Endesa SA

MAD:ELE

Hello, good morning, everybody, and welcome to the first quarter 2024 results presentation, which as always will be hosted by our CEO, Jose Bogas and the CFO, Marco Palermo. Following the presentation, we will have the usual Q&A session open to those connected on the call and on the web. Thank you and now let me hand over to Jose Bogas.

Okay. Thank you, Mar, and welcome to everybody. This first quarter of the year was characterized by a return to normality of the extraordinary evolution of the last year's first quarter excellent results in thermal generation and gas businesses. Therefore, we can confirm that the figures that we will break down hereafter have closely matched the forecast we projected at the last Capital Markets Day.Market context during the period was marked by the drastic reduction of fuel price levels attained through the quarter due to the effective combination of an outstanding increase in renewable output and a persistent weak demand.We believe that we are now in a phase where the predominance of grid development as a key enabler is crucial if we want to credibly meet the energy transition goals. The focus should be on accelerating its development to reduce the currents of [ covenant ], not only to connect additional renewable capacity, but also to address new business opportunity based on highly consumption intensive business.In this sense, we are certain that the current momentum will lead to an improvement in the Spanish regulatory framework for the next period, in line with what other European countries are doing, confident on the importance of strengthening the network.And finally, on another note, 2024 Annual Shareholders Meeting held last April the 24, approved all proposals resolution with a quorum of 84% of the shareholder base.On Slide #4 you can see that our selected capital allocation with 70% of total investment devoted to the main pillars of the energy transition drove a good operating performance across all our businesses.Our emission free output increased to 90% of total mainland production after expanding our renewable capacity to approximately 10 gigawatt. We stand out as the leading player in the liberalized business, despite a strong competitive pressure.Lastly, investment devoted to greater resiliency and quality have enabled an improvement in the level of operating losses, while interruption time slightly increased as a consequence of weather effects in this first quarter.On Slide #5, we summarize how market dynamic evolved year-on-year. As I previously mentioned, electricity prices in the Iberian Peninsula dropped by more than 50% due to the adjustment of both TTF which stabilized at around EUR 30 per megawatt hour, showing a 48% decrease year-on-year and CO2 which corrected around 30%.This, together with a very significant increase in renewable production and a demand that has not yet recovered, led to the mentioned fall in prices. It is foreseeable that prices will remain depressed in the second quarter, as a consequence of the strong recovery in reservoir levels and snow melt levels, which should further support hydro output. However, both forwards and our internal models point to a medium term price recovery to above EUR 60 per megawatt hour.Mainland electricity demand fell by 0.4% on the back of a mild winter, low industrial activity and energy savings initiative, increasing by 1.2% when adjusted by weather and calendar affected. Demand in Endesa's area decreased by 1.4%, penalized by industrial demand contraction notably in very energy intensive industries such a metalwork and paper.At this point, it is worth commenting on the impact that the imperative need for new connection is having on demand. Over the last 4 years, we have had to reject a volume of demand equivalent to 15 gigawatt distributed among sectors such as the data centers, storage, industrial customers, charging points and others.On the Slide #6 over the last 12 months, we have further progressed to derisk our generation mix. Where after the closure of the last mainland coal plan, we have expanded our renewable energy fleet adding around 700 megawatt year-on-year, bringing our total installed net capacity to 10 gigawatt.As a result, CO2 free technologies now represent 78% of mainland capacity and 90% of our output. Hydro production recorded a significant boost during this first quarter, growing by 42%. Better hydro condition allowed for a relevant improvement in our reservoir levels, which are now above previous year and allow us to improve our year-end estimate.Finally, regarding the partnership model announced at the Capital Market Day, we are in the final stages of concluding the sale of 49% of our solar portfolio which is in operation where we will retain the control of our strategic asset in our integrated business model.Now on slide #7. In this first quarter, we strengthen our leadership position by consolidating the liberalized customer base with close to 7 million customer, representing 29% market share in a highly competitive environment. Liberalized power sales remain stable at around 19 terawatt hour.And finally, we carry on with the process of simplifying our activities to maximize synergies. And to this end, we redesign the structure of our customer business, strengthening client centricity and improving bundle offerings.Deep diving into our integrated strategy on the Slide #8, sales to liberalized customer with the scope of our free power margin amounted to 18 terawatt hour with 82% of fixed price sales backed by our CO2 free generation. The strong free power margin reaching EUR 58 per megawatt hour is stabilizing after the extraordinary market situation of the previous year, which primarily derives from the following factors.First, normalization in generation margin where the reduction in thermal activity is mitigated by a better performance of the inframarginal production. Second, positive result obtained in the management of our short position, returning to more moderate levels from an exceptional first quarter 2023. And lastly, improvement of supply margin to around EUR 16 per megawatt hour, mainly as a result of higher underlying prices and lower sourcing costs.Looking ahead, thanks to our hedging strategy, we have already secured more than -- more of our 2024 inframarginal output and 86% and 53% for 2025 and 2026 respectively with an energy price reference above EUR 65 per megawatt hour. If we factor in the initial rollover of the entire residential portfolio, we will attain 80% in 2026, significantly reducing disposal to power price volatility.Now, on Slide #9, regarding gas business, our overall gas sales decreased by 27%, mostly related to a fall in liberalized customer demand. The sharp decrease of CCGT load factors due to the reduced thermal gap of the period and gas portfolio management activity.Gas unitary margin decreased from the extraordinary EUR 6 per megawatt hour in the first quarter 2023, which was positively impacted by the spike of gas prices in 2022 to a more normalized EUR 2 per megawatt hour level in line with full year forecast. Volume hedge from our sourcing contracts give us an ample comfort, not only to reach 2024 margin target, but also provide protection for the year to come.And now I will hand over to Marco who will detail the financial results.

