Endesa SA
MAD:ELE
Earnings Call Analysis
Q2-2023 Analysis
Endesa SA
The leadership of the company presented an optimistic view derived from a gradually softening macroeconomic scenario in Europe. They highlighted a 27% like-for-like increase in their EBITDA and a 20% increase in net ordinary income. The company's focused strategy on renewables and customer growth in the liberalized market, alongside an improved quality in grid service, has been cornerstones in their operational growth. A strategic deployment of over €1 billion in capital expenditure geared towards renewables and network efficiency reinforces their commitment to a sustainable energy future. Amidst a fluctuating energy market, the company successfully navigated falling gas prices and a decrease in mainland demand due to a contraction in industrial activity and an economic downturn.
Financially, the firm is standing on solid ground with a robust Funds from Operations (FFO) of €1.6 billion, indicating strong liquidity. This healthy cash flow situation is due to a notable €0.5 billion improvement in regulatory working capital, particularly tied to the non-mainland system. Management expects further improvement in FFO throughout the remainder of the year. Highlighting the financial resilience of the company, management noted a 22% reduction in gross debt and a 3% decrease in net debt compared to the full-year 2022, signaling a robust deleveraging path.
The company reiterated their full-year guidance, with over 60% of the midpoint of net income already delivered. This positions them favorably to meet or possibly exceed market expectations if the conventional generation and trading sectors continue as forecasted. Their pledges on renewables capacity by 2025 reflect pragmatic optimism, with expectations to navigate technical and societal challenges to realize a more sustainable power generation mix. They anticipate the addition of 10 to 15 gigawatts in the next two years, a challenging yet feasible target in the current environment.
Looking forward, the company expects renewable energy contributions to significantly influence market prices and hourly rate seasonality. With long positions and merchant portfolios, management foresees maintaining profitability despite these shifts. Their long-term models predict energy prices around €75 to €80 per megawatt hour by 2030, assuming gas prices of €25 to €30 per megawatt hour. This reflects careful consideration of how market dynamics, particularly volatility, might shape their financial landscape going forward.
In terms of financial guidance, management has revised their net debt expectations, now seeing it between €10 billion and €11 billion, instead of the previously guided €11 billion to €12 billion by the end of the year. This improved financial position opens up discussions regarding a potential redistribution between CapEx and dividends. However, any conclusive decisions are deferred until the end of the year when the new business plan is presented.
When queried about the integrated margin beyond 2023, executives reaffirmed their commitment to the currently stated guidelines. They see a strong power margin sustained throughout the remainder of the year. This is a testament to their confidence in the robustness of their business strategy and their conservative financial planning, ensuring stakeholder trust is maintained during uncertain economic times.
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Good morning, ladies and gentlemen, welcome to the First-Half 2023 Results Presentation, which will be hosted by our CEO, José 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 José Bogas.
Thank you, Mar, and good morning everybody. Let's start with the highlight of the period. During this second quarter, we have seen a gradual softening of the macro scenario in Europe, with inflation showing some signs of moderation despite which some rate hikes are still not rule out. Energy markets have been characterized by falling gas prices that have resulted in a big relief in power prices, easing the need of further regulatory measures. In this context, we have recorded a strong operating and financial performance that give us good visibility to meet 2023 target.
EBITDA like-for-like increased 27%, reaching €2.5 billion, while net ordinary income is up by 20%. FFO is robust, and accounts for €1.6 billion, with a remarkable improvement thanks to the normalization of the negative market context that impacted working capital evolution last year.
On slide four, you can see the evolution of the main operational parameters across all businesses. Mainland renewables capacity amounted to around 9.3 gigawatt, an increase of 0.8 gigawatt over the last 12-month, with an emission-free output of 81% that allows us to cover around 76% of our fixed price contract, reducing our sourcing cost [rig exposure] (ph) and improving profitability.
Customer in the liberalized market increased, reaching a total of 6.9 million, consolidating our leadership backed by an appealing commercial offering in a scenario of still high and volatile prices. As proof of our commitment to boost electrification as one of our main strategic pillars, we continue to accelerate charging point deployments, reaching 16,600, an increase of 50% in the last 12 months. In grids, we continue to improve quality indexes. Time of interruption improved to 25 minutes, while RAB remained stable at around €11.4 billion.
