Earnings Call: Q4 2019

Feb 25, 2020

Good morning, ladies and gentlemen. We are now ready to begin our presentation on the results for 2019. I would like to welcome you all. Thank you for attending in person, as well as those of you watching via the webcast. Today, we are joined by the company's CEO, that is Roberto García Merino, and by Teresa Quirós. She is our CFO, of course. To begin, our CFO will be giving a presentation on our financial results for 2019 financial year. After that, our CEO will add some brief comments about our compliance with our objectives in our 2014 to 2019 plan, as well as the progress that we are making with regard to the current plan. That is the 2018 to 2022 strategy plan. At the end of the presentation, we will also have time to answer any questions that you have. That will be the Q&A session. Now, I would like to turn the presentation over to our CFO, Teresa Quirós. Hello, everyone. Welcome here to our headquarters, and thank you for joining us again this year for us to report to you our 2019 financial results. Let me start off by taking you through the significant milestones from 2019. After that, I will go through the significant events that took place. 2019 was a very busy year and intense year, full of milestones, full of significant events. It was a very important year for Red Eléctrica. As a transmission company and system operator, the company had to take on major challenges so that we could promote the energy transition in our country. We also made a lot of progress in the electrical infrastructure business. At the international, we established our base to initiate activities in Brazil, and we achieved a significant milestone in the consolidation of our telecoms business with the acquisition of Hispasat on October 3, almost 90%. As a result, that was in October last year, we could incorporate the satellite company results in our fourth quarter financial statement. These advances have translated into investment level, which was a record figure, EUR 1.87 billion, almost EUR 400 million, EUR 396.4 million of that figure correspond to investment transmission activities in Spain. EUR 226 million represent the international investment, and EUR 1.21 billion was the figure we invested in our telecoms activities. The net profit figure, I am sure you have already seen it already, amounted to EUR 718 million. That is up 1.9% on the profit figure from 2018 financial year, and it is in line with the growth target that we had set out in our 2018-2022 strategy plan. On top of that, yesterday, on February 25, the board of directors have proposed a final dividend that has to, of course, be approved by our general shareholders meetings. It is a final dividend of €0.7792 per share from the earnings for financial year 2019. If you add that to the interim dividend that was paid in January 2020, €0.2727 per share, I am sure you can work this out yourself, but the final dividend will lead us to a total dividend for the financial year of 2019 of €1.05 per share. That is up 7% as we had agreed on. Let me also talk about the milestones with regard to the promotion of the energy transition. One is the transfer of the powers to Spain's National Markets and Competition Commission, the CNMC. That is on the regulated activities. Now we have an independent regulator for the regulated activities in line with European law and in line with other countries. The second milestone was the approval of the new compensation methodology for electricity transmission for the 2020 to 2025 period, as well as the compensation methodology for the electrical systems operator. During 2019, a roadmap was drawn up for the energy transition in Spain, which will set out the way forward 2021 to 2030. In February, Spain's Council of Ministers, the Spanish Cabinet, sent out its first draft version of that Integrated National Energy and Climate Plan, NECP, to the European Commission. Just recently, a second draft version, an updated draft version of the NECP, has been published, incorporating the commission's comments. Now that the roadmap has been designed, the 2021, 2026 planning process has been launched. That is very important for this company. It will mean we can identify the investments that will have to be made in the transmission grid in order to manage the major changes that are going to be taking place in the electricity sector. In our case, in Red Eléctrica's case, it means that we will have visibility on investments over that period. Turning to other key goals for us. You know that one of our goals is to help to configure that single European market. To do this, Red Eléctrica, working in collaboration with seven other electricity transmission system operators, TSOs, we have launched the European Energy Balancing Platform known as TERRE, T-E-R-R-E. That allows coordinated management at the European level of the balancing between electricity generation and market and demand after adjustments of the schedule of the intraday market. This new multilateral platform will allow even more efficient management of the energy balance, and it will also contribute to reducing the final price of energy, at the same time as it optimizes the integration of renewable generation in Europe. Let me carry on telling you about significance in 2019. As we all know, the energy transition includes the incorporation of a major proportion of renewable generation through the next few years. In this context, and you also know this, I am sure, Red Eléctrica in Spain is the company responsible for grid access and connection procedures for agents. All those procedures they have to complete, both for new facilities and for modifications affecting existing facilities. We in Red Eléctrica have made an electronic management platform available to the user agents last year. They can use it to submit applications and for procedures. It is much simpler. It means it is more flexible. A result of that, during 2019, grid access granted to 102 gigawatts of wind and PV solar generation. We have also seen a significant step change in terms of integration renewables with the connection of 6,456 megawatts of new renewable generation to the grid. That figure, which is much, much higher than the previous year. Integration of that component, essentially, we are talking about renewable wind and PV technologies, has marked a record, an all-time record for Spain's electricity system. It is also contributing to delivery of the energy transition targets that have been set out in that Integrated National Energy and Climate Plan. 2019 was also a noteworthy year in terms of reduction of CO2 emissions. Because for the second consecutive year, the rate that was achieved was approximately 60% emissions-free generation. Red Eléctrica is also an electricity infrastructure manager internationally. As such, I did mention this just a moment ago, we did take a firm step towards entering Brazil in 2019. It is Latin America's primary market in the electricity transmission sector. We entered Brazil through an agreement reached with Grupo Energía Bogotá, the