Thank you, Pepe, and good morning, everybody. EBITDA reached EUR 1.1 billion, that is 26% lower than previous year after extraordinary results affected by an exceptional market context. It is important to note that the first quarter of 2023 EBITDA was an all-time record for our first quarter, which helps to understand the magnitude of the comparison.Likewise, net ordinary income came in at around EUR 0.3 billion, that is 51% lower than previous year, mainly explained by EBITDA normalization. On the other hand, FFO had a positive performance reaching EUR 0.2 billion versus the negative result obtained in previous years. All this despite the EUR 0.5 billion payment in this quarter for the Qatar gas arbitration, as we will see later on.Turning now to the key drivers of EBITDA evolution and I'm now on Slide 12. EBITDA decreased by 26%. As we have already advanced, we are seeing a normalization of conventional generation results, while on the other hand, the rest of businesses are growing, as we will detail in the following slides. It should be noted that the structure segment in gray color includes in both periods the impact of the 1.2% levy on revenues with a similar amount year-on-year.Moving into a deeper analysis, we are on Slide 13, generation and supply EBITDA reached EUR 0.8 billion, down 35% compared to the previous year. The numbers include first, a normalization of the free power margin, as Pepe just commented, driven by a moderation of thermal and shore position margins, partially offset by strong renewable resources and supply margin expansion.A decrease -- second, a decrease in gas business margin when compared with the last year outstanding result, mainly explained by the expected normalization of gas portfolio management. And last, third, a decline in other margin, primarily due to the absence of the positive mark-to-market booked last year. The negative mark-to-market booked in this Q1 will be neutralized along the year.On Slide 14, distribution EBITDA, saw an 8% improvement owing to a gross margin increase led by a positive previous year resettlements, mainly referred to quality incentives booked this year, and a slight decrease in fixed costs from negative provisions update.I'll turn to Slide 15 to continue the analysis of the results below EBITDA. Net ordinary income came in at around EUR 300 million, decreasing 51% versus last year, reflecting the dynamics observed at EBITDA level, and also impacted by D&A that are slightly increased, mainly due to the investment effort carried out in renewables, in distribution and retail.Stable net financial results with an average gross debt reduction in a context of worsening of interest rates environment, affecting the cost of debt, and income taxes decreased on lower economic results, whereas tax rate reached 34%, the highest rate ever, heavily affected by the non-deductible revenue levy.Moving now to cash flow on Slide 16. FFO reached around EUR 200 million in absolute terms, showing an improvement compared to last year, explained by the positive working capital dynamics. In particular, positive evolution of business drivers, allowing us to neutralize the negative impact of the Qatar award, and a slight worsening of the regulatory working capital.Finally, excluding the extraordinary gas award payment, FFO would have amounted to around EUR 700 million, showing a strong cash generation.On Slide 17 now, net debt came in at just above EUR 11 billion, driven by investment needs, as well as the payment of the interim dividend. Gross debt remains flat, with a reduction of 27% in collateral requirements. Moreover, the cost of debt rose to 3.7%, increasing versus previous year, as already expected.Finally, our strong commitment on a strict financial discipline, resulted in robust credit metrics at the year-end. Net debt EBITDA leverage remains at healthy levels, while FFO to net debt ratio was maintained at 44%.Let me now hand over to Pepe for the final conclusions.