Deep-diving into investment deployment, on slide number five, overall, gross CapEx amounted to more than €1 billion, 12% higher than previous year. Around 80% of total investment had been channeled towards the strategic pillar outlined in our business plan. On the one hand to develop new renewable capacity, and on the other to optimize network operation through the improvement in efficiency, the adaptation of the network to new customer needs, and enhancing, at the same time, service quality and resilience.
On slide number six, we summarize the evolution of the market dynamic throughout the period. During the second quarter, European gas references continued with the downward trend already seen in the past quarters. Behind this performance lies the combined effect of milder temperatures, weak industrial activity, and the ongoing gas-saving measures endorsed by the European Union. TTF and [PVV] (ph) spot reference prices were, on average, 55% down year-on-year.
[Cumulated] (ph) mainland demand fell by 4.8%, heavily affected by the combined effect of the reduction of the interconnection balance, the increase in self-consumption that boom in 2022, and last but not least, the economic downturn affecting industry and SMEs. Endesa's mainland demand performed better, and decreased by 3.8%, with services and residential segment trimming its demand by 5.3% and 4% respectively due to the aforementioned effects, the rapid normalization of commodity prices, the destruction of demand, and the record levels of renewable output have resulted in a 57% fall in average export power prices in Iberia.
On slide number seven, sales to liberalized customer with our free power market amounted to 36-terawatt hour, with index sales decreasing by 2%. Fixed price sales were almost 80% [backed] (ph) by our CO2-free generation, ensuring the competitiveness of our customer [energy] (ph) cost and further reinforcing the commercial appeal of our integrated business strategy.
Solid development of free power margin with grids €58 per megawatt hour almost doubled the previous year level mainly resulted from the outstanding thermal margin still benefiting from the favorable market environment, the higher-price driven output margin due to better achievement prices, supply margin normalization now returning to levels around €12 per megawatt hour, and finally the positive result obtained in the management of our short position. Regarding forward sales, we continue steadily progress in hedging energy sales to fixed price customer for the coming years.
A brief focus on the gas business on slide number eight, total gas sales decreased by 5% mainly due to lower CCGTs activity, and a slight decrease in gas sales compared to the previous year. This trend is in line with the demand contraction at country level, normalizing from the extraordinary levels reached in 2022. Total gas unitary margin slightly decreased year-on-year, reaching €0.8 per megawatt hour, showing that the favorable market scenarios in third quarter is normalizing. Volume hedged of our sourcing contract come to 90% and 65% for 2023 and 2024 respectively.
And now, I will hand over to Marco who will detail the financial results.
Thank you, Pepe, and good morning, everybody. The soundness of our business model is clearly reflected in the strength of our financial performance, as detailed on slide 10. EBITDA stood at €2.5 billion, marking a solid 27% growth year-on-year in comparable terms, while net ordinary income came in around €900 million, 20% higher. Both figures show a normalization compared to the extraordinary results of the first quarter. FFO strongly improved by €1.8 billion, mainly due to the normalization of working capital, strongly impacted by the market context in 2022, as we will see later on.
Moving now the main drivers of the EBITDA growth, I am on chart number 11. The integrated business management, that you can see in the spotted box, in grey color, represents the bulk of this growth, with €867 million increase, a notable 95% versus previous year. All of this was driven by a positive performance in supply, normalizing the margin from negative levels of the first-half of 2022, as well as in conventional generation and renewable businesses. Distribution EBITDA slightly increased by 3%, to €902 million. And lastly, the 1.2% extraordinary levy impact in Q1, as well as the positive effect of the Social Bonus sentence that we booked in the first-half of 2022, are posted in the structure line of the P&L in grey color on the chart.
Moving into a deeper analysis, we are now on slide 12, on generation and supply business. EBITDA reached around €1.8 billion, doubling result of previous year, with an increase of the free power margin by €937 million, as Pepe has just commented, and additionally, a slight deterioration in the gas business. If you look at the order margin, it remains almost flat with lower contribution of the non-mainland business mainly affected by previous year resettlements, and the recognition of higher fuel reference last year, mainly offset by the positive net impact of gas mark-to-market. And finally, fixed cost slightly increased mainly explained by the inflationary context and higher activity.