Bogota Energy Group, for the joint acquisition equal parts of 100% of the shares in the Brazilian company, Argo Energía. That's a company that's dedicated to management of high voltage transmission grids. What will happen then is that we will be co-managing a grid consisting of 1,460 kilometers of circuits in Brazil. That figure can be added to the 1,686 kilometers that the Red Eléctrica group is already managing in Peru and the 1,729 kilometers managed in Chile. We did talk to you, didn't we, about the acquisition of the 100% of the Carapungo Quevedo-Moyobamba line in Peru for $205 million. So that's an expansion on that. Additionally, Red Eléctrica has established its position as a global telecoms operator with the acquisition of 68% of the share capital of Hispasat for EUR 933 million and with the fiber optics business. We've expanded our customer portfolio during 2019 for a fifth consecutive year of growth. Finally, we did talk to you last year, didn't we, about our strategy plan? I also want to reiterate the contribution that we're making to energy transition and telecoms through the conceptualization, incubation, acceleration of technology-based initiatives. This is all about creating a platform, a cross-cutting platform that will help us to promote the importance of technology, make it all available to companies. This technology component we believe will be one that we'll be promoting from Red Eléctrica. Let me talk about corporate governance now. At the meeting held yesterday, 25th of February, the board of directors agreed the appointment by cooption of Mrs. Beatriz Corredor Sierra as the director of Red Eléctrica Corporación, S.A. in the category of other external directors, in accordance with the report issued by the appointments and remuneration committee and the board of directors, and also to appoint her as non-executive Chairperson of the board of directors and of the company following the resignation of the previous Chairman, Jordi Sevilla Segura. Let me just congratulate Beatriz on her appointment, and I'm so sure that she will be successful in her office. In May last year, less than a year ago, remember, Mr. Roberto García Merino was appointed as the new CEO of the group. So I'm sure you do remember that. Also in the area of corporate governance, changes have been made to the Hispasat board of directors. The number of directors is now 13 instead of the 23 directors in the past. We also have a new CEO as head of the company. As facilitators of the energy transition in Spain, Red Eléctrica is one of the companies that is spearheading commitment to green financing. In 2017, you may remember, Red Eléctrica was the very first company in the utility sector to transform. We didn't sign it. We transformed an EUR 800 million syndicated loan into sustainable financing by adding ESG criteria to the interest rate. Following along the same lines, in October 2019, Red Eléctrica took another step forward by presenting its green financing framework. This is all about issuing financial products that will allow us to promote projects accelerating the energy transition in Spain. Only three months after that, Red Eléctrica made its very first issuance of green bonds, EUR 700 million, in order to finance eligible projects within that same green framework. These initiatives are evidence of Red Eléctrica's strategic commitment to sustainability, in this case, through responsible and transparent financial management. Let me finish this section on corporate governance by talking about an ambitious project that we have been running throughout 2019. What we've been doing has been adapting our risk management model to the recommendations of the Task Force on Climate-related Financial Disclosures, the TCFD. In line with those recommendations, the company has analyzed the risks and opportunities associated with the modification of climate variables that could directly affect the electrical systems facilities or reliability. This work is a major step forward with regard to adaptation to climate change. Climate change, adaptation to it, is one of the relevant points that the regulatory group has included in its commitment to combating climate change. In addition to publishing the results of that work, the group will also be able to make further progress in terms of transparency of information provided to its stakeholders. Let me now talk you through the figures. Perhaps it's not so entertaining, but it's very important. Let me talk about the performance of key figures. Very positive. Revenues totaled EUR 2 billion. That's up 3% compared to 2018. As I said before, we have incorporated three months of Hispasat revenues in these figures. Without Hispasat, we stripped Hispasat out, the growth would've been 0.8%. That revenue figure includes compensation for electricity transmission activities in Spain and the regulated income that's related to the operation of the system as TSO. Telecommunications activities totaling EUR 175.4 million, and also revenues derived from the international activities by EUR 51.6 million. To that figure, we also have to add an earning from the Chilean company TEN, EUR 7.6 million, which included in the EBITDA as investee company profits, because of the 50% stake we have in that company. Gross operating profit, EBITDA totaled EUR 1.582 billion. That's 2.8%. Let me say, if I could round it up to 3% up on the previous year's figure, incorporating EUR 33 million contributed by Hispasat. The financial loss that we report in 2019 was EUR 134 million, which is in line with the figure recorded the previous financial year. The higher average gross financial debt totaling EUR 5.93 billion has been offset by a lower average interest rate, which decreased from 2.42% in 2018 to 2.29% in 2019. Net profit, I did mention that figure earlier, didn't I? Was up to EUR 718 million. That's 1.9% higher than the amount recorded the previous year, and the effective tax rate paid was 24.3%, in line with the figure recorded also in 2018. In relation to debt, net financial debt figure was EUR 6.026 billion at 31st December, and we maintained optimal solvency ratios. In relation to this, we can see that the net debt to EBITDA coverage ratio reached 3.8 times with the FFO debt ratio at 20.8%. It would've been at 22% if we'd incorporated Hispasat. We are a more complex group now, and I believe it is important for us to give you, as a result, a breakdown of the revenues figures by type of business. You can see the comparison there on screen, 2018 to 2019. There has been aggressive increase in the weight of unregulated business. That is the outcome of the efforts that have been made deliberately by the group towards diversification. Operating revenues and EBITDA stemming from operation and transmission activity in Spain were around 90% of the group's total for the 2019 financial year. Also, telecommunications infrastructure business, that represent 8% of total revenues. Although the figure would have been 14% if the contribution from Hispasat had been included for the full year. What we are hoping is that during 2020, the participation of unregulated business will record significant growth, resulting from the consolidation and entry to service of the investments in diversification that took place in 2019. Let me talk about the financial structure now. You can see that the maturity schedule for long-term debt falling due for Red Eléctrica over the next few years, the average life of the debt is 5.2 years, and right now liquidity is approximately EUR 2.097 billion. You can see this from the slide, covered for almost the next three years for debt maturities. If I can focus now on the debt structure by type of instruments, you can see that our debt is highly diversified. 