Endesa’s 2023 Net Profit Plunges: Understanding Factors Behind the Decline and Outlook for 2024

Spanish power utility Endesa (ELE.MC) reported a significant decrease in its net profit for 2023, falling short of analyst expectations by 71%. The decline was attributed to various factors, including decreased demand for energy and lower prices in the gas and energy markets.

Owned by Italian energy giant Enel (ENEI.MI), Endesa’s net profit for the year amounted to 742 million euros ($802.92 million), a stark contrast to the 2.54 billion euros recorded in the previous year. Analysts had anticipated a net profit of around 1.06 billion euros, according to polls conducted by LSEG.

One of the primary reasons for the decline in profit was the prolonged decrease in natural gas and electricity consumption in Spain, which persisted for the second consecutive year. Gas demand, in particular, witnessed a notable drop of nearly 11% in 2023. This decline in demand, stemming from both residential and industrial customers, adversely affected Endesa’s gas business. Additionally, the company faced challenges related to a $570 million arbitration ruling over a liquefied natural gas contract dispute.

Furthermore, the significant decrease in gas prices, which plummeted by approximately 64%, led to a sharp decline in energy prices across the Iberian region. This decline in prices, coupled with reduced electricity demand, further impacted Endesa’s financial performance. The company also cited regulatory measures, such as Spain’s windfall tax on energy companies, as contributing factors to its subdued results.

RBC analyst Fernando Garcia noted that Endesa’s results highlighted a weaker-than-expected margin in electricity and a negative gas margin. Similarly, rival Spanish power company Naturgy (NTGY.MC) also experienced challenges due to lower gas prices and sales. However, Naturgy’s bottom line was partially offset by the expiration of unprofitable hedges that had weighed on its performance in 2022.

Endesa’s Chief Executive Jose Bogas acknowledged the decline in performance for 2023 but remained optimistic about the company’s outlook for 2024. He reaffirmed the company’s annual targets, including an adjusted net profit range of between 1.6 billion euros and 1.7 billion euros, used to calculate dividends.

Bogas expressed confidence in the company’s ability to return to a growth trajectory in 2024, attributing it to the normalization of market conditions. He highlighted expectations for margins in the gas and conventional generation businesses to normalize, along with minimal impact from the prevailing price environment due to the company’s strategy of selling its own production in advance.

In summary, Endesa’s 2023 financial performance reflected the challenges posed by declining energy demand, lower gas prices, and regulatory measures. However, the company remains optimistic about its prospects for the future, aiming to rebound and achieve growth in the coming year.