Earnings Call: Q4 2017

Feb 19, 2018

Good morning. I think a bit of technical difficulties there. Good morning, ladies and gentlemen. Thank you. Maybe I should start from scratch. Perhaps you didn't get everything from the beginning, from the very top. Anyways, let's start again. Good morning, and thank you very much for giving us the opportunity to present our financial year results and the progress for 2014-2019 strategic plan. I'd like to welcome everyone attending in person, as well as those joining us via webcast. With me today, Tose Aquilos, the company's CFO, and in order to avoid interruptions during the presentation, we will answer any questions you may have at the end. We will review the 2017 results, which the CFO will present. Then I will discuss the progress of our 2014-2019 strategic plan before concluding with an overview of the 2030 horizon and the energy transition currently underway. I give the floor to Tose Aquilos. Thank you, Juan, for your kind introduction. Thank you very much, and welcome. Once again, welcome to this presentation. As the CEO was just mentioning, I will review 2017 results and the most important highlights reached over the course of the year. The most significant facts and figures include the following. Well, obviously, the year-end results, investments, sustainability, and good governance. Let me start by addressing the key financial highlights. Net profit reached EUR 670 million for 2017. That's 5.2% higher than last year. This figure includes the 2.3% growth of EBITDA with respect to the previous year. In addition, regarding dividends, the board has proposed to the GM to approve a dividend of EUR 0.9188 per share charged to 2017 profits. This dividend represents an increase of 7% over that of the previous year, therefore, delivering our profitability commitments to shareholders. At year-end, net financial debt reached EUR 4.792 billion, closing the financial year with high solvency ratios. We will also address investments. I'd like to start by saying that total investments for 2017 reached EUR 510.2 million, of which EUR 412 million were allocated to development of the national transmission grid. That figure exceeds last year's allocation for the same concept by 3.3%. Again, regarding investments, there's other projects which are key to the company, and I would like to address them in this presentation. First of all, the Spain-France interconnection through the key of Sceade. It's very important to Spain grid. Regarding this interconnection, we have started the appropriate processes complying with, of course, E.U. requirements. This new link will have a total length of 370 kilometers and will strengthen the interconnection with France, as well as the rest of the Iberian Peninsula connection with Europe. It will improve security and ensure supply. It will increase efficiency of both electricity grids, and it will enable the further integration of renewables. Let's address Latin American investments. Let's start with Chile. The TEN company, 50% owned by Red Eléctrica Group, commissioned the Mejillones-Cardones line with 500 volts and 600 kilometers in length. This line is crucial to the country because for the first time, it will connect Chile's northern system, the SING, and the central system. This new infrastructure represents a total investment of $800 million. Moreover, in June, Red Eléctrica Chile, in consortium with Cobra, a 70/30 split, was awarded the contract to execute and subsequently operate 250 kilometers of lines and 220-kilovolt substation of Chile's northern electrical system. Total investment is $76 million, and the timeline is a two-year period. Four years for the lines. Let's look at Peru. In December, 1st December, Red Eléctrica was awarded the Tintaya-Azángaro transmission line. This new line will extend runs 128 kilometers through the south of the country, representing an investment of $55 million. The construction deadline is 14 months. It is for a 30-year period, which is, of course, standard for Peru. In January last year, Red Eléctrica Internacional acquired 45% shares of Redesur, the concessions holding company in southern Peru. After this acquisition, REI now owns 100% of this company. Let us look at sustainability and good governance. Last January, the company received the Gold Class distinction from RobecoSAM, which acknowledges companies with best practices in corporate responsibility. In this particular edition, Red Eléctrica obtained one of the 73 gold distinctions and was the only company from the utilities industry to achieve that award. It underscores Red Eléctrica's commitment to sustainability as a key tool in achieving its long-term objectives linked to its business strategy. Last September, Dow Jones Sustainability Index was published, the DJSI Red Eléctrica occupied the top spot in the utility sector, obtaining an overall score of 93 points. A ranking that also made the company a super sector leader among utilities, which includes electricity, gas, and water sectors. This recognition underlines Red Eléctrica Group commitment to sustainability and its direct contribution to the achievement of global goals and being a corporate, socially committed company. There is more. On 21st of December, we transformed our EUR 100 million syndicated