78% of our debt is at a fixed rate until maturity, and there is a predominance of the euro over other currencies. Our credit rating is high. The two rating agencies that give us those ratings, Standard & Poor's and Fitch, after the conclusion of the TSO regulation in Spain, have confirmed the A- long-term rating with a stable outlook for Red Eléctrica Corporación. As I pointed out earlier, during the year 2019, we have launched a multitude of initiatives that provide evidence to you of Red Eléctrica's strategic commitment to sustainability. We presented and shared with the market our green framework, and we also made that initial issuance of EUR 700 million in green bond funds. It is an 8.5 years issuance with a competitive price, 0.5%. Very well received by the market. There was a lot of interest by investors in this bond issuance by Red Eléctrica. Investors certainly welcomed our commitment to the green framework. We have received proposed interest of more than EUR 4 billion from the market. The welcome by the financial market to this issuance, therefore, was highly positive. Thank you for your attention. Let me give the presentation over to CEO, Roberto García Merino. Thank you very much, Teresa, and hello to everyone. I think with everything that Teresa has discussed, we are basically talking about a very successful 2019 year for Red Eléctrica. It is a pleasure to be able to address you all today, especially now, this time after closing a fantastic 2019 financial year. We have finally completed our ambitious 2014-2019 strategic plan, which we announced 5 years ago. It is highly satisfying to me to say that we have concluded the plan with successfully delivering on all the commitments that we gave to our shareholders back then. In relation to this, we have achieved an investment level of EUR 4.861 billion for that period. In terms of efficiency, significant results have been achieved at an operational level following the review of operations and maintenance policies and the criteria for supply and construction. A higher demand for unit, a more strict unit operation maintenance costs approved at the end of 2015 have required greater efforts by the company in reviewing those policies, while at the same time maintaining our quality standards for construction and operations. These achievements have taken place while maintaining our net debt to EBITDA solvency ratio at around 3.4 times. It has allowed us to maintain a credit rating similar to the sovereign rating, which is critical for a company with compensation linked to the cost of capital. In addition, earnings per share for the period averaged 5.2% on average. We have delivered on our commitment to the market through distributed dividends that have grown at a rate of 7% yearly from the beginning of the period. We have successfully closed this 2014-2019 plan with great performance, and we are now focused on a new plan under a new context with new challenges, for which we are working on every day with the satisfaction of knowing that we have completed and delivered on all the commitments that we stated 5 years ago. Now with a lot of excitement facing this new 2018-2022 strategic plan, which was announced in February last year. I would like now to summarize the most noteworthy aspects of new compensation methodology for electricity transmission activities, which was just approved by Spain's National Markets and Competition Commission, CNMC, in December last year. I think it is important to emphasize that the methodology defined for the second regulatory period is one of continuation with the methodology applied during the previous regulatory period, and it is one that continues to present incentives for availability and efficiency. It establishes 6-year regulatory period covering the years 2020 to 2025. The compensation provided is based on the net value of the assets, and the model makes use of unitary measurement values for investment in operations and maintenance. In order to establish a financial compensation rate, the methodology proposed is one aligned with the European Union's regulatory best practices, specifically by making use of the WACC, the weighted average cost of capital. This was one of the novel features of the new compensation, and we believe it is a positive one that will guarantee transparency and provide predictability for future rates. The financial compensation rate applied is 5.58%, pre-tax nominal rate, that is. As established in regulations, adjustments to the financial compensation rate may not exceed 50 basis points annually. This means that the rate applied during 2020 will be 6%, and then 5.58% during the rest of the period. In relation to extension of the useful life, a positive modification has been included with regard to the previous model, with a 30% increase in the annual amount paid for maintenance of assets coming to the end of the useful life. That compensation represents an incentive for extending the operation of facilities and installations that have exceeded the useful life in terms of compensation, but are still providing services to the system. The possibility is also included for renovating facilities and stations that have reached the end of the useful life or that are close to exceeding it, based upon the rate of entry into service. With regard to the circular compensation for the electrical systems operator, it must be pointed out that this is the first time a compensation methodology is being established for that activity. We believe this represents progress towards creating a context of legal security for carrying out our activities as a system operator. In general, the principle being applied is that of establishing compensation that is appropriate for a low-risk activity, take into consideration the costs required when that activity is performed by an efficient, well-managed company, plus an additional margin, which is 5%. A standard financial compensation element is incorporated, which applies a compensation rate of 5.58% on the net value of the fixed asset used for the system operation activities, along with a standard depreciation. The proposal also includes a compensation element for incentives for the system's operators at TSO, which can range plus/minus 5% for the system operation remuneration. However, since the CNMC believes it is most appropriate to implement those incentives gradually, during the first