CFO replacing Paolo Bondi. I would like to take this opportunity to express my deep gratitude to Paolo for all these years of [ performance and ] dedication that had brought such good results and wish him good luck in his new appointment. And of course, give Luca a warm welcome and wish him a very successful career at Endesa. As usual, let me start this presentation with the main highlight of the period. First of all, I will start pointing out the extraordinary results obtained by our [ liberalized ] business, with an increase of more than 100% at EBITDA level due to the normalization of the market context during this first quarter. That, combined with the positive contribution of the [ regulated ] business, have resulted in a sound increase of 25% of total EBITDA in the period. Adjusted fixed costs decreased by 4%, thanks to the different efficiency measures put in place over the last few years, which continue to bear fruit. Regarding the bottom line, the above figures evolution had led to an increase of 47% of net income. Finally, let me remind you that our total gross dividend of EUR 1.382 per [ share ] on 2017 results was approved in the Annual General Meeting held last 23rd of April. Moving to Slide #4. Now let's start by briefly commenting on the main conclusion and proposal resulting from the expert commission report, an important milestone to define the energy and climate plan for the foreseeable future in Spain. All in all, the initial reading is positive as this report constitute an important point of reference to broaden the debate about the energy model and the generation mix to which we want to evolve in the coming decades and to achieve the full decarbonization of the economy.The main conclusions and proposals are fully aligned with Endesa's strategic vision and position we have taken in recent years. Among others, to take the step towards demand [ electrification ] in order to achieve the full decarbonization of the economy. The fulfillment of this target will require, on one hand, to remove nonenergy costs from the tariff with the aim of making it more competitive; while on the other, a higher commitment from the fuel sector; to maximize the penetration of renewables; to extend nuclear plant's useful life as they should play a key role in the transitional period [ ensuring ] the security of supply, competitive electricity price and complying with CO2 target; to preserve efficient thermal generation, also through the creation of capacity market mechanism; and to maximize the development of [ smart grid ] as of key importance to allow for a higher share of renewables and distributed generation in the mix as highlighted in the recent Deloitte report. Therefore, an adequate remuneration should be guaranteed to meet the requested level of investment. Overall, we should highlight that the main conclusions and proposal contained in the expert commission report are [ in line ] with Endesa's strategic vision and will serve the belief in the importance of this step forward in the definition of the future energy model.Moving now to the financial results. On this slide, you can find the main financial figures of the period. As commented on before, EBITDA increased by 25%, while net income went up 47% compared with the first quarter of 2017. The main drivers behind these evolutions are as follow: first of all, the liberalized business shows a robust increase as a result of the recovery of extraordinary market circumstances experienced last year and has been positively impacted by the favorable hydraulic evolution in Spain, and by the better condition in the gas market. Beside, the regulated business benefited from the consolidation of the remuneration update in distribution. Concerning the increase of the net financial debt, it has been affected by the interim dividend payment and by an expected negative evolution of working capital, a consequence, among others, of the delay in billing collection due to Easter effect and the different number of regulatory settlements booked in both periods that will be explained in more detail later on. This situation will revert and normalize in the coming quarters. Let me briefly analyze the market context in which we have operated on Slide 6. Electricity demand showed an important growth rate both in gross, 2.9%; and adjusted term, 2%. In Endesa's concession area, gross demand increased 2.6% and