loan that was signed in 2014 into sustainable financing, a green financing, as normally known in the market. This operation has been the first sustainable syndicated loan signed in the LGC sector. We are very proud of this transaction because it is the first green financing that was signed in the industry. The terms and conditions are linked to the evolution and performance of environmental, social, and corporate governance priorities in accordance with the rating from the sustainability agency, in our case, it is Vigeo Eiris. Lastly, the company received the Ethical Boardroom Corporate Governance Award in recognition of its best practices in corporate governance. Let us now review the key figures on our income statement. In this sense, I would like to address the main figures. Revenues reached EUR 1.941 billion. That is 0.5% more than 2016. As you probably know, this figure includes the remuneration of transition activity in Spain, which includes the assets commission in 2016. It also includes revenues associated to telecommunication services, totaling EUR 86.5 million, regulated income related to system operations for EUR 56 million, and earnings from transmission activity abroad reached EUR 19.6 million. The EBITDA for the company totaled EUR 1.5 billion, up 2.3% from the previous year. The business performance, which you know is very important, is dependent on operating costs, specifically supply costs and other operating expenses, registered an up-tank of 1.8% vis-à-vis the previous year. Two factors need to be borne in mind vis-à-vis this factor. First of all, the IFRIC 12 application and the costs associated with similar claims. So eliminating both effects, both these impacts, the EBITDA, making a better application of appropriate operating costs, the operating costs are actually 3% down vis-à-vis 2016. Our profit is EUR 670 million, up 5.2%. Once again, I would like to highlight that in 2017, we invested EUR 510 million. Although this figure is lower than that of last year, it is important to remember that 2016 included the disbursement of the acquisition of the capital of the Chilean company TEN. Excluding this investment, total investment for 2017 base exceeds that of 2016 by 50%. We already mentioned investments in the transmission grid, which reached EUR 411.8 million or 3% higher than 2016. Net debt to year-end was EUR 4,792 million. Strong cash flow generation was mainly attributable to improved results and enabled the company to meet investment payments of over EUR 500 million and pay EUR 463 million in dividends, while maintaining the group's financial debt at levels similar or slightly below the previous year. It is worth mentioning the operating flow grew 3% from the previous year. Average cost for our debt fell 2.78%. 89% of our venture debt is at fixed rate to maturity with the preponderance of the euro over the other currencies. Only 3% of our debt was linked to the dollar at year-end. We have a solid financial situation, strong liquidity, so we can say that the structure is suitable to the financial implementation of our strategic plan. The company has good solvency ratios with an EBITDA to interest ratio that has improved significantly compared to the previous years, reaching 10.3 times that of FFO to debt ratio of only 25%. Turning now to debt structure by instrument, we can confirm that our debt is well diversified. As for long-term maturity schedule over the coming years, the EUR 600 million bond issue will mature in February, and the next four years are covered by sources of liquidity, which are greater than EUR 2.2 billion. Another financial transaction that took place in 2016, there are three that I wanted to highlight. First is the bond issue in the Euro market, worth EUR 400 million with a nine-year maturity and a cost slightly above 1%. The transformation of syndicated loan, as I mentioned earlier, into green financing, where the interest rate, of course, is linked to good governance, interest rates, social environmental factors, and we also had, not in 2016, we had a 25-year tranche from the European Investment Bank, which was obtained at a very competitive price. Finally, in 2017, the rating agencies Fitch and Standard and Poor's issued favorable reports about the company. Fitch retained its A rating for Red Eléctrica, with a stable outlook, while Standard and Poor's maintained an A-minus rating for the company, again, with a stable outlook. With that, I give the floor to our CEO. Thank you very much, ladies and gentlemen. Now, very briefly, I would like to refer to the progress of the strategic plan over the last four years. We have continued to make progress on the path towards our strategic plan. We have already invested 60% of the investment plan in consolidated activities, investments in the domestic transmission network, and fiber optic networks. We have advanced 77% in new investment activities, which includes investments made and commitment in storage and in new electricity transmission opportunities in stable markets that offer suitable returns. The strategic plan 2014-2019 includes an ambitious investment plan of approximately EUR 4.6 billion. Almost 3.5 will be allocated to the transmission network in Spain on fiber optics and EUR 1 billion to energy storage facilities