regulatory period, that range will be plus/minus 2%. The regulatory parameters have been defined for a three-year period, with the first regulatory period being 2020-2022. On January 31st, the CNMC approved the resolution that establishes the system operator's compensation for 2020. This represents the first application of the methodology from Circular 4/2019, which is approved by the plenary session held by CNMC on November 20th. The compensation for 2020 financial year is established at EUR 747 million. Another of the most relevant features for the next few years is the energy planning for the 2021-2026 period. The proposal for development of the transmission grid in this period is key in order to achieve the targets established for the electrical system in the NECP in relation to decarbonization efficiency and interconnections. This proposal must take into account key elements, such as ensuring the security of supply from transmission grid and maximizing production from renewables, while optimizing use of the existing grid and making its development compatible with the conditioning environmental factors. In addition, the planning must cover other needs of the system, which are international interconnections and interconnections for systems on islands, as well as investment needed to support electrification for deployment of railway systems. The analysis and approval process for this planning is technically complex and will take some time. The second phase, which is studies phase, was recently finalized on December 3rd in 2019. The systems operator sent the initial proposal to Spain's Ministry for the Ecological Transition. Still remaining are the comments phase and consolidation of the various proposals, so the final authorization process can be initiated. We will now present some comments on the progress being made on the 2018-2022 strategic plan, which was presented, if you remember, February of last year. At the beginning of this presentation, Teresa commented on the significant progress achieved in terms of execution of investments that were included in the strategic plan. As you recall, in the strategic plan, we announced investments amounting to EUR 6 billion to be made during that period. After two years of that plan, we have achieved 46% of that goal. At national level, we can highlight all the way to 2019, investment in the transmission, investments reached EUR 775 million. I would like to highlight here the projects, the interconnection between the islands of Mallorca and Menorca, with entry into service being planned for the third quarter of this year. The western interconnection with France, which as you know, was declared the Projects of Common Interest, a PCI for 2013, and that represents an important challenge for Spain, France, and Europe in terms of achieving their objectives towards the European energy transition. In the peninsula, we made considerable progress in the northeastern access, fundamentally in the Güeñes-Itxaso line, and Andalusia in the Baza-Caparacena-Ribina line. If we now look at our international activity, we can highlight that in November 2019, as Teresa mentioned, the Red Eléctrica group and Grupo Energía Bogotá reached an agreement to jointly acquire in equal parts 100% of the shares of the Brazilian company Argo Energía, which is dedicated to management of high voltage transmission grids. With acquisition of 50% of the company, the group kicks off its activities in Brazil, which is Latin America's primary market in the electricity transmission sector. We have become a co-manager for a 30-year period of three electrical concessions that now cover a total of 1,400 high voltage circuits in 11 substations. Progress has also been made in Peru, with investments of EUR 219 million in the last two years, involving the acquisition of a transmission line in the country's northern region of Cajamarca, along with coming to service and development of other projects known as Tesur 2, 3, and 4. Finally, in Chile, progress was made during the 2018 and 2019 construction of the project located in Pozo Almonte area, where the company awarded the contract is Redenor. With the acquisition of Centinela Transmisión, a transaction that also includes the works for expansion of those facilities. These investments represent investments of EUR 145 million for the 2018-2019 period. In addition, I would like now to address our telecommunication activities, where we closed 2019 with a significant milestone for the company, which is the acquisition of Hispasat for a total investment of EUR 133 million. In addition, now at the beginning of 2020, fabrication of the new, more efficient and flexible Amazonas Nexus satellite has been initiated, which will replace the Amazonas-2 currently operated by the company. This new satellite will allow Hispasat to gain new customers and markets, providing high capacity mobility in the airline and maritime transport industries, while still providing services to current customers. The new satellite will be launched into orbit during the second half of 2022, and will have coverage over all of North and South America, the North Atlantic corridor, a high traffic zone for air and maritime transport, and Greenland. It is expected to have a useful life of about 15 years. At the group, we are continuing to work on technological advances that, like Amazonas Nexus, respond to the growing demand for connectivity and allow the scope of our activities to be expanded. I would now like to address, talk about the international operations and the compensation models where Red Eléctrica operates. These models are based on very flows that are stable and predictable over time. In Peru, we have been awarded a competitive tender for both contracts buy, own, operate, and transfer for a 30-year period. Revenue levels are established during the initial tendering and are then updated each year, taking into account the factors such as inflation in Peru, and other elements, but always linked to the U.S. dollar. In Chile, the model operates in a similar manner with new transmission grid expansion projects being awarded via tenders covering 20-year periods, again, awarded in U.S. dollars. Again, taking into account the Chilean inflation and exchange rate. After once the initial 20-year period has expired, compensation for the assets continues in accordance with the replacement value. The compensation rate also takes into account the evolution of the performance of countries interest rates, with the compensation being revised every four years. Finally, in Brazil, the expansion of electricity transmission system also takes place through a concession and tendering for 30-year periods. Just as in other cases described, candidates for a new contract participate in competitive tendering, during which the annual revenues for the projects are established. Those revenues are then updated every five years, so that profitability can be maintained even in event of changes in macroeconomic variables. Red Eléctrica, with its presence in Peru, Chile, and Brazil, has benefited from