was driven mainly by the residential segment due to the cold wave suffer in the quarter and the effect of the recovery of the Spanish economy. On the other hand, industry and services demand fell, mainly due to lower activity in some industry segments as well as the effect of Easter holidays. Electricity prices showed a reduction of 13% during the first quarter 2018, down to EUR 48.1 per [ megawatt ] hour, a more normalized level. This is a consequence of the recovery of the hydro conditions as reservoirs have almost reached the average level of the last 10 years. It is important to highlight that the hydro system production in Spain has increased 34%, and that wind output has risen 22%, [ with amounts ] beating our production record, 7.7 terawatt hour. While the Spanish system reservoirs have reached 98% of the average capacity, Endesa's reservoirs are at 97% of the average capacity. It is remarkable that Ebro and northwest hydrological basin, also managed by Endesa, have reached level of around 111% and 115%, respectively. Subsequently, with these weather condition, in the first 3 months of the year, our hydro production has increased 35% to 2 terawatt hour. Whereas, our expectation for the full year are now to reach output levels close to 7 terawatt hours, almost aligned with our average hydro production and slightly ahead of business plan. Now on Slide 7, we can see that Endesa's output decreased 2%, aligned to the reduction [ seen ] in the thermal gap in the period. Regarding electricity sales, despite that, overall, they remained in line with last year, the [ mix ] has improved, with increasing B2C sales and the transfer of clients from regulated to liberalized market, together with a slight reduction in B2B sales as a consequence of our value-based strategy management targeting and retaining high-value customers. As of today, we have already hedged 100% of our 2018 estimated output at an average all-in price of EUR 65 per megawatt hour. As far as the year 2019 is concerned, we have hedged around 42% of our estimated output at an average all-in price of around EUR 71 per megawatt hour. Let me highlight that this price reference correspond mainly to low-voltage customers, therefore, prices will gradually normalize along the year, converging to 2018 levels. Moving to Slide #8, let me go through the main factor explaining the evolution of the unitary electricity margin. Electricity sales in the liberalized business decreased by 1% in terms of volumes. As a consequence of the positive hydro conditions and lower pool prices, the mix use to cover our sales commitment has been slightly different from last year. In this context, energy purchases increased by 4% when compared to the first quarter 2017 to 5.9 terawatt hour, while mainland output decreased by 3% or around 0.5 terawatt hour, mainly due to a narrower thermal gap and the stoppage of Vandellós nuclear plant that was partially compensated by higher load factors in our hydro and wind plants. The unitary integrated margin in the electricity business has shown a positive evolution increasing at 20% to EUR 24.5 per megawatt hour, benefiting mainly from a higher unitary revenue, plus 3.9% to EUR 64.3 per megawatt hour, and a positive contribution of the [ share ] position following a different hedging strategy carried out for 2018. This unitary margin will convert to EUR 22 per megawatt hour [ along ] the year, as announced in our business plan presentation. Also, it is worth mentioning that the current level of supply margin above EUR 7 per megawatt hour in the liberalized market has been better than last year, aligned to the margin expected in our business plan.Regarding -- in the next slide, Slide #9, regarding the gas business, it is worth highlighting the recovery of market condition that has translated into an improvement of the gas margin, in particular. Sales have increased 4%, mainly due to the wholesale business that has doubled the gigawatt hours sold back on the increase of [ lower LNG ] demand. Likewise, number of customer has slightly risen by 1%. As a result of this better scenario, our ordinary unitary margin has increased 50% to around EUR 0.9 per megawatt hour. The increase of sales jointly with the higher unitary margin has -- have led to an improve of the gas gross margin as we will see later. And now, I will hand over to Luca for the details of the [indiscernible]