If we move to slide 13, distribution of EBITDA increased by 3% as we said to €902 million, explained by the positive delta of gross margin due to the negative previous year's resettlements that we booked in the first-half of 2022. And, a slight fixed cost increased as a result of some positive non-recurrent booked last year and some CPI impact.
Let's now continue with analysis of the results below EBITDA. I am on chart number 14. Net ordinary income amounted to €879 million, up 20% compared to previous year, on the back of the positive dynamics commented at the EBITDA level. D&A increased by €83 million year-on-year, mainly due to the higher investment in renewable, distribution, and retail, and a slight increase in bad debt.
Financial results increased by around €120 million, mainly explained by higher financial expenses as a result of the increasing average gross debt coupled with a worsening interest rate scenario affecting the cost of debt. And, the negative delta from the financial provisions update. Rise in income taxes by €51 million -- sorry, mostly driven by the non-deductible revenue levy. And lastly, minorities decreased by €26 million.
Moving to cash flow on slide 15, FFO recorded a sound improvement versus last year, reaching €1.6 billion in absolute terms. Deep diving into the main dynamics that positively affected working capital, there was a significant improvement of €0.5 billion in the regulatory working capital in the second quarter. Mostly thanks to settlements cashed in related to the non-mainland system.
Positive impact as well of the net trade payables and receivables as a consequence of variation in energy and commodity prices recovering from the abnormal market context in 2022. And this was something that somehow we have highlighted in the previous quarter. All of the above was partially offset by higher income taxes paid mainly from the increased result in 2022. And the payment of higher net financial expenses due to the increase in interest rates.
Farther improvement of FFO is expected over the rest of the year. If we now move on the debt evolution on Chart 16, net debt stood at €10.6 billion, decreasing by 3% versus the full-year 2022. It should be underlined that the positive FFO already mentioned was more than enough to cover this period's investments. Gross debt decreased by 22% due to a sharp collateral requirement reduction of 53%.
Moreover, as a consequence of the recent rising progression in interest rates, the cost of our debt reached 3%. Finally, our financial management reveals strong credit metrics in the period. Leverage measured as net debt on EBITDA ratio, slightly decreased to 1.8 times, well below the industry average. And, FFO to net debt ratio stood at 33%, increasing by 18 percentage point versus last year.
Let me now hand over to Pepe for the final conclusions.
Okay. Thank you, Marco. And now some closing remarks before the Q&A. First of all, in the semester we have once again delivered a solid set of operating and financial numbers. Thanks to the great vision of our business model. This strong performance translated into a solid improvement in FFO with cash contributed in consolidating our solid financial position.
All in all, these results are in line with our expectation and a high degree of visibility on business development from the rest of the year supports our confidence in achieving the 2023 target. This concludes our first-half 2023 result presentation. And I think we can now open the Q&A session.
Okay, many thanks, Pepe, Marco. We are now open to answer all the question you may have.
The telephone Q&A session starts now. [Operator Instructions]
Okay, the first question comes from Manuel Palomo from Exane BNP Paribas. Please, Manuel, go ahead.
Hello, Mar, and everyone. Good morning, and thanks for taking my questions. I have got, let's say, let's stick to two, three questions. First of all, like to get your views on recent PNIEC draft drafted by Spanish government and sent to the European Union. And related to that, also whether you could share your views on future renewal investments in Spain, whether you could rethink them, the low power prices that we seeing specifically, [in other words, saying which] (ph) the sun is shining?
Secondly, I remember that, back in November 2022, Enel announced the €21 billion divestment plan, which included a cash portfolio in Spain. I wanted to have an update on it, please. And also, whether the potential divestment of that cash portfolio could represent any upside on the dividend for the year 2023? And finally, wanted to ask -- I know that Endesa is a pretty efficient company, however I wanted to ask whether you feel like there is additional room for cost-cutting in the company in order to try to help the group to achieve future years' guidance? Thank you very much.