these recurrent cash flows, which has enabled the company to carry out significant investments with a very limited recourse to its shareholders. As we explained when presenting our 2018-2022 strategic plan, at the Red Eléctrica group, we believe that the telecommunications business will be key during the upcoming years. The Internet of Things, the arrival of 5G, and autonomous vehicles are just a few examples of how the demand for reliable, flexible, high-quality telecommunications networks and systems will be growing exponentially during the next few years. In recent years, our group has been establishing its position as a telecommunications infrastructure operator, by trying to cover this demand. In this way, Reintel has now become the largest neutral operator of dark fibre optics in Spain, with more than 50,000 kilometers of fiber optic grid installed along the electricity transmission system and railway network. Reintel is seen as a leader for the digitalization of society, and it guarantees transparent access under equal conditions to all agents and operators in the telecommunications sector. During 2019, the Red Eléctrica group also acquired 80.6% of Hispasat. This consolidated as a leading operator and opens the way for a very dynamic industry. At present, we are defining a new strategic plan for Hispasat using five basic lines of synergy. First, strengthening and growth of the current business, with Hispasat continuing to emphasize development of the current business and promotion of projects that allow for coverage of new vectors of growth in the market, such as the case of mobility services that the new Amazonas Nexus satellite will provide. Synergies with the rest of the companies within Red Eléctrica group will also be covered. This is an opportunity to the group to offer and develop connectivity projects that can drive and energize the fight against depopulation and the digital divide in Spain. It can support the rollout of new technologies such as 5G. The third line is to be committed to technology as a driver of evolution, of change in the business. Hispasat is a driving force behind the development of aerospace technology in Spain and intends to continue to play that role, thereby generating value to its customers. Fourthly, encouraging development of sustainable and competitive national industrial fabric in order to maintain and strengthen its global positioning. Lastly, responsible sustainable management focused on people. With regard to development of new lines of business, during 2019, the group initiated a pilot project to analyze use of its infrastructure elements as a basis for the rollout of 5G mobile communications, which took place with the collaboration of operators and manufacturers from the telecommunications field. In terms of our commitment, the EBITDA margin on average will be more than 30% based on an efficient policy that offsets the revision of the financial compensation rate and that captures efficiencies for maintenance activities. In relation to this, we have taken the following measures. Firstly, a plan for introducing new talent and onboarding new talent within a context of process optimization and automation of processes that will allow optimization of the workforce. Secondly, progressive reduction of external operating expenses. Also, once the regulatory review has been finalized, the accounting amortization policies will be adapted to the new compensation framework. In addition, we will be consolidating our financial discipline, maintaining an average net debt to EBITDA ratio of approximately four times for that period, while focusing on maintaining credit rating level in agreement with our activities. In terms of our commitment to sustainability for our net profit and dividends, we can say that we're on the right track, showing a compound annual growth rate of more than 3% of net profit during the 2018-2019 period. Also in 2019, we maintained a dividend of EUR 1.05 per share, which represented a return of more than 5% during the year. We are maintaining our commitment to distribute a dividend of at least EUR 1 per share for the 2020-2022 period. Our policy on dividends and shareholder returns has led to an increase to the average dividend, EUR 0.89 per share, distributed during the execution of the 2014-2019 strategic plan, which now can be compared to the higher average dividend of EUR 1.01 per share included in 2018-2022 strategic plan. In relation to this, we are maintaining a dividend in line with our solvency ratios and the company's investment plan. Finally, I would like to tell you about our commitments to the energy transition and to Horizon 2030. As you know, that is the primary challenge that the company will have to take on during the forthcoming years. The 2021 to 2030 Integrated National Energy and Climate Plan, the NECP, is part of the roadmap that has been designed along with the draft version of the Spanish Climate Change and Energy Transition Act, and the just or fair transition strategy in order to make progress towards long-term goals of investment neutrality in 2050. After an initial draft version of the NECP, that plan was sent to the European Commission back in February 2019. Spain's Ministry for the Ecological Transition and the Demographic Challenge published an updated draft version of the 2021-2030 NECP within the context of the public consultation period for the strategic environmental study on that plan. I would like to emphasize a couple of aspects about that draft version, if I could. For the year 2030, the NECP contains plans for a total install capacity of 161 gigawatts in the electricity sector, with 74% of the total electricity generated during 2030 coming from renewable sources. That is consistent with a path towards 100% renewable electricity sector by 2050. As you can see in the figures on the slide, the use of thermal power has fallen significantly. Coal has dropped from 10 gigawatts to zero gigawatts, and nuclear power goes from 7 gigawatts to 3 gigawatts, while renewable energy increases apace of 5 gigawatts. I know it probably goes from 3 to 7. Clarissa did also mention to you earlier that we were able to integrate 6.5 gigawatts in one year. Red Eléctrica is already working intensively in order to make that scenario possible. During 2019, Red Eléctrica granted access permits to more than 110 gigawatts in new renewable generation facilities, concentrated mainly in wind, 26.7 gigawatts, and photovoltaic solar power, 81.5 gigawatts. As a whole, this represents an increase of almost 70 gigawatts with regard to the generation that had access permits at the close of 2018. That is a notable milestone. It also reflects the significant effort that we are making in terms of investment and development of the transmission grid, because more than 150 new generation positions that would be added to the almost 100 positions explicitly included under the current planning. The new generation then, associated with the permits that I have been talking about, represents an achievement of the predicted power needs for