[Luca Passa]

Thank you, Pepe, and good morning, ladies and gentlemen. Before diving into the gross margin evolution, let me take thank Paolo Bondi for his outstanding contribution to Endesa in the last 9 years as FO, and wish him all the best for his new role as head of thermal generation. Focusing now on the gross margin, as seen before, this has reached [ EUR 1,415,000,000 ], 14% more than first quarter 2017. First quarter 2018 gross margin has been [ EUR 1,415,000,000 ], plus 12% compared to first quarter 2017 ex nonrecurrent impacts related to the mark-to-market and others in gas and previous settlements in non-mainland. The improvement in gross margin is mainly driven by the generation and supply business. As mentioned before, higher unitary margins in electricity and the recovery in the gas business have driven these operating results. Moving to Slide #11. When it comes to the regulated business, adjusted gross margins improved by 3% as distribution revenues already recognized the revenue increase awarded by the draft Ministerial Order published in December last year. On the contrary, the non-mainland generation gross margin fall is explained by the absence of the positive EUR 21 million of one-offs booked in first quarter 2017. Additionally, it must be stressed that the regulated business contributed to around 54% of Endesa total gross margin. And finally, I would like to point out that we have obtained 94.5% of smart meter deployment, and plan to reach almost full completion of the program by the end of this year. Moving now to Slide #12. Gross margin in the liberalized business reached EUR 637 million or plus 26% year-on-year compared to the adjusted first quarter 2017 figure. The recovery of [ adverse ] market conditions in last year have led to an improvement of the integrated unitary margin, backed by better unitary revenues and the contribution of the share position, which improves nearly EUR 50 million quarter-on-quarter. When it comes to the gas business, gross margin amounted to EUR 54 million, EUR 30 million higher than the current margin booked the first quarter 2017. As commented before, the increase of [ all ] selectively, better procurement costs on some of our brand indexed contracts. The better unitary margin backed by high demand have been the main drivers of the gas margin recovery. Know that we estimate, both the gas demand and diversion market to show a more moderate growth rate in the following quarters. And finally, I would like to highlight the increase in contribution of Enel X business line with 34% gross margin level compared with last year, aligned to business plan expectation.Moving to Slide #13, a few details on the evolution of fixed cost. Total report fixed cost reach EUR 535 million, basically flat versus last year. For a better understanding on comparable terms, I would like to refer to the like-for-like fixed cost evolution. Adjusted figures exclude mainly the update of the provision for obligation related to the ongoing workforce restructuring plans and voluntary departure agreements as well as other O&M nonrecurrent cost booked in both years. On a like-for-like basis, fixed costs would have decreased by 4% on comparable terms, mainly driven by several efficiency initiatives implemented in recent years targeting a recurrent reduction in our fixed cost base. This includes notably the positive effect on personnel cost of 2.3% reduction on the average headcount in the period. Moving on to slide #14 on EBITDA evolution. When it comes to the adjusted EBITDA split by business line -- by the way, [indiscernible], I already mention effect, it must be noted, the 21% increase mainly driven by the good performance of the liberalized business. In this sense, adjusted generation and supply EBITDA rose by 64% to EUR 319 million. Distribution EBITDA in adjusted terms increased by 6% to EUR 481 million. Finally, non-mainland generation EBITDA reached EUR 80 million, almost flat compared to last year in the same period. Moving now on Slide 15 on the P&L evolution from EBITDA to net attributable income. Starting from the EUR 880 million EBITDA figure, D&A increased by 3% to EUR 372 million, mainly due to the effect of the first adoption of IFRS 15. Net financial results remained flat as the lower cost of debt was offset by higher average gross debt, while associates and others items only deteriorated slightly in absolute terms. Income tax expenses increased to EUR 110 million and represent an effective tax rate of 22.7% versus 20.5% on the same period of last year, which was positively affected by tax deduction. As a result, net attributable income has increased by a remarkable 47% in the period. Moving to Slide 16 on the evolution of the net financial debt. Starting from the EUR 5 billion at the end of 2017, cash flow from operation was EUR 24 million positive. As [ previously ] mentioned, this low figure is due to an exceptional swing in the net working capital due to the combination of several factors already anticipated in our full year results presentation. Notably, by the combined effect of certain tax deferral; a delay in accounts receivable collection [indiscernible] through all this, the different number of regulatory settlements booked in both periods, as well as the negative impact on lower payables for the energy and gas. Net working capital evolution will revert and cash flow will converge towards a normalized level during the rest of the year. On the other hand, cash outflow related to CapEx and other minor items amounted to EUR 342 million. Finally, Endesa paid more than EUR 740 million in dividends corresponding to the interim dividend against 2017 results in the amount of EUR 0.70 per share. The results of the above-mentioned effects led to an net debt at the end of the period of just above EUR 6 billion with a leverage of 1.6x. Moving to Slide #17. As of the end of the first quarter, gross debt increased to EUR 6.3 billion, with an average lifespan of 5.5 years and an average cost of [ 2.1 ], which implies a significant reduction versus the [ 2.4 ] reported at the end of the first quarter 2017. When it comes to the mix by interest rates and currency, 57% of the company gross financial debt accrued interest at fixed rates, while the remaining 43% accrued interest at floating rates, while 100% of the company gross financial debt was denominated in euros. Finally, Endesa liquidity amount to EUR 3 billion, sufficient to meet debt repayments in the coming 26 months. Let me now hand over to Pepe for some final remarks.

[José Damián Bogas Gálvez, CEO & Executive Director]

Okay. Thank you, Luca. Now I'd like to do this with some final comments on Endesa performance during this first quarter. First of all, I want to highlight once again the outstanding performance of the liberalized business based on the proven flexibility and resilience of our integrated energy management strategy that has been the key success factor of the 25% increase in reported EBITDA, the important contribution of the continuous effort on fixed cost contention across all business line, all of the above has led to ensure a strong net income figures, which represents almost a 50% increase quarter-on-quarter. Furthermore, as we stated before, we believe that the final result of the expert commission report confirms the adequacy of Endesa's vision to successfully overcome the rates and challenges the energy sector will have to face to achieve the decarbonization target. Lastly, this set of results make us feel confident to meet 2018 announced guidance. And ladies and gentlemen, that concludes our first quarter 2018 results presentation. Thank you very much for your kind attention, and let's take some questions.

[Mar Martina]

Thank you, Pepe and Luca. Now we are open to answer any questions you may have.