and international businesses. During this period, situations have come up that make compliance with the plan a bit difficult, which may result in some slippage in the execution of the remaining investments. Nevertheless, we continue to work to achieve our goals. Operationally, we have achieved significant efficiencies through cost controls and minimization following the review of the operation and maintenance policies and the procurement and construction criteria. The more demanding operating and maintenance unit costs approved in late 2015 has entailed a greater effort to review the aforementioned policies, while at the same time maintaining our quality standards in construction and operations. These goals were achieved by maintaining a net debt EBITDA solvency ratio of roughly 3.5 times, which allow us to retain a credit rating above the sovereign rating, which is key for a company whose remuneration is linked to the evolution of the Spanish 10-year bond. In addition, the last three years, the earnings per share growth trajectory has exceeded 6% on average, and we have fulfilled our commitment to the market to pay out a dividend per share that grows 7% per year during that period. In recent years, we have achieved important milestones in our plan, approving the 2015-2020 energy plan, developing links to international interconnections and the Mallorca-Ibiza interconnection, obtaining the right to use the ADIF fiber optic network, expanding the business base in Peru and Chile, and initiating investments in storage facilities in the Canaries. In the coming years, we expect that the level of investment in the Spanish transmission grid will exceed that of previous years, although we are still trying to reach cruising speed after the delay that postponed approval of the national infrastructures plan. We will later review the main projects within this plan. In addition, as you know, part of our investment efforts will be concentrated in other markets, mainly Latin America. We have been present in Peru since 1999 and in Chile since January 2016. Red Eléctrica Group remains active in the search for new business opportunities, primarily in the field of electricity transmission with stable regulation and adequate returns. Notably, this applies to Chile and Peru, where the group operates and where there are plans to extend the network in the coming years, including a Peru-Chile interconnection as a potential investment. During this period, we initiated investments in energy storage on the island of Gran Canaria. However, due to the reforms of the project, we estimate investments will be delayed until 2025. It should be noted, however, as indicated above, that the good progress in our international investment plan would partially offset the delay of our investments in storage. Looking at the domestic transmission grid, we can see on the map in blue the main investments in which actions have been undertaken in the period 2014-17, and those that are awaiting execution indicated in red. As mentioned earlier, investment in the transmission network has faced complex issues that are impacting on the 2019 investment targets. The deferral in the approval of the 2015-20 plan, the delay in the procedures to obtain the administrative authorizations for the projects, and greater social and environmental sensitivity or awareness are amongst the factors hindering investment in the Spanish transmission grid. Although roughly 10% of our plans are affected by this, despite the challenging business environment in which we find ourselves, we are working very hard to fulfill most of the commitments vis-à-vis the market, moving up certain actions that would allow us to offset the potential delay of some investments. Turning to the business of managing fiber optic networks, the company has a long track record dating back to 1989. Then we started to sell the surplus network in 1997, so we have more than 20 years' experience. Since that time, Red Eléctrica has accumulated extensive experience and expertise in the management and use of dark fiber networks. We have a consolidated customer base there. As you all know, in 2014, we finalized the process of assignment and commercial use of the ADIF fiber optic network for a period of 20 years in an amount of EUR 434 million, after receiving the authorization of the Spanish antitrust authorities, the CNMC, and the acceptance of nearly all of ADIF customers to transferring the existing contracts to Red Eléctrica. After this transfer, we became the benchmark neutral operator of fiber optic networks in Spain by guaranteeing all operators access to our infrastructure. We have a 49% share in the dark fiber rental market. In addition, our business is dependent from that of our customers, focusing solely on the use of dark fiber optics. In 2017, revenues associated with the provision of telecommunication services reached EUR 86.5 million within an EBITDA margin of roughly 70%. These results exceed the initial estimates of the activities business plan. The business of managing the infrastructure of fiber optic networks as a result of the ADIF tender, and our existing business is now a long-term priority for the group. Red Eléctrica has shown great discipline when allocating capital internationally, focusing on