wind generation, more than doubles those forecasts for photovoltaic generation for Horizon 2030 in the context of the energy transition. That is according to the draft version of the NECP, that plan. There will also be need to optimize grid access capacity and to improve transparency in order to provide indications of where projects can be located. Other key aspects under the scenario described will also be international interaction, storage, and promotion of adequate demand management. In order to make progress with the energy transition and to achieve that goal of decarbonization that has been set out for the European Union's energy system, a European electric market that functions properly is essential. Sufficient physical interconnection with neighboring countries is important, so that member states and neighboring countries can all benefit from the positive effects of the internal market. Let me remind you of the recommendation that was established by the European Union, 15% interconnection ratio by 2030. That is the target currently. Red Eléctrica is working on this submarine interconnection with France across the Bay of Biscay. That new connection will allow the electricity exchange capacity between Spain and France to be increased to 5,000 megawatts. That is about 5% of that 15% target, that interconnect ratio by 2030 I was talking about. The project is now in the study phase. During the next few months, there will be a public consultation phase. Among other scenarios, the plan, the NECP, incorporates a level of interconnection with France of 8,000 megawatts, including not only the Bay of Biscay interconnection, but also two additional projects crossing the Pyrenees, that will be included in the Projects of Common Interest under the EU. Over the next few years, we also have to make progress towards decarbonization systems on the islands, especially in the case of isolated systems, increasing energy storage capacity as a tool to improve system operation and thereby avoiding undesired losses of clean energy during non-peak periods, while at the same time improving the security of the electricity system. Over the course of the year 2020, Spain's Ministry for the Ecological Transition and the Demographic Challenge will be producing its plan for the development of the electricity transmission grid. When the planning has been approved, by the end of the process, we will have a much better view of the investments the transmission grid will have to take on in order to accompany the energy transition process in view of the need to comply with those goals for 2030. Well, that concludes today's presentation. Many thanks for your attention. We are here, very happy to take any questions from you. Now that we have heard the presentation, we can go straight to Q&A. First of all, we will start with the questions in the room, and then we will take questions that have come in to us through the webcast. A question here from BBVA. Thank you very much for that presentation. I actually have a number of questions for you. The first one is about the investment plan. It is true that you are well ahead of the schedule with regard to diversification. Hispasat was certainly a milestone, and you had done an awful lot to expand internationally. My query is more about the national, the Spanish transmission grid. Up to 2022, I think there was about EUR 3.2 billion that was set out for investment in the national grid. It is about EUR 800 million, I think, so far. I wonder whether you will be speeding up on the investment you have to make in the national grid over the next three years, or will it be more in the 2021, 2026 plan? What will be the investment rate in Spain as we move forward, if you could answer that? Second question, as part of that national investment plan, there is a lot of weight there for those big projects, the interconnector projects, is there not? In your investment plan, could you tell us about how you see yourself at the end of the period? How much ongoing investment is there? I know we have a +1% growth rate in after-tax profit. How much will they be affected by the investment that you are making? The next question I have for you is more specific. It is about 2020. Can you give us what we can expect from you with regard to your income statement? It will be full year accounting for Hispasat. We will also have the regulatory impact of the lowering of interest rates. Can you tell us what we can expect with regard to investment and net profit in a bit, the figures for 2020? Give us some guidance, if you would. Then another question. In the press, we have read about the fact you have started legal proceedings vis-a-vis the new regulation. I would like to understand exactly what the company is doing there. What point are you in the process, and what can we expect of that whole process? Thank you. Well, thank you very much for your questions. Regarding the investment plan, yes, you are quite right. The strategic plan for 2018 and 2020 period set an objective of EUR 7.2 billion of investments in transmission operation assets for Spain. It is also true that we reported on the breakdown of investment, and most of that is focused in what we aimed would be centered in the last two, three years, and very much linked, as you said, to unique or one-off projects, which will pick up pace in the coming years. When you wrap up a planning period and you start another one, you are sometimes left with a very clear vision. Certainly as much as we would like to, as we start the second part of the plan. But certainly, the investments will definitely start to grow in coming years, and I think we will have a much better picture in the course of this year as we make our planning more specific. On the breakdown of the plan and how these investments impact the profits, indeed, as you all know, a work in progress in the remuneration system currently in force, that is currently not being remunerated. We are talking about a significant project here with a significant period of execution. So there will be an increase of non-remunerated work in progress, which we expect at the end of the period, probably in the period 2023, 2024, will start producing recurrent results. But you are quite right. All the way to 2022, we will probably see an increase in work in progress that will yield fruits later down the line. Now, Teresa, do you want to comment on 2020? Well, as you know, we cannot give you advanced details of 2020, but I will give you current thoughts. 