[Operator]

[Operator Instructions]

[Mar Martina]

The first question comes from Alberto Gandolfi from Goldman Sachs.

[Alberto Gandolfi, Managing Director]

I have a few questions, if I may. The first one is a little bit of a bigger picture on the Spanish energy mix. I mean, the expert report has been praised by pretty much every company I've heard. But it's basically suggesting a major reduction in the thermal gap. And on the calculations we have done, it probably implies that nuclear doesn't really belong into the mix. Because if you go for 47 gigawatts of solar by 2030 during spring and summer day time, solar will be largely covering the demand, particularly weekend when demand is very low. So how do you see, really, this evolving? And are you worried about this rise in corporate PPAs? I think we calculated about a gigawatt of corporate PPAs assigned just in the past 2 months. The second question, I was noticing that you lost about 50,000 customers during the first quarter. I mean, in absolute terms, this is not a big number. But if I were to annualize the figure, it would be like minus 2%. So my question will be who do you lose it to? Is it traditional competitors? Or is it new entrants with no balance sheet, a bit what we have seen in the U.K.? Then I have -- these are to my 2 main questions, but if you have time and will, if I'm not taking too much time out from other questions, there's one thing I don't understand. I mean, the Deloitte report talked about low tariffs versus the rest of Europe, but yet the regulator put out the different report where they say that in regulated activities you make more -- well, you and the industry, make more than 8% return because you've never been [ clawed back ] any outperformance. So I was wondering how do we reconcile this [ discord in the use ]? Very, very, very last would be, there have been a bit of a debate about the appropriate size of nuclear provisions. And could you maybe say -- this number in the press talked about EUR 11 billion liabilities estimated by ENRESA. I know you contribute to it every year, and if you have life extension, perhaps the funding GAAP is not going to be huge. But do you think this EUR 11 billion is appropriate? Or is there a risk set, [ somewhere sort of ] international benchmarking, one day we'll wake up and suddenly these provisions may be revised? Maybe you can elaborate on -- even on the legal process, is that even possible, in the next few years?

[José Damián Bogas Gálvez, CEO & Executive Director]

Okay. Thank you. Thank you, Alberto. You have a lot of question. I would try as to answer this question. The first one in relation with the Spanish energy mix, the evolution. You're right. First of all, I should say that in the first quarter, what we have seen is a reduction in the thermal gap. That is clear. But on the other hand, what we have seen is an increase in the commodity prices, especially, as you know, in the CO2 that not only also in the gas prices, also in the Brent prices. A little decrease, I think, in the coal prices. But with the CO2, the total [ billable ] cost of these power plants are higher than expected. The 2 things combined give us a higher price than the ones that we forecasted in our Capital Market Day presentation. We think that in the future, nuclear will continue because it is not a question of the security of supply today, which as you know perfectly, there is not any problem today. But we should see the horizon of the year 2030 in which, without these nuclear power plants, it would be impossible to fulfill the demand. We need this [ firm ] capacity. And as you know, well, I think that there is no alternative to the nuclear technology because of the security of supply, but also because give a competitive price, and also if we want to comply with the emission reduction target. In relation with what you have mentioned about the PPAs in the renewables, of course, first of all, I should say that renewables for sure will be one of the main areas of infrastructure growth in the next, let's say, 10 to 15 years. This new capacity will come from auctions, merchant and PPAs. In our premium, PPAs will have an important development in the future, given the already competitiveness of the renewable prices and the growing interest of some clients to be supplied by renewables generation. So we will see this kind of development in the future, for sure. However, this type of PPAs contract are not simple for both the generator and the customer, you have to adapt the supply to the consumption profile of the customer for a period of 5 to 10 years. Nevertheless, we have through -- [ and we empower ] great experience in this type of PPAs contract and a very important flexibility throughout our generation portfolio. All in all, what we think is that -- trying to summarize, that we are not worry about the thermal gap evolution. It's going to be lower, mainly just because of the renewable growth. Nuclear will continue in the mix. There is no alternative for that. And we will see a great development of this kind of contract, of PPAs contract. In relation with your second question about the customer loss, the 50,000 customer loss, let me say that being the leader in terms of market share in the market, it is obvious that we will -- we are reducing and we will reduce our customer base. Our focus today is, well, of course, [ to take care ] about this reduction. That is very clear. But we are taking account that we will reduce our customer base. What we are focused on is in the value of this customer base, that is very important for us. What we are focusing on is in the retention of these customers, trying to improve the customer experience and all this kind of thing. Being absolutely honest, I should say that we are increasing margins. We are increasing the life of the customer in our customer base, and we are trying to offer better services and experience to our customers. So at the end of the day, I should say that we are not worry about this reduction. Let me say, what it is clear for me and is one of the key parameters that I used to or I try to follow is the churn, and we are reducing the churn of the customer. In relation with the Deloitte report [ on the level ] of the tariff and the return that we have today, the 2 things are true. First of all, we have the lower -- the lowest tariff if you take into account the real cost of supply of electricity, but the higher tariff, if you take into account all the taxes and all the charts that the tariff cover. So that is the reason why we said that there is room just to reduce the tariff and there is room also to improve the remuneration of the utilities. The second thing is that you have said that we have return of 8%. And let me say, you are right. But what do you think about the 8% rate of return? It is high or it is low. We think that it depend on the rates of the business. It is also a consequence of the way in which we are doing things, trying to reduce cost, trying to be more efficient day-by-day and trying to do things in the right way. So it is compatible for me just to have a very low tariff, level of tariff and also to have this level of return. In relation with the nuclear debate with the provisions, let me say that what we have seen is that, of course, there is a [ deficit ], if we think the nuclear power plant are going to be shut down when they reach the 40 years old. But it is -- if the regulator doesn't increase the ENRESA tax, that also is true that with a 50 years life span, there is no any [ deficit ]. So if you take into account that within, that there is no alternative for the nuclear power plants, that we think that we will extend the life of the nuclear power plants, we are not going to have this [ deficit ]. On the other hand, you ask if it could be changed, this number of [ deficit ]. I think that the way in which ENRESA has calculated this figure is very conservative. And if you ask me today, I would say that this [ deficit ] will be lower than the one we are expecting now.