Thank you, Marco. And now, as Marco has said, some final remarks to conclude. As we have highlighted throughout this presentation, effective management of the volatile market context is crucial for business sustainability and recovery of growth pace. Our integrated strategy provides protection for the liberalized business, delivering consistent value to our stakeholders.The result presented today give us sufficient comfort in achieving the guidance for this year, after the expected normalization of gas and thermal generation businesses.Finally, we would like to remind once again that a fair remuneration is needed for the regulated business that incentivize the necessary investment in this infrastructure. In this sense, we're working to promote discussion with the regulator to accommodate the expected growth in electrification in order to boost economic growth in the country.And this concludes our first quarter 2024 result presentation. And I think we can now open the Q&A session.

Okay. Thank you, Pepe, Marco. We are now open to take all the questions you may have.

[Operator Instructions] Okay. First question comes from Alberto Gandolfi from Goldman Sachs.

The first question is on your full year guidance. It looks like even if you pro-rata the 1.2% tax, broadly speaking, EBITDA and net income are a 1/4, like 25% of the midpoint of guidance. Now, considering the first quarter was quite wet and considering you didn't have any gas losses, if I'm understanding it right, and considering usually seasonally Q1 theoretically should be stronger than the other quarters, can you reasonably expect to be anywhere above the low end of guidance or between low end and midpoint?The second question is on the open gas position. Can you tell us what's open today? And if you are going to face losses as long as LNG stays above EUR 30 a megawatt hour, or if LNG is here, you actually have absolutely no issues?And the last question is that I was quite intrigued by the comment from Pepe about the 15 gigawatt of new connections that were turned away. Can you please tell us what do you see in the next 2 to 3 years in terms of power demand for Spain at constant weather?So do you think electrification and data centers are going to start to provide tailwind to power demand? Can you tell us about the timing? And do you think this is going to drive or require higher investments in your power distribution business?

Alberto, I will try to give you some color about the -- let's say the first one and the last one. And then Marco could go in depth in the 3 questions. The first thing is about the full year results of 2024. I would underline that you should take into account, as you have said, the 1.2% extraordinary levy of the first quarter and also, some municipality taxes that we pay in the first quarter of the year. So if we take into account these, we are talking about something around EUR 300 million less than let's say a normal quarter.So if you take these into account, we are aiming to something around EUR 1.3 billion, EUR 1.4 billion each quarter for the next 3 quarters that give us results in the range that we have set in our guidance. So we feel very, very comfortable just to reach this range. Of course, during the year, many things could change. Something will be up, other will be down, but we feel absolutely comfortable on this.With regard to the third question, talking about the 15 gigawatt -- well, you are right. We have a -- in my opinion at least, a huge problem, because the distribution network is the backbone of all the electricity system. Being the backbone is the real enabler of this energy transition. And what we are seeing is, just because we don't have the regulation -- the adequate regulation that we need in this moment, and we are waiting for the next period -- regulatory period, for the change that we should see in this regulation.As you know, we have problem with the cap that we have in the investment in network. The second thing is the rate remuneration, financial remuneration of this asset that today is 5.6% more or less in a context with something around 3% of inflation. It has no sense. The other thing is also it should be updated, the standard in investment and also in cost.And lastly, I would say that we are waiting for the new CNE, the spinoff of the CNMC, just because it is very, very important that on top of the current overview of the functioning of the electricity market, one of their objectives will be just to incentivize this energy transition to decarbonize and to obtain the target.Having said that, without this visibility for the future, what we really know is that the network is a bottleneck. And it is a bottleneck, and that is the reason why I have said what I said. That is that over the last 4 years, we have rejected 15 gigawatts. Taking into account that the peak, more or less, of demand in Spain is 40 gigawatts, the average should be something around 30 gigawatts. So that means a lot of gigawatts. Taking into account also that we have 43% of the distribution business over the total in Spain.Well, we are losing many opportunities, many demand, talent, [ fabric ], et cetera. If we want really to reach the target that we have in the Energy Transition Plan, it is needed an urgent just to change the remuneration in the grid just to facilitate this evolution. I'm sure that the demand is going just to pick up. What we are expecting is something about 15% from now to the year 2030, including, in this case, distributed demand, but excluding the hydro demand.And let me say that residential is slightly increased, just because the electrification will be compensated by the efficiency. We think that the electrification rate would reach something around 53%, 55% in the year 2030 in this residential segment, from the 46% that we have in the year 2023.Services will increase something around 5% to 10%, and the industry something between 15% and 20%. Also, the transport sector is expected to increase significantly with consumption exceeding 20 terawatt hour, taking into account we have today 5 terawatt hour. So, we think that it's going to be a lot of opportunities. But what we must do, I think that the regulator is aware of that, just to release the bottleneck that the grid represents today. Marco.