markets that meet our investment criteria, i.e., markets with stable and predictable income that offers suitable returns in low-risk contexts. In recent years, we've invested more than EUR 800 million in overseas assets, mainly in Peru and Chile. These countries, where the company has a permanent strategy. Red Eléctrica's international presence in Latin America has further strengthened in 2017, as we heard before, with the implementation of the Mejillones-Cardones line in Chile, that links up the two systems in Chile, in the north and in the south, that were not interconnected before. So we're now one of the main players vis-à-vis a potential Peru-Chile interconnection. We know that investment in international businesses is subject to major challenges, but our positioning in both countries provides us with a competitive advantage and a good starting off point to tackle future tenders. Our strategy revolves around an ongoing process of management efficiency. Moreover, as you already know, under our remuneration framework, it is important to gain an in-depth understanding of efficiency issues while maintaining adequate quality levels. Our main priority areas are efficiency in engineering and construction processes for facilities by optimizing their design, managing supplies, meeting new demands in terms of quality, and looking for efficiency throughout the entire process. We are adapting our maintenance policies and undergoing organizational restructuring to minimize costs based on austerity criteria and others. These practices, in combination with other criteria such as sustainability and efficiency in the development of our activities or link in wages to the company's goals, enabled us to reach, in 2017, an EBITDA margin of 78%. It is our intention to maintain these efficiencies by meeting our goals of improving EBITDA margin by at least 200 basis points. Sound financial management by optimizing capital costs and taking advantage of current interest rates in a diversified financial structure will allow us to secure additional increases in target profits. All of this will contribute to a compound annual growth rate of 5%-6% during this period, as we heard before. In the period 2014 to 2017, we distributed EUR 3.33 per share in compliance with our dividend policy. It is our priority to offer attractive returns to our shareholders with the best possible combination of corporate growth and remuneration or dividend payout. To conclude my presentation, I would like to briefly reflect on the company's challenges vis-à-vis the 2030 horizon. As you all know, in 2014, the European Council agreed on the 2030 climate and energy framework for the European Union, establishing an ambitious internal target, which is applicable to the whole of the economy, of reducing greenhouse gases by at least 40% by the year 2030. The Paris Agreement confirmed this approach. In late 2016, a new package of measures was presented, the Winter Package, with proposals concerning internal market rules on the new design of the electricity market, the Agency for the Cooperation of Energy Regulators, the governance of the current energy union, renewables, and energy efficiency. The shifting of the set of commitments assumed on an international and European level requires Spain to establish, for the first time, a regulatory framework with a force of law that reflects the medium and long-term targets for reducing greenhouse gases. This framework will provide a solid legal backing for energy planning that facilitates the achievement of these goals. In 2017, a committee of experts was set up to prepare a report on the different scenarios of energy transition, ensuring the competitiveness of the economy, economic growth, job creation, and environmental sustainability. The electricity system will play a key role in energy transition. Cutting our dependence on fossil fuels will prompt the electrification of demand, which must be accompanied by the developing of emission-free power generation storage and the active management of demand. Electricity networks will play a key role in this new context. Red Eléctrica will play a central role in the energy transition in Spain. The increase of our international interconnection level will play a critical role. It is currently less than 3% with France, far from the 10% target set for 2020. The new electricity link through the Bay of Biscay, 370 kilometers in length, 280 underwater, will strengthen that interconnection by improving security and ensuring supply, increasing the efficiency of both electricity systems and enabling further integration of renewables. Double submarine and underground link will be direct current and will have a transmission capacity of 2 times 1,000 megawatts. This project is currently in the consultation phase. Operation is expected to begin between 2014 and 2025. In addition, to reach an interconnection level of approximately 8,000 megawatts, 2 further new projects will be required, crossing the Pyrenees. In terms of interconnections, both in the Canaries and the Balearic Islands, new links will be necessary to reduce variable costs of generation and ensure supply in isolated systems. Interconnections in combination with the storage, demand management, digitalization, and automation will facilitate