[Mar Martina]

Thank you, Alberto. We have now Harry Wyburd from Bank of America Merrill Lynch.

[Harry Peter Wyburd, Vice President and Junior Analyst]

A couple of questions from me, please, both on the gas business. So firstly, your Cheniere gas contract, the Corpus Christi Train 1 contract, should be coming online in the first half of next year. It's a pretty sizable contract, so can you talk a bit about how you're going to use those volumes? Gas Natural mentioned on their conference call that their Cheniere contracts, which have a slightly lower [ tolling ] fee, is now in the money. So is your contract in the money? And you going to use those contract volumes to displace other procurement contracts as you're rolling off? Or is that going to represent new volumes for you which could potentially be profitable? And then secondly, again on gas. Enel mentioned on one of their recent conference calls that there had been in some kind of a reset in the way that gas is accounted for in Iberia. So I wondered if you could comment on that. Has that -- how has that changed things for you? Has that been one of the reasons why you've reported a positive movement in gas this quarter after lots of quarters of negative moves? And then perhaps just to round off just more generally, in your guidance, what are you assuming on gas in terms of volumes and margins? And given the significant increase in international gas prices, are we ahead of what you've been assuming in your guidance?

[José Damián Bogas Gálvez, CEO & Executive Director]

Sorry, sorry. Okay. And thank you for your question. The first thing that you have asked is if the Cheniere contract is in the money. I think so. I think so. And more important than that, it will be one of the main [ value ] drivers of the gas margins in the future for sure. So we are very comfortable with this -- with the contract. It is true also that -- well, the last year, we have a very extreme context in the gas market. And as we said, we think that the full recovery of the gas market outlook will be in the year 2021, 2022. So we are not in a, let's say, normalized gas market context. Having said that, the handicap index are lower, is lower than 3, improved a lot compared with the last year. That means that, today, we could think that this contract is in the money and that it's profitable. You should take into account also that this kind of contract are free for [ deviation ], for selling in other countries. Well, what we have seen and we think that we will see in the future is this evolution of mainly the Asian and Latin American market that will give a lot of value to this contract. I will pass the next question to Luca.

[Luca Passa]

Yes. On the reset, as far as accounting, yes, we account now gas margin on a formula which is TTF plus spread. And that's why, obviously, we have no issues, let's say, this year as was mentioned as you said in the last Enel's results call. However, the performance in the gas business, as [ said ] by Pepe, is driven by actually by better market conditions as far as this year. As far as the outlook for the rest of the year, obviously, we have benefited from increasing volumes, increasing margins for this period, but also increasing deviations for [ some LNG ], which we expect this, let's say, to be of a lesser contributor to the rest of the year. As far as the guidance, we have a guidance of EUR 50 million of gross margin for the year. As far as gas, it'll be a little bit higher than that, in the range of EUR 100 million. However, for the overall guidance, we have some negatives, which were, I would say, different from last presentation [ of full year ] results in the sense that, obviously, hydro production, which is better, is basically, I would say, [ netted ] by the outage of the Vandellós nuclear plant which will be, let's say, out of production until July, mid-July this year. And also, on CDS performance, obviously spreads are very tight at the moment, so we expect a lower contribution from that. So overall, guidance remains the same but with a different mix and higher contribution from gas.