Okay, thank you, Manuel. Let me start with the first question that you have posted in relation with the PNIEC update. First of all, I would like to say that this draft document will be not draft, but something real in June, 2024. So, it is open to changes. Even more, we are sending allegations up to September 5 to the government. Having said that, this new draft, PNIEC, increase ambitions in terms of renewables, and it is even more challenging than the objectives set out in the REpowerEU. So, in that sense, the first thing that I should say is that we see it as positive.
Having said that positive, we see from an initial reading of the document, that the plan seems very challenging, and we noted some uncertainties or, if you prefer, weak points. First of all, the sector capacity to increase 85 gigawatt of wind and solar versus the year 2022, that means something around 10 gigawatt per year, until reaching 133 gigawatt in the year 2030. And why I said this sector capacity, well, in my opinion it's not realistic to deliver these quantity in taking into account the history, the statistic that we have. But more deeply, I would say that there are technical difficulties on integrating all the new capacity in such a short period of time.
The second thing is the scarcity of key components and specialized labor force. I would add the increasing social opposition, and finally, the financing difficulties. So, at the end of the day, what I think is that the market will really fix the renewables that will be introduced in the system. The second thing is the sector capacity to increase 12 gigawatt of pumping and batteries up to 18 gigawatt, if I am right, in the year 2030. Also, the sector capacity to develop 11 gigawatt of electrolyzers, that seems a little bit difficult in my opinion. This 11 gigawatt of electrolyzer will or would cover the total hydrogen that we consume in Spain today.
And in addition, the feasibility of increasing the interconnection from the current 3 gigawatt to 8 gigawatt, this is pending subject during many time. And finally, we are a little bit worry about the security of supply after the phase-out of Almaraz -- the first reactor from Almaraz in the years 2027 to 2028. All in all, as I have said, it's a positive thing because it's ambitious, challenging, but I think that we will have time to discuss with the government to try to adjust this plan.
With regard to the gas portfolio, let me say that -- and I will ask Marco just to go deeply in this question, we continue to with our idea of selling part of our business. It is true that the contest has changed a lot. When we decided to do that, we are thinking about prices around €100 per megawatt hour, a little bit lower than that in the gas market. And now, we are looking prices in the last month of June, a little bit higher than €30 per megawatt hour. Nevertheless, we continue examining the possibilities, and within that we will have some kind of news at the end of the year.
In the third question, that Marco will answer also. If there is room for more cost-cutting, absolutely yes, always there are room for cost-cutting. And I think that one of our strength is that during the last years, we had been working just to reinforce our balance sheet and our -- and strength, our competitiveness. And this is the real, in my opinion, a strength of this company, to be prepared for the future, to be prepared for being solid in our numbers to [indiscernible], and to be one of the leaders of this energy transition.
And Marco, could you please?
Yes, thank you, Pepe. And thank you, Manuel. And thank you Manuel for being here together with us. And thank you to all the others that are following us. We know that, for you that follow the sector, this is a horrible day, 15 results presentation. So, thank you very much for staying with us.
So, Manuel, on renewable investment, actually the renewable investments are some of the keys that somehow guarantees us increasing positive results because, of course, we lower the cost of our production, so that's something good for us, given that we have this [short] (ph) position and we have this fixed sale to our customer. So, this is something positive. Having said that, we are now elaborating the new business plan that we will present, on November, and there is probably the right place just to discuss all of this and to discuss the volatility that we are experiencing right now. And I'm sure that there will be some impact in the new business plan of what we are seeing right now.
Coming to the gas portfolio sale, we are open to discuss. You know very well that we have been having open dialogue with some interested parties on this. I guess that here the perimeter of those discussion are basically limited only to part of our portfolio, as you perfectly know. And it's probably around the discussions are around the two BCM of our six BCM, so in particular, the two BCM coming from U.S. So, I mean it all depends, I guess from as Pepe was commenting from the scenario that we'll see, it's not particularly exciting, but we see potentially the market changing maybe in the last quarter of the year.