Quickly, just let me give you a few numbers on question number one. You have this EUR 200 million of tax that basically would be on a normalized base, just to add to this EUR 1.1 billion of EBITDA, another EUR 150 million. And then we have this real estate tax that we pay at the beginning of the year, and then of course we do not pay. That together with the negative mark-to-market that we believe we will neutralize along the year, means another EUR 150 million.So if you add those 2 numbers, you get on a normalized base an EBITDA that is over 1.3. And that's exactly what we expect also in the following quarters. So something around 1.3, 1.4, constantly through the year. So that's why we say that we are comfortably in our guidelines range.Then, on question number two, on the open gas position, we are factoring in the lower prices somehow of the gas in our guidelines. And the open position still is something about 5 terawatt hour -- 5, 6 terawatt hours. And what we are putting into our guidelines is a contribution of the gas business that is probably south of EUR 200 million. So something less than EUR 200 million for this 2024. So somehow also there, I guess, that there is not so much optimism, frankly.And on the data centers, there is a huge demand there. There are tens of terawatt hour that could be ready to get in, but unfortunately with the bottlenecks on the grids, this is something that I suspect we will not see before next year, taking into account. And giving for granted that there will be an improvement and so that all the players will go back to invest more on the grid.

We'll move now to the following analyst, that is Manuel Palomo from BNP Paribas.

My first question is regarding the Spanish supply market. In the last quarter, you have lost 39,000 clients of which 13,000 in the liberalized market, and you're now at 10.48 million, if I'm not wrong. What is your expectation for the coming quarters and are you taking any commercial action to avoid additional lost clients?And also, I would be interested to know when you look at competition, what type of competitors, can you share whether you're seeing other utilities being more aggressive or maybe all companies or smaller competitors. That would be the first one.My second question is sort of a clarification on the debt -- actually on the cost of debt. In first quarter of 2024, financial income, according to your handout, amounted to EUR 34 million. Financial charges to EUR 154 million, derivative cost EUR 6 million. This means, if I'm not wrong, I'm trying to analyze the impact that the cost of the gross debt was at around 4.6%. Could you please shed some light about why the cost of debt is so high for a company with a strong balance sheet as Endesa?And my third question, it's about this renewables divestment, whether you can give any color. I mean, you plan to divest 49% stake in a portfolio of renewables in Spain. Could you -- I don't know, define and give us a view on what the portfolio, how the portfolio will be? What is the rationale if you project a net debt to be down 1.4x by full year '26? And can you confirm you will keep the electricity output from those assets? And what type of remuneration would the buyer get?