[Mar Martina]

Next question comes from Enrico Bartoli from MainFirst.

[Enrico Bartoli, Managing Director]

First of all, I'd like to go back to the nuclear situation. Actually, the press reported that the government is considering in some way to move the decision to keep the nuclear plants open to the governments, from the companies. Could you give us some comment on these? And on general, an update on the discussions that you may have with the government and the political situation in terms of acceptance of the possible increase of the useful life of the nuclear plants? Second question is regarding the operating cash flow in the quarter. You provided some comments. Could you provide us some more details actually on this movement of working capital that has compressed the cash flow generation in the first quarter and on what you expect for the next quarters? And in particularly, on the evolution of the regulatory receivables, the amount and the end of the first quarter and the possible evolution over the next quarters. And then finally, I have a question regarding the forward prices that we see in the market for the second half of the year. Actually, they are close to EUR 60 per megawatt hour. And you are mentioning that the other situation has been normalizing. So I was wondering what is the forward prices of discounting some different scenario? And do you expect them to go down in the second part of the year? Or there are other impacts, like you mentioned probably the CO2 price or the gas price that is priced in by the coming forward.

[José Damián Bogas Gálvez, CEO & Executive Director]

Okay. Thank you, Enrico. Regarding to the nuclear discussion, well, first of all, let me say it again that in our opinion, there is no alternative for the nuclear -- to the nuclear technology because of the security [ of supply ], the prices and also the emission reduction target. Having said that, I would like to say that nuclear is a positive free cash flow generation asset. Also, but having said that, the profitability is not very high. It's, in my opinion, very low. You should take into account that nuclear power plants' cash out is higher than EUR 40, EUR 41 per megawatt hour. And on top of that, the variable cost, roughly EUR 24 per megawatt hour, 50% of this variable cost are taxes. That is EUR 12 per megawatt hour or EUR 100 million per group of 1,000 megawatt. So having or taking into account these 2 things, what is important for us is to think in the future continuing with the operation of the nuclear power plants but trying to improve this profitability. There is no problem in my opinion in the next 2, 3, 4 years and also in the next decade, but we need to have higher prices than this EUR 41, EUR 42. And if you take into account that the extension life should be something, the cost should be something of around EUR 1 per megawatt hour, more or less, that means that, in our opinion, there is no any reason to try to improve this profitability in the future by mean of better tax charges in these nuclear power plants. And now, Luca?

[Luca Passa]

Yes. On the evolution of working capital, as I said before, I mean, we have obviously a cash flow from operation of EUR 24 million for negative working capital evolution in the quarter, mainly through 4 items, which I will detail. So there is [ an eastern ] seasonal effect in the billing process, which accounts for just more than EUR 100 million negative. Then we have higher regulatory working capital due to delay in settlements, which is about just shy of EUR 100 million. Then we have the taxes, VAT payment deferral for about EUR 100 million and higher payment to suppliers and to commodities for both coal and gas purchases for more than EUR 200 million that affected the quarter. However, as I said, cash flow from operation throughout the year we have averted. We expect to have EUR 2 billion guidance as far as year-end on this topic. And then as far amount of receivables in the first quarter were EUR 640 million, and we expect a similar amount for the rest of the year.

[Mar Martina]

Next question comes from Javier Garrido from JPMorgan.

[Javier Fernandez Garrido, Head of Utilities and Senior Analyst]

A couple of questions, if I may. The first one is on your guidance for the year. If I understood correctly, you are talking about lower realized margins in the [ liberalized ] business versus EUR 24.5 per megawatt hour you achieved in Q1. And I understand you have the Vandellós outage, but if I'm correct, that outage started in March. So can you explain why there should be a decline in the unitary margin when you're talking of EUR 65 per megawatt hour realized prices? And when we have seen the higher prices, the spot price is lower than in Q1, what is the driver of the decline in unitary margins versus your margin achieved in Q1? And then the second question is your guidance for 2018, overall, EUR 3.4 billion of EBITDA. Did you think that this guidance is now minimum? Or did you still think that there is some risk to achieving this guidance overall for the group? Is there anything [ beyond the liberalized ] business where we should expect a negative development throughout the rest of the year?