So, let's see the channel remains open. So, let's see and on cost cutting, the CEO told you. So, there is probably not so much to add, apart from the fact that, of course, we've been reducing cost along the years. So, now the cost cutting is more related to simplification that we have to commit. So, it's a bit more difficult than the easy one of the cutting at the beginning. So, we are now actually trying to simplify things and change things and working on cost cutting, particularly, maybe not so much related to 2023, but particularly looking at 2024. So, this is something that we will then detail more in the next presentation and we will have the chance to discuss. Thank you.
Okay. Many thanks, Manuel. Next question comes from Alberto Gandolfi from Goldman Sachs.
Mar, thank you, and good morning. Thank you for taking my questions. I'll have two. The first one is a little bit, maybe more elaborated, but it's on earnings. So, I see that it's late July, you're reiterating the full-year guidance. You have delivered more than 60% of the midpoint of net income. You're supposed to do for the year. And considering that Q3 usually is very similar to Q2, we might be able to pencil in maybe another close to €300 million in income. So, that means that Q4 is going to be probably very important. I was wondering if you can tell us what a normalized Q4 on hydro spreads trading might look like for you. And if you don't reply to the question, I was wondering, why not revisiting guidance already? Is there anything that worries you in the second-half that we are not thinking about? Because it looks like if just conventional generation and trading stays like in Q2, and you just look at the rest of the business, it'd be pretty difficult not to be where consensus is at the very least, which is €1.6 billion. So, anything maybe in the development of the unregulated profits we should be or margins we should be thinking about.
The second question is, can you tell us please, what's your expectation in terms of renewable additions in Spain over the next say, two-and-a-half years? So, if we put ourselves in December 2025, how much capacity do you actually think is going to come? What is that going to do, in your opinion to spot prices? And it's probably going to change a bit the seasonality of hourly pricing. Do you think that you're going to be able to make money, given your long position and given some of your merchant portfolio combination? Thank you so much.
Okay, thank you for the question. I will try just to answer the second one, and then Marco will answer the first one. With regard to the capacity able to be put into operation in the next years, well, let me say that as I have said, we're facing some problems. When I say we, I'm talking about the sector. The technical difficulties of integrating this new capacity are related to the scarcity of key components and specialized labor force. There's an increasing social opposition and we are doing our best trying to convince the local citizens about this new generation and the benefit that we will obtain all of us. We will think in this many other things. In that sense, let me say that during the last year the record has been something between five and seven gigawatts per year. If we take into account that, we are thinking about 10 to 15, let's say that gigawatt in the next two years only. And I think that it's going to be very, very difficult just to really put in operation more than this total amount that I have said.
So, one thing is what we want or what we wish to do and we agree that the target should be challenging, but on the other hand we should be realistic. Having said that, the second thing is how prices in the European Union and also in Spain are going to be in the future with this increase in renewables. I would like to say that the important thing for me is not the reduction of the prices in wholesale prices. It's the volatility that these new renewables, especially the solar, are going to introduce in the system with an exact production, let me say in the central hours of the day, while I think in the rest of the hours will remain being expensive as marginal prices are set by gas, not only by gas, but on top of that the manageable hydro and also the interconnection with France.
Considering this volatility, our long-term models point to prices in 2030 at level of €75 to €80 per megawatt hour. Assuming gas price at €25, €30, that means euros per megawatt hour, that means lower than the ones that we have in the future for the next year, 2024 something of about €40, €45. And taking into account Co2 at something around €100 per ton, which is higher than the €80 to €90 that we have today, this is something that we think it will increase in the future because it's the policy of the European Union and we see reduction in the price of the gas, but we don't see this reduction even more, we see an increase in this Co2. If we take into account the total amount of renewables that we have in the plan, this price that I have said between €75 and €80 would be something around €60 per megawatt hour.
So, in my opinion, at least up to the year 2030, we are not going to face in the context with the assumption that we have, we are not going to face a low price, electricity price, but we will see a huge volatility during this period. In that sense, let me say that the renewable producer doesn't have a PPA or doesn't have customer to sell this electricity in what sense, not hedged through these kind of elements will face problems. But that is not the situation that we see for integrated -- vertical, integrated companies.
And now Marco?