So let's go one by one. First one, clients, commercial action and so on. What we are seeing in this first quarter is basically -- even if you wanted the same dynamics that we were experiencing at the end of 2023, so with intense competition among players.Now, just to give you an idea in even a bit higher, in the first quarter, we are experiencing a churn rate of 21%. That is, of course, somehow higher than what we were expecting along the year for the full 2024. The competition is fierce and it's between, I would say, not only integrated players, but also somehow the new comers, meaning the oil companies that are particularly aggressive. Now, so a lot of activities, a lot of use of push channels.On the other side, I should say that somehow there is -- outside there is no one with crazy prices. So this probably means that we are not all forecasting for the future very low prices, because otherwise everybody would have been offering very low prices. So I mean, very, very fierce competition. But then when it comes to prices and the impact on the portfolio is somehow less dramatic.Commercial actions, of course, actually we're doing a lot of job on that and on the winning back of the clients, because it is true that everybody is using the push channels. So what we are trying to do is specific action just to retain our clients and maintain our portfolio.For the time being, what we are seeing is that the big increase that we had in clients and that brought us to this 6.9 million clients, I mean, we are sticking there. We are -- for the time being, we have been able just to defend basically this level. In terms of -- so basically, it's a tough situation, but I mean, the players are competing fairly.On the debt, the cost of debt, you're right. I mean, I would be together with you. I mean, the cost of debt -- our cost of debt is much lower than that. Actually, our cost of debt is 3.7 for this first quarter. Is around EUR 120 million for our gross debt. And what we do expect in our guidelines is basically to end up in 2024 between, I would say, EUR 500 million and EUR 600 million.And so, we believe -- I mean, we were forecasting that the cost of debt could reach basically 3.9% along the year. Then, of course, we have to see whether there will be some news on interest rates. We were forecasting still an increase along the year.When we go to the third question, and that is the one regarding the potential sale of 49% of our solar assets, our operational solar assets, we are talking here about 2 gigawatt of operative solar assets. The rationale there is basically just to simply getting back the CapEx in order to be ready for the investment that we believe are about to come.Particularly in distribution, possibly on the islands, and let's do not forget that we still have activity on the generation, because for the future we have to replace our nuclear capacity. So it is something that we have to continue to work on.On the energy, of course, this is energy that we are producing and that we are selling to our clients. So we wanted to be -- and we want to be sure that we can guarantee us 100% of the energy produced together with the management of this energy. So this is the idea. So with a very long term PPA at a level that is comfortable for us in order to serve our clients with a very, I would say cheap electricity. So I mean, that's all.And in terms of just highlighting also about the timing of this transaction, I mean, we are still seeing something that could come to life by, I would say, by the second quarter of this year. Eventually or slightly at the beginning of the third.

The next question comes from Javier Garrido from JPMorgan.

A few questions on the breakdown of your unit margin. You made EUR 16 per megawatt hour supply margin in the first quarter. Do you see this margin sustainable based on your hedging, and how do you see it going forward given the competitive pressures that you were mentioning in the previous question?The second question would be on the share position. Are you still expecting around EUR 300 million benefit in 2024 or have the dynamics of the wholesale market year-to-date increased that expectation?The third question is on the final number, EUR 52 per megawatt hour. Is this expectation for 2024 higher than was at the time of the Capital Markets Day or is in line?And then a final question just to confirm, that when you are talking of EUR 1.3 billion to EUR 1.4 billion of EBITDA per quarter in the next few quarters, these numbers are clean and do not include any capital gain?

First question, EUR 16 of supply margin, do we see as sustainable? Yes, we are planning to have this marginality, the supply margin along the year. Actually, you have seen that it has increased compared to last year and has increased, of course, because on one side there is no more clawback and on the other side, of course, I mean, the prices on the market were somehow getting down. So we still believe that we can maintain this EUR 16 of supply margin.On share position, yes, we want to confirm you that what we see as a share position for 2024 is around EUR 300 million, I would say even over EUR 300 million for the full year 2024. On the EUR 52 megawatt hour, yes, we confirm that this is still our guidelines. Of course, as you can see in this first quarter, we were higher than that, but we believe that because of what we were talking before and the competition and so on, I mean, this marginality was somehow normalized and we will end up approximately at EUR 52 megawatt hour.And yes, when we refer to the EUR 1.3 billion, EUR 1.4 billion for the next quarters, we are not taking into account any capital gain, because the idea on the sale of 49% on the solar is not designing a transaction to get capital gain, but just the opposite is to guarantee an attractive price on the PPA side.

We move now to Jorge Guimaraes from JB Capital.

I have 2, actually. The first is, looking at the evolution of your hedge position, it seems there was no major change for 2025 between the end of '23 and these results released. I was wondering why is that just the case that you find prices are not attractive enough to hedge at the current level?The second one is, if you can give us some detail about the resettlement in networks, if all the effects came in Q1, or we could expect anything else throughout the year?

So to your first question, hedging, yes, you are very -- you were noticing there are no major changes, and you're also suggesting the answer. What we do see is probably we will have also in the second quarter very low prices, very low spot prices. But then we do see that this could change during the summer, because of the demand for the cooling and because of seasonality in general.So we do feel that currently is not the correct moment to hedge our position. So basically -- and so, we would like to wait for better times, and we believe that at the end of the year there could be a better time to do that.In terms of resettlements or distribution, there is, of course, something in this first quarter, and, yes, we do expect that eventually this could continue -- this trend could continue also along the year.