[José Damián Bogas Gálvez, CEO & Executive Director]

Okay. Okay, Javier. Let me say, first of all, that you're right. During the year, many things happened. Some of our assumptions changed and some improved, and other are worse than we thought before we forecasted. You're right in the sense that there are -- the case of the unexpected outage of Vandellós that, let me say, will last up to the -- up to July 20 more or less, will really impact in our accounts. But on the other hand, we have better outlook in the gas market, hydro output improvement and other thing. So we will manage all this situation. And we think that we are confident in the guidance for full year, for the full year. Having said that, the unitary margin, integrated margin that we've got in the first quarter, the margin is very high, and we expect to obtain the one that we announced in our business plan, that is something around of EUR 22 per megawatt hour. Some things [ will go in favor ] and some things will go against. But at the end of the year, we feel comfortable with this figure that we have given. In any case, we are in the first quarter. It is very early. If you remember what happened in the last year, during the first quarter, that no one of you think that we will be able to reach our guidance. And we said in that occasion that we think we have -- we had some [ levers ] just to manage the situation. Today, we feel a lot more comfortable than 1 year -- than in the first quarter of 2017. But -- and then I should and I want to stress that we feel comfortable with our guidance, but we will see what happen during the year. Luca?

[Luca Passa]

Yes, just to be more specific. I mean, as far as generation, as Pepe pointed out, we expect basically a better hydro output for about [ 2 terra ] in the year, vis-à-vis last year. However, the Vandellós outage is about 1.6 terawatt hours of less energy until mid-July. So that basically is netted. And then we have, as I said before, let's say, not contribution, let's say, less contribution from both the [ clean ] spreads as well as ancillary services in the year, as far as of now. But as I mentioned before, gas margins is actually higher. So at the moment, we feel comfortable with the guidance of [ 3.4 ]. And we'll see accordingly how this develop during the year.

[Mar Martina]

We have now Javier Suarez from Mediobanca.

[Javier Suarez Hernandez, Research Analyst]

Three question left on my side. One is on the cost cutting, the adjusted fixed cost of the company around minus 4%. If you can, again, clarify from where this cost cutting is coming from, and what we should expect by the year-end? Then second question is on the contribution from Enel X. I have noticed that there is some small but nice contribution from Enel X. And I was wondering if you can clarify from where that is coming from? And finally, in light of what you have been highlighting on the electricity market, on the generation market, if you can give us an update on your hedging strategy for 2018 and '19?

[José Damián Bogas Gálvez, CEO & Executive Director]

Thanks, Javier. This is Luca. As far as the cost cutting, 4% down. The main contributor has been personnel cost, it is for the quarter. Obviously, all business line are contributing as of now. We will have, let's say, meeting our guidance, which is just north of EUR 2 billion for fixed cost for the full year of 2018. So I would say no major changes according to what has been already disclosed in the business plan. All indicators are the KPIs for the [ full ] business lines are basically well on track. Then moving to Enel X. The contribution is mainly in the home services basically segment within Enel X, which is contributing about EUR 22 million of gross margin within the quarter. And obviously, this is progressing well. As you know, we started reporting Enel X starting from this quarter, so we expect to meet budget also there for the full year. And finally, as far as hedging, as mentioned before by Pepe, we have 40% hedge for 2019 at [ 71 ]. Obviously, that's only for low voltage, so we expect obviously the price will edge the rest to go lower. The hedging strategy overall is a bit changed during the year because, obviously, the OTC market has lower prices, so we're buying more in the OTC market vis-à-vis last year. What do we expect for the remaining of 2019? Obviously, we would see how commodity will move and hedge accordingly, but 40% in the quarter for the 2019. As of now, I think it's already a comfortable position.

[Mar Martina]

Many thanks. Next question comes from Rui Dias from UBS.