Thank you, Pepe, and good morning, Alberto. So, coming to the first question, basically, you know the house very well that historically we give guidelines and we stick to that. Sometimes we deliver more than that. Yes, that's true. But nonetheless, we do not uplift guidelines because we know that there are volatility out there. And so we tend to wait for things to happen.
Going to the numbers, I mean you're right. If you look at the earnings, we are more than 60% on the results. If you look at the EBITDA, just to make it simple. If you look at the EBITDA, we did 2.5 in the first-half. So, how did we build the second-half, in the second-half what we did is forgetting the second-half of 2022, because it was a special year, we went back to the other years 2020, 2021. And if you look historically, we tend to have a contribution of EBITDA in the second semester that is around €2.1 billion, €2.2 billion. So, if you add this to the €2.5 billion that we have done till now, you come to the €4.6 billion, €4.7 billion, that is basically the upper end of our guidelines. So, is it there something that scares us in the future? Not particularly, apart from the fact that recognizing that there is volatility and we are still only at half of the year, so we want to follow and continue to work there and then see what will happen in the next quarter and the next quarters. Thank you.
Okay, next question comes from José Ruiz from Barclays. Please, José, go ahead.
Yes, good morning. Thanks for taking my questions. I just have two. The first one is, if you can update on discussions about the non-Mainland, so the island's receivables, and this €200 million reduction in receivables, if it's attributed to settlement of payments. Second question, I was surprised a little bit by the low production of combined cycles in the second quarter of the year. Production went down by 21%. Considering the thermal gap, that was big, I was wondering why you reduced production of combined cycles? Thank you.
I will try, José, to answer the second one. And then you have said that considering the thermal gap, why we have reduced the production of the combined cycles? Well, first of all, you should take into account the decrease in demand, the increase in renewables, et cetera. At the end of the day, the thermal gap has been reduced if I write something around eight terawatt hour this first-half versus the first-half of the previous year. So, in that sense, it is normal, this reduction in the combined cycle production.
Let me add to this, that the extraordinary situation that we have during the previous year and especially in the second-half of the previous year is not replicable in this year 2023, in our opinion, we have had very good performance during the first quarter, but due to the inertia of the context that we seen in the last quarter in the second-half of the previous year, we don't expect this situation in the rest of the year.
Thank you, José, and thank you also for seeing somehow some sparkle on the working capital. Thank you for seeing that, actually for us on the regulatory working capital. We are finally seeing some light at the end of the tunnel. As you remember, we started the year with €2.3 billion actually of credit vis-à-vis the institution to be recovered. And unfortunately, the situation got even worse at the end of the first quarter this number went to up €300 million to €2.6 billion. Now finally, we are seeing some light and we have been capable of inverting this trend. So, now we are down to €2.1 billion. We know that this is still a huge number, we recognize that. But at least we had a turning of the trend and we are working hard till the end of the year just to significantly reduce this number. Thank you.
Thank you. And next question comes from Jorge Guimarães from JB Capital.
Good morning. Thank you for taking my questions. I have three. The first is can you elaborate on the evolution of gas margins in second quarter because I believe it was negative. So, I would like to understand better the reason why. The second is related to guidance since the bit of a follow-up to Alberto's question, because taking your high end of guidance, the 4.6 to 4.7 EBITDA and analyzing the lines below EBITDA, I reach 1.6, 1.7 and you continue to guide to 1.4, 1.5. So, I would like to understand here the difference. And finally, it's a bit of a detailed question, but one of your competitors in Spain was talking about curtailments impacting the production of renewables. I'd like to understand if you feel the same thing and if that can impact the production of the pumping hydro, in your opinion? Thank you very much.
Sorry. Thank you, Jorge for your question and I will give the word to Marco just to answer the first one and the second one, the guidance once again. Talking about your third question in the sense if we see some kind of curtailment in the renewable production yes, we see this curtailment. Also, let me point out that in the plan, in the draft penitent plan, this something around 25 terawatt hour per year, in circumstances for increase in demand, increase on the interconnector with France, increase in electrolyzers, et cetera. So, that is something that we will see in the future and that we are seeing, we start to see now and will increase in the future for sure.