Next question is coming from Jose Ruiz from Barclays.

Just 2. Number one, you have done the calculation on a quarterly basis for reaching the guidance in terms of EBITDA. Am I right doing the same calculation for net profit per quarter of around EUR 0.4 billion clean, corresponding to that EUR 1.3 billion, EUR 1.4 billion?That's the first question. And secondly, can you give us some details -- I don't know if it is possible, on the EBITDA in the first quarter generated by the short position and the EBITDA generated in the first quarter for gas?

So thank you very much, Jose, for your questions. I would say that also in terms of net income, we are confirming our guidelines that are between, as you remember, 1.6 and 1.7. So basically, when you correct for the items that we highlighted in terms of EBITDA, and you see that we should comfortably be there at target.In terms of short position, I mean, on gas, basically, we do not have any short position. I mean, as we commented before, we are expecting on gas a marginality on the business that is slightly lower than EUR 200 million for the full year. And the quantity that are still open are very, very, very small.And in terms of short position on the power, on the other side, we expect we are north of EUR 300 million, so over EUR 300 million for the full year. And we are experiencing, basically, on the first quarter, approximately EUR 100 million. So those are the numbers for the quarter and then for the year.

We have now Fernando Lafuente from Alantra.

One quick question on the regulation for networks. You are -- I think it's the second, the third quarter in which you are highlighting the need of an improvement in regulation. I was wondering how are the conversations with the government on this potential improvement if you are in the process of talking to the ministry on what could be the potential level for networks for the next regulatory period. So, any information on that side would be great.

Let me say, as I have said, we are working to promote discussion with the regulator to accommodate the expected regulation in the network. What it is clear for -- that is the first thing.The second thing is that I am convinced that the regulator are aware of the situation that we have today and they are open just to review this regulation. It is clear, at least in my opinion, that they are going just to increase the rate of remuneration and they are going to improve some things. It has no sense, as I have said, the situation that we have today.Well, the thing now is how to advance in this regulation. Because, as you know, the next period of regulatory period will be from the year 2026 to the year 2031. So if we don't go ahead now, the investment that we will do this year will be paid in the year 2026 and we don't have visibility of this regulation. So what we are asking the regulator and the government is to give us some kind of signals that really give us comfort for the investment that we are doing now.On the other hand, I would say that we are discussing also with the regulator about the recognition of the investment. As you know, what is incredible for me is, the way in which we should really explain what we have done once we have presented an audit of this investment. But nevertheless, we are, as I have said, promoting this discussion and we think that we will have some signs soon, but signs only. We will have the framework in the year 2025. But as I have said, what we are waiting for is a clear signal of this change in the regulation.

Next question comes from Pedro Alves from CaixaBank.

The first one on the 1.2% levy in Spain. If you have any update on this, what is your base case for the next years? And also, an update on the gas contract with Nigeria. If you have any update on this and what is your base case of the potential one-off hit that you may face from this contract?

I will try to answer the first question. Well, I would say that the situation remains unchanged. So remains unchanged means that the tax will lapse, the actual -- the current levy will lapse at the end of this year. If this extension is not finally approved by the parliament through a law. You know our opinion. This exceptional levy hampers our capacity and the capacity of all the companies that are affected to invest and meet then the target of the energy transition.And I would say that it is also a comparative and competitive disadvantage under the European law. The government is aware of all of this, and as you know, the government's aim is to mitigate the impact of this special levy in the case of an extension of this levy, taking into account the investment in the energy transition. In my opinion, it makes sense, but details are still unknown. We are waiting for the final solution of this issue. And the second question.

So basically, on your second question on Nigeria, on that, the only update, that this is basically the only contract that we have in arbitration, and this is something that should come to an end probably end of 2024, beginning 2025. But I mean, we are talking and discussing, we are having conversation with them.Of course, the market has been changing a lot. So I mean, I guess that there is still plenty of time eventually for an agreement. So let's see whether the market stays constant and somehow facilitate the discussion with them.And given that I have the opportunity on the -- Mar was just telling me that I missed one of the questions of Javier. So, sorry, Javier, for missing one of your questions. Actually, it was whether the free power margin that we are experiencing is somehow -- and we are forecasting, is somehow higher related to the one -- compared to the one of the Capital Market Day. The answer is yes, what we are seeing and what we are somehow experiencing right now, we are guiding for the year 2024 is higher. We were seeing something at the Capital Market Day that was north of 50, but close to 50, and now we are seeing something that is approximately 52.