[Rui Dias, Associate Director and Equity Research Analyst]

Just a couple of questions from me. The first one is on electricity demand. I noticed that demand from industry and services in your area have dropped relative to last year, so I just wanted to ask if you could give us some detail on what is driving this. And then just to go back to gas supply very quickly. As I recall, the second half of last year was extremely weak, and this was driven by increasing gas imports and the competition in Spain. And I think that is starting notice, so the first signs were visible already in Q2, so we are already in Q2 as well. So I just wanted to check with you how these dynamics are evolving this year in gas supply. [ That's all. ]

[José Damián Bogas Gálvez, CEO & Executive Director]

I will answer the second question, and Luca will answer the first one. Well, in relation with the gas market, the first thing that I have said that we have seen a huge improvement in the gas market outlook, mainly because of the global LNG demand recovery, also because of our higher competitiveness of our portfolio versus the different [ half ] indexes and the TTF with the current Brent prices. And well, that means that we think we will maintain at least the level of margins that we've got during the first quarter, more or less. So if you ask me in our guidance for the gas margin in the Capital Market Day, we said something around [ 50 ], it could be the end of the year doubled and -- this EUR 50 million. Nevertheless, gas market full normalization. As I have said before, it's not expected before the year 2021 or '22. So we will see what happen, but we are again comfortable with the gas market outlook that we have today.

[Luca Passa]

And then as far as demand in sales for the B2B, so the industry customers in our areas. There's been basically a reduction in B2B sales, mainly expected by some closure of industrial clients in the chemical business, which affected, I would say, demand for more than [ 900 gigawatt in terms of intensive energy ]. So it's very specific to specific clients.

[Mar Martina]

Thank you. Next question comes from Anna Maria Scaglia from Morgan Stanley.

[Anna Maria Scaglia, Research Analyst]

Just 2 quick questions, if I may. The first one was regarding your debt mix. I was noting you still have got quite a lot of exposures to floating debt. And I was wondering if there is any plan to change that. Why not improve -- or sorry, to increase the fixed portion of the debt to take advantage of the current very low rate? And the second question is regarding CO2. And if you can tell us a bit about your view about the high CO2 prices at the moment, how you are positioned, what's the risk for you going forward or lack of risk eventually?

[José Damián Bogas Gálvez, CEO & Executive Director]

Anna Maria, I will answer the second question, and then Luca will answer the [ first ] one. With regard to the CO2 price, first of all, I should say that the current price is higher than the one that we forecasted in our, again, Capital Market Day. In our opinion, the market remains structurally oversupplied. However, it's true that the CO2 market seems to be going to increase or to be involved in, in my opinion, a speculative way. It could be just because of the compliant reasons. You should take into account that April is the month in which all the companies should fulfill this [ compliance ]. Also could be because of the cold weather that we have had. Well, what we think is that, yes, because it's something speculative, it is very difficult to maintain this level. In any case, rising CO2 prices has a positive impact for Endesa, so we're very happy of these prices. All in all, I think that we'll see what happen, but we will enjoy the situation for the next month.

[Luca Passa]

And on the mix of our gross debt, I mean, we currently have, as pointed out, 43% of floating and fixed are 57%. But Anna Maria, there were excess market only the short-hand side with the CP paper market and to bank loans. And therefore, at the moment, we don't see, let's say, any need to switch or to change the mix because we wouldn't see any improvement in terms of the cost reduction as for now. So 2.1% of cost of debt for the first quarter. And I think we can definitely have a good evolution as far as cost of debt with this mix throughout the year.

[Mar Martina]

Thank you, Anna Maria. Now we will answer one question received by email. It comes from [ Antonella Bianchessi ] from Citi, and [ he's ] asking about the coal generation fleet, how much CapEx we are devoting during this 2018 and if we can update about the [ closure ] prospect timing.

[Luca Passa]

As far as CapEx, I'll answer the question. We have about EUR 90 million for the full year, of which about just shy of EUR 80 million is for maintenance and about EUR 12 million is for growth. And as far as the closing procedure, I will hand it over to Pepe.

[José Damián Bogas Gálvez, CEO & Executive Director]

Okay. Well, you know our position in this issue. What we have said always is that under current conditions, the [ refinement ] to domestic coal power plants to the required ideal BREF investment are uneconomical unless capacity payments are put in place. I have said that the government is the one that set the energy policy, and we will -- we are very clear of this. But what we think is that if domestic coal closure is denied, the owners must be adequately compensated. Today, the only reason why it could be blocked, shut down, is the security of supply. In the future, it could be just because of the new law proposal. It could be for 2 other reasons. One is if the impact -- if it impact in the prices or competition, and the other is if it jeopardize the achievement of CO2 emission target. We think that in the current market conditions and under the current regulation, it has no sense to continue with the domestic coal power plants. So domestic coal power plants will close, in my opinion, by June 2020 if nothing change.

[Mar Martina]

Thank you very much. At this stage, there are no more question. So just let me remind you that IR team is available to any further question you might have. Have a nice day.