So thank you, Pepe, and thank you, Jorge. So, going to the first question on gas, well, on gas, what we have seen is that actually there has been retail and also a market that has been pretty much depressed in terms of scenario. And we had chances just to put in value the sales that were somehow canceled by our clients in the first quarter. But this didn't happen in the second quarter because the scenario was particularly depressed. What we see in the near future is that probably the third quarter will continue to be not particularly attractive while we do see probably a rebound in the final quarter. So, probably the first and the last quarter will be positive and this quarter and the next quarter maybe not so positive.
In terms of guidelines on earnings, and thank you for the question, again, let me give you the real if you look, if you went back to the chart at Page 14. The big number there on the chart that is basically is related to financial results and others. So, it's €260 million in terms of financial costs. When you open this number, there are approximately €200 million that is the cost of financing, basically, and €60 million related to provisions. Now, for the time being, we are still sticking for the end of the period to a number that is basically doubling this €260 million.
So, basically in the 500, so I mean this somehow explains why we're still somehow conservative and still confirming the guidelines at 1.4, 1.5. Having said that, this all depends apart from this consideration on financial results, again this all depends on the top line on the EBITDA. And as I expressed before, we are sticking to what we have seen in the previous quarters of unaffected non-extraordinary years, like the 2020 and 2021. So, we stick there. So, let's see what happens in the near-future, and eventually we will reconsider. Thank you very much, Jorge.
Okay, we will move to the next analyst, that is Jorge Alonso from Société Générale.
Hi, and good morning to everyone. I have a couple of questions as well, please. I would like if you can provide some color about the generation in the Q2 versus the Q1, so the moving part, able to understand a little bit what's going on there. And once again, this is related about how to understand how the second-half can evolve. The other one is if you have a view about the hydro output expected for this year, and if that materially differs from the expectations that you have at the end of the first quarter? And related to this, if there is a possibility that part of that output was already hedged so you can see some negatives coming from covering that production which was already expected and sold?
And the final one is if the hedges you have already done for 2024, if you think that those ones are completely safe even if the new government could decide to extend the clawbacks, in the sense that if a clawback is just in the probably -- I mean the margins should be once again regulated by the CNMC, but already the sales has been done. So, with those ones you think could be absolutely safe depending -- independently or from any decision from the new government? Thank you very much.
Okay, thank you, Jorge. Let me give a very brief answer, and then Marco will answer. The different in the generation in the second quarter versus the third quarter is the thermal margin that we have obtained. As I have said, we benefited from the inertia of the last year in the first quarter, that this doesn't happen in the second quarter. With regard to hydro expectation, it's something around 4-terewatt hour, a little bit higher than the last year, but very low. And we don't have any problem because we never hedge this part of the hydro production that depends on the average of the production of the year. We take into account the drought year and then we don't expect any surprise in this.
With regard to the hedging and the clawback for the year, 2024, while we think that we are safe in the sense if the new government eliminate this clawback we will maintain more or less the same results that we have forecasted with the clawback.
And Marco?
Good morning, Jorge. So, thank you very much for your questions. In terms of generation results, probably it could be useful if you look at the page seven and our free power unitary margin. We are indicating €58 per megawatt hour for the first-half of 2023. The number that we had in mind at the beginning of the year was something around €48 per megawatt hour. Now, after we concluded this first-half and we look to the second-half, we do see this €48 like probably being kind of conservative. And what we are seeing is a number that is above €50 per megawatt hour. So, we do expect the second part of the year somehow in line, and maybe slightly lower than this number.
And on hydro, our forecast for the year is still a production of 4 terawatt hours. This means that, basically, is exactly what we have sold, so there is no amount of production or no increase of production that's been sold and maybe not be there, so that there is no particular risk related to that one. Of course, there could eventually an opportunity if we are able to produce a bit more than the 4 terawatt hour at the end.
And in terms of hedges, just to remind you what we said when we presented our business plan last year. Basically, we were somehow including, in 2024, the clawback. And then when it came to 2025, even though the scenario was very positive, we were not regulating our margin on that scenario, but we were assuming a more conservative scenario somehow. So, coming to your question, we somehow maybe included the clawback in 2024, and if any extension to 2025, this should be not so shocking to us. Thank you.