Thank you for the clarification Marco. Next question comes from Bob Pulleyn from Morgan Stanley.

So just 2 questions left, if I may. The first one, would you be willing to give us a bit of a steer as to where net debt should end the year, with or without the transaction you referred to being close to finalization?And the second one, you talked about accelerating CapEx. Obviously, electricity distribution is the topic du jour. You talked about the islands, and you talked about replacing the nuclear generation. I was wondering within the capital allocation, what would you need to see to reaccelerate in the deployment of capital to renewables within that ranking you gave of where to spend the CapEx?

I will try to answer the second one. Well, first of all, accelerating CapEx in the regulated businesses. Well, as we have said, what we're looking for is a better regulation framework. But it is clear, it is not also in the network, but in the island, it is needed. The island, at least in our opinion, should have an urgent solution, just because of the security of supply, and also the decarbonization needed for the energy and climate plan that the government have.With regard to the liberalized business in the renewable, well, I think that we should adjust our CapEx to the special situation that we are living now. It has no sense with these very low prices, and also the lot of solar photovoltaic asset that we are seeing now, just to accelerate the investment.It is important for me -- not for sure we're going to invest in renewables, but what is important is to take the right time to do it. So we need just to really adapt our CapEx to the right time. What we are seeing now is some kind of difficulties, market context, et cetera, that could delay a little our investment. At the end, we will do it, but we will try to do it in the right time.

On your first question regarding the net debt, what we do expect for the end of 2024 is something close to EUR 10 billion. This takes into account the 49% sale of our solar assets. In case, if you want to take off this effect, we would have been closer to EUR 11 billion more than EUR 10 billion.

We move now to Javier Suarez from Mediobanca.

2 questions. The first one is on the regulatory framework for electricity distribution. The question is more on the timing and the sense of urgency from the government and different institutions. I think that has been clear through the presentation that there is a need to increase CapEx so that operators like integrated utilities like Endesa want to have clarity on that, on a regulatory framework to get the proper remuneration for those investments.Given that the only indication that we have on timing is the intention by the regulator to publish a first consultation document by December 2024. The question for you is, do you see a scenario in which the sector persuade the regulator to accelerate the publication of that document, providing with the necessary granularity? Because the point that I would make is that making a highlighting your statement is that if that does not happen, 2024 is going to be a lost year. And I just question myself if the system can permit that to happen. That is the first question.And the second question is on the work in capital evolution. FFO has seen a significant improvement during the first quarter. I guess that this is due to the improvement in the working capital that has basically helped. If you can explain that, the dynamics for working capital, more the absorption, moderation, and the expectation by the year end?

Javier, trying to answer the first one. Well, what we have today is what we have. That means that in principle we will not have any regulatory framework up to the end of the year 2025. Having said that, the regulator is aware of the situation that we are living now in the network and also they are aware also about the opportunities that we are losing just because of this situation. Well, that is the reason why we are promoting -- and also the CNMC promoting this conversation about this situation.It's going to be an acceleration in this discussion that could give us any visibility of the next framework. I think so. I think so. And I think that we will have a clear indication of signals starting in the second half of this year because it is a huge problem. It is going to be, in my opinion, a key factor just to reach the target that we have at the national level in the energy and climate transition plan. So we are positive in the sense that we will have a signal. But the real thing is that today to have the formal framework, we think that we should wait up to the second half of the year 2025.

Javier, on your second question on working capital evolution, first, I mean, we gave -- we indicated what was the gas award just to give you an idea of what could be a normalized FFO for the quarter. So that is approximately EUR 800 million for the quarter. So then you can somehow run your numbers.What it is important to say is that when you look at the chart 16, when you have prices going down, we have a double effect that is partially positive on the working capital in general because, of course, there is less need of working capital. But on the other side, there is an higher -- there is increase on the regulatory working capital potentially.Why so? Because, of course, we collect somehow payments and then we have to give back to the system. When the prices are lower, we collect less. And then, of course, we have to be somehow compensate more. But this compensation comes arrives actually later on. So there could be also a delay of years as we have experienced also in the past.So if the things stay like they are, so the price is constant or at least not a big increase, this is what we are seeing on the quarter and probably what you should somehow expect also on the following quarters.

This was the last question of our call. So thank you to all of you for participating and have a nice day.