2020 will be impacted by the impact of 50 basis points in the tariff that may have an impact of about EUR 50 million, and the standards and maintenance will also have an impact, an impact of about EUR 40 million. Hispasat will probably offset some of this. Then Argo comes into force in between halfway through the year, which means that Argo contribution for 2020 will not be complete but will be consolidated in 2020. This means that the results that we can expect for 2020 will probably be lower than 2019, naturally, given these changes. Because even as we set efficiency measures, we put more efficiency measures into place, it's very unlikely that efficiency measures will offset all these milestones that will happen, which will be, by the way, a transition year. This doesn't mean that in 2018-2022 period, as we discussed, we will have an increase of pre-tax income of 1% approximately. Sorry, that's profit of 1%, after taxes, that is, because we'll have some projects also that are completed. Daniel, regarding on the legal grounds, legal matters, indeed, the board of directors, which met in February, authorized the appeal to look at that, to address the issues behind these circulars. Now, to give you a snapshot, we think certain assets of the circulars are, we actually value positively because there's a new remuneration for TSOs, and the financial remuneration or some of the measures that are being considered that previously not considered in order to manage assets that are coming to the end of their useful life, I think that's a significant progress. We do need to acknowledge the work that CNMC has done in this regard. But we still have certain discrepancies regarding some of the circulars that we're still analyzing, and we're seeing Looking at the scope of these circulars, I suppose the board will be taking a decision in the coming weeks. We're working on that, as I said, within a positive framework, given some of the measures that the CNMC has introduced that we think are good, against some discrepancies that I mentioned that we're looking into. Hi, it's Fernando from Alantra Equities. I've got two questions. First question, a million-dollar question, I suppose, on dividend policy of the company. Back then, the strategic plan established a position that made sense. The position was perhaps conservative and made sense of seeing at least EUR 1. This year, you paid EUR 1.05. Just your opinion of what you feel about the 2020 or your views on 2020 dividends, and it'd be great if you could tell us something about 2022. Finally, on Hispasat outlook, because next year, or rather 2020, was the first year of full contribution, full consolidation of the company. How do you see the company now that you are inside the company, and what's the outlook for this company in the coming years? Thank you very much, Fernando. Yes, that's great. First question, the dividend policy. As we said in the presentation, we are keeping to our commitment that we announced in February last year in our strategy plan that we would be paying out at least EUR 1 per share for the period 2020-2022. It's true, though, with a new regulatory framework, we have more visibility in the medium term. We're still missing the other key pillar here, which is more certainly about the investment plan, which is linked to the planning process at the moment. We prefer to stick to our commitment that we made last year, in February last year. When we do get more visibility, then we will perhaps set out a more medium-term scenario and change that commitment if appropriate. As you know anyway, maintaining an adequate returns policy to our shareholders is so important, and it will continue to be important. The question about Hispasat. After 3 intensive months, almost 4 now, of activity since we acquired a stake in that company, I would say that the point right now is defining the new strategy plan. There's a lot of work being done to get a clearer view on the path for the company in the medium and long term. Close of 2019, the financial statements, it's really not comparable, is it, with the 2018, because we had extraordinary, we had one-off impacts, didn't we, in both financial years. Nevertheless, I think the company is reacting very well to the traditional business. Hispasat, you probably know, half of the business is in video and half in data. Data, I'm sure you'll know this, are going to be recording at almost exponential growth. The traditional market, the traditional business is suffering at the moment, and Hispasat is also feeling that impact. With the new strategy plan, the new move forward, with that new satellite that we talked about, people are convinced that data connectivity, mobility are the key to the future. In the midterm, I do think that the company will have an upturn and be able to offset the downturn in the traditional business. Are there any other questions here in the room in Madrid, or can we move on to the questions that have been sent in to us through the webcast? Okay, through the webcast, we've had questions from Javier Suárez from Mediobanca, Harry Wilbourne from Merrill Lynch, Fernando García from Royal Bank of Canada, Jorge Guimarães from JB Capital, and James Brand from Deutsche Bank. What we've done with the questions that you've all sent in is group them together. I know some of the questions have already been asked here in the room. We wouldn't like to repeat those. The regulatory situation, first of all, the questions that are being asked are what is the current status of the legal initiatives, legal challenges that have been carried out by the company with regard to the pre-98 assets, and whether we believe that at some point we will get a proper treatment of those assets that will improve the current results from the review of the regulatory situation. There is another question also about the pre-1998 assets. It is if we feel that somehow we will be able to avoid the regulatory cliff edge in 2024 because of the pre-1998 assets. Well, regarding the open-ended issues that we have, the pre-1998 assets and other things that we have outstanding, I think in the course of this year, we will have some more news to report on all of the processes that we have open at this time. We are analyzing, looking at those circulars that I said to complete that appeal that we are working on. Of course, the idea is to be able to adjust vis-a-vis 2024 cliff that you were commenting in your regularly, clearly talking about 2024. It is something that we are looking into and see whether we need to introduce into those appeals that we are currently working on. The next question is regarding Hispasat. Can we give any breakdown of details on the contribution of Hispasat for 2019 vis-a-vis the EBITDA contribution for the whole year, the standalone EBITDA, that is, of Hispasat? Also some estimates on how we expect that EBITDA to perform throughout 2020. Again, on Hispasat, the next question is, at some point, we have seen news in the press on the possibility of Capital or Reintel opening up to new partners. Is this something that is still under consideration, or is this in consideration for Reintel and Hispasat that is? Then on Hispasat, another question, the level of investment expected for the coming years. Let me start, if I could, with that contribution by Hispasat to our EBITDA and the full year outlook and also contribution in the future. As I said before, within the EBITDA for the group, EUR 33 million comes from Hispasat. It would be about EUR 113 million if you multiply it by the four quarters, and that is approximately the contribution we would expect from Hispasat in 2021 on a recurring