We have now Fernando Lafuente from Alantra. Please, Fernando, go ahead.
Hello, everyone, good morning. Just three questions, one of them, it's a follow-up on Marco's last answer on the clawback. So, if I understand you correctly, all these sales that you've done already, all the hedgings have considered this €67 cap on electricity. So, my question is going to be the other way around. If the clawback cannot be maintained because Europe says that it is not possible to maintain it, do you have any room for increasing the prices of this electricity? And obviously, I understand that all the part that you have not hedged, you will be free to sell it at the price that you consider.
Then the second question, it's on net debt. As you were saying, working capital is growing better than expected. So, I would like to have an update on the 2023 guidance of net debt, Marco. Do you think it could be lower than the one you guided for in Q1? And the third question, maybe you will answer it, in November, in the strategic plan, but wanted to have your view on the balance between renewables and dividends, considering that, as I understand from your answers, you are kind of considering a slowdown or a delay in your investments in renewables considering the current environment. Could it be translated into an increase in the dividend? It would be in the payout or just in the floor, what are your views on that side? Thank you so much.
Okay, thank you, Fernando. Let me say with regard to the clawback and the €67 per megawatt hour, we have sold this electricity to our customers at this €67 per megawatt hour. So, in that sense, there is no room there to increase in the short-term. It could be done in the medium-term, but not in the short-term.
With regard to the third question, the slowdown in renewables and also to have more room for dividends or whatever. Well, one of the main objective is the solidity of our financial performance. We are focusing in reduction the net debt, also the gross debt. We are trying to increase the FFO. So, we are trying to be prepared for the future for being a leader. I have said that while we are living now in a context in which the inflationary context, in terms of labor and materials, have given us a scenario in which some companies are thinking just to reduce the volume of megawatts, maintaining the same amount of CapEx just to really take into account the financial performance.
We always look about the financial performance. We had been very conservative always. As Marco has said, the net debt EBITDA is something around 1.8 now. And we will continue looking adapt and taking into account these solid financial indicators to continue, in the future maintaining it. And we will do, that is our first objective.
Yes, thanks, Fernando, and thanks, Pepe. As Pepe was commenting -- actually, Fernando, let's not forget how we started the year. We started the year with a gross debt close to €19 billion. Now, what it is true is that we are going down faster than we thought. We are at €14.5 billion in terms of gross debt, and a reduction, so the reduction on collateral will be stronger than we thought. And I would say also the cash generation, it's very solid. So, in terms of guideline in terms of net debt, you were asking, we gave to the market something between €11 billion and €12 billion at the end of the year.
If you ask us now, as you are doing actually, we are probably seeing something more between the €10 billion and €11 billion, so something in line with the net debt that we are currently seeing, including, of course, the regulatory working capital. And so, the question that I see there that is related to CapEx and dividends, I guess that is a question that we probably have to pose ourselves at the end of the year, when we will present the new business plan and having us time just to have all the financial clarity on our position. Thank you.
Okay. Next question comes from Rob Pulleyn from Morgan Stanley.
Hi, good morning. Thank you. If I could just ask a question on the integrated margin, which follows up from earlier, clearly going very strong this year. Would you be able to give us a bit of a steer for how you think this should play out post-2023, i.e., what is the normalized level we should all be thinking of? And that is the last question. Thank you.
Thank you for the question. And Marco?
Thank you, Rob, and thank you for being together with us today. So, on integrated margin, as we somehow commented before, we do see -- we are seeing a strong power component for the time being for the first quarter. And so, as I said before, free power margin we do see a better contribution when compared to what we were expecting in 2023, so, basically more than €50 per megawatt hour of margin. So, basically, we do see a strong -- the power margin being strong also in the second part of the year. But we, I repeat, for the time being we still stick to our guidelines. Thank you.
Okay, thank you, Rob. This was the last question of our call. Just remind you that, as always, IR team will be available in case you have some further questions. Thank you all for participating, especially in this busy day. And just to say have a nice day. Enjoy your summer break.