basis from Hispasat. That is perfect. As for the strategic vision on whether we would actually bring in new partners into either Hispasat or Reintel, I think this is something that is still on the table. We would have to try and seek contributions from new partners, new shareholders, that could be complementary for us and expand our business in both Hispasat and Reintel and help us to really unlock the full value of the investments that have been made, which I don't think have been properly understood yet by the market. That estimate for investments to be made in Hispasat. As you know, the Amazonas Nexus project is the next one. We're talking about a satellite that will have investment of about EUR 250 million. Some of that investment will be self-financed with the contracts that have already been signed with some of the future clients at the start. They've already joined the project at the start of the mission. The rest of the financing for the rest of the funding of that investment will come from the company's own cash flows. Remember, our leverage level is pretty low. It's about 2 times EBITDA at the moment. Let me continue with more questions about telecommunications, if I could. There's a question from the Royal Bank of Canada, Fernando García, about the possibility of contract with ADIF or the renegotiation of that contract. Well, as all of you know, back in 2014, Reintel won a public tender for the right to use of fiber optics in the railway fiber optics, that for 20 years, surplus fiber optics capacity will be used by Reintel, that is by Red Eléctrica. That's as far as we That's our contract linked to a public tender with close terms, so we don't believe there should be any renegotiations whatsoever. However, one can establish certain combinations to look at different business opportunities with ADIF outside the scope of that tender. Of course, we're fully open to discuss with ADIF or explore with ADIF or even other potential operators, new business opportunities. But certainly, as far as the surplus of the dark fibre, we would basically adhere to the contract that we signed. So move on to a question on investment in the transmission business in Spain. When would you have a number for the investment level in order to introduce into the grid all the renewables that already have a license in Spain? Also related to investments, we're asked about the current commitment of a EUR 6 billion investment. Do we believe that CapEx should be higher as a result of energy transition, and why? Well, I think we've talked about this at least a couple of times throughout the presentation, and one of the key factors that we're missing to have a fuller visibility in the medium and long term is the end of that planning process that will take us from 2021 to 2026. I think there are still months of work to be done before we get to that point. But when we talk about these volumes of integration of renewables, first and foremost, there has to be a rollout of the grid without talking about figures, because only when that planning process is completed will we have the figures. But I could say that the incorporation of new renewable generation will, of course, require that rollout that will be in line with the volume of generation, and it will be probably by the end of this year. Until then, by the end of the year, we won't get a better view on the content of planning. Next question that has been sent in is on international investment. The question is, could we give more visibility on the contribution to EBITDA or our profit from the stakes we hold in companies in Latin America over the next few years? Well, as Teresa mentioned at the beginning of the presentation, with the acquisition of Argo, we've taken a big leap forward to our strategic plan. I think what's been already closed and was committed for the coming years, we've pretty much covered 80% of our international investment objective. Now, regarding the work in progress and new investments that may be wrapped up or introduced, I think in the medium term, what we're talking about, once Argo is already consolidated, we're talking about of EBITDA of around EUR 75 million. The next question is on the company's objectives. We're being asked whether the objective of increasing the earnings per share of at least 1% for the period, is the company comfortable with that given the regulatory review and current changes in Hispasat? Well, that commitment, that dividend policy commitment, is at least 1% EPS. We talked about that we would certainly still feel comfortable with what we said in the strategy plan, that at least 1% increase. After 2018 and 2019, and from what we've seen so far, I would say that that commitment to our earning per share increase is going to be maintained without a shadow of a doubt. The next question is about the Hispasat business as we move forward and timing. What about net profit and dividend policy? When will the company be able to organize a capital markets day to tell us this? Yes. As you mentioned, the company has been working for a number of months already in drawing up the strategic plan, which I believe will be completed in the next couple of months. In the course of this year, we'll give you some more better outlook on Hispasat. That covers all the main questions. Apologies, there's another question here in the room. Hi, Gonzalo Fernández. Back in October, it seemed that, regarding energy transition, the plan that the government had laid out, at least the investment levels that they had published, was not going to be a certain percentage of GDP, was not going to be sufficient to meet our 2030 objectives. Anything new to report in how that might impact your strategic plan? Well, I think right now, the planning or the proposal for that planning process is still in the hands of the Ministry for the Ecological Transition. As I've said already, this is not an easy process. It's complex, but it is fundamental if we are to actually hit our targets for 2030. It was all connected. With this initial proposal, I think we are delivering most of the requirements for new generation. But it's all in the hands of the Ministry for the Ecological Transition still, and we won't have a full view on what will happen until we get to the end of this year. In this new scenario of new renewable generation, 160 gigawatts installed capacity in the system, well, of course, the grid has to provide support, and the operator also has to cover the new generation. In Red Eléctrica, well, obviously, we have a key role to play to be able to ensure that the necessary infrastructures are available, and we will be there, following what the Ministry for the Ecological Transition sets out and the government sets out that we have to do. Are there any other questions here in the room before we finish? Well, we do, as I said before, hope we have answered all of your questions. If you do have any more questions that we haven't answered, get in touch with the investor relations team. Thank you very much for the presentation, joining us at this event. Thank you.