this energy transition. Progress will only be possible with the support of a solid network that is sufficiently meshed, properly interconnected, and equipped with the appropriate management mechanisms. This will require investments in the transmission grid until 2030, greater than the historical average of the past 15 years. Lastly, to face up to these challenges, stability, financial stability in the sector will be key. The reform of the sector in 2013 made it possible to reinforce and clarify the principles and criteria for regulated activities, for the remuneration of regulated activities, and provided greater comparison capability with remuneration systems in the European TSOs, which helped place transmission activities in a more stable and predictable environment. The stability as the suitable remuneration of the electricity networks are essential for the correct undertaking of heavily capital-intensive activities. Agents will hardly make long-term investments decisions if there is no clear guarantee of return on these investments with reasonable returns. To accelerate the transition to clean energy and maintain competitiveness in Spain, electricity rates should be a clear indication of price efficiency compatibility between the changing energy model. The maintenance of our competitiveness and economic and social development requires this transition to be undertaken at minimum costs for end consumers. Which is why measures must be considered to minimize investments made while ensuring the fulfillment of those investments that are necessary to fulfill the aforementioned objectives. Amongst the measures to minimize costs in the system, there is the option of extending the useful life of the shelf life of the generation facilities and network. In this respect, we should mention the recognition of Red Eléctrica's renovations and improvements to pre-1998 assets. The residual life of these assets should reflect the real physical conditions of the facilities, with the regulatory value of the assets reflecting the material and economic efforts undertaken to guarantee the provision of services and the quality or the guarantee of supply. In short, we are faced with the challenge of addressing an energy transition where stability and commitment to long-term objectives will be crucial. The climate change targets offers an opportunity to contribute to the employment, to the creation of jobs, improving the economic activity, and the technological evolution of the country. This concludes today's presentation. Thank you very much for your time. I am available to answer whatever questions you might have. I think first of all, we will answer questions from those attending in person. If you have any questions, please tell us your name so that everyone knows who you are. Good morning. Good morning, Daniel Ortega, BBVA. On that last slide of your presentation, can you give us a bit more visibility on, or more detail rather? There is a question, my yearly question, what situation that extended life of your assets? The first extension was for a 10-year period, I believe, and then related to the REPE 2016, 2019, for an additional five years. Can you give us more information in that regard, just to know, just a bit more understanding on that process? The second question is, you mentioned or you spoke about the need to have adequate remuneration of all your assets in order to promote investments. There is a 2019 review period, which is that the relationship between the Spanish remuneration and Spanish bonds, where the payout is so low. Have you had any discussions with regulator? Do you have any idea or any news from the government or the regulator? Thank you very much. Okay. Easy question. Thank you, Daniel, for your question. Not an easy one. Anyway, on the regulatory field, it is difficult, and there is always some friction here. Red Eléctrica, nor myself personally, are going to add anything or say anything that will add more conflict to this process. Basically, we rely on our principles, which is hard work, dialogue, always with a good overview, a good vision of the sector. Obviously, we are keeping an eye on the regulation, but of course, also upholding our shareholder interests. We have two areas here which are key, and you mentioned them very clearly. There are lots of one-offs, but there are two key ones. One is the residual life, and you are quite right, it has two sides to it. One is far more important than the other. First of all, acknowledging that 10-year period REBEX, that is a key point, but a minor one, however, relatively speaking, that is. Is it tiring to say this again? You have heard me say this time and again, and even perhaps even more boring for me to say it again and time, because again, we keep working on this, and there is always obvious dialogue. There's a lot of alternatives, and none of them have yet been crystallized. We're working on different alternatives and options. The report that we got from the commission, the ministry didn't feel comfortable with that report to increase the useful life. There's other alternatives. One of them, for example, is extending the useful life up to 50 years of all assets, not just these, but all of them, so that some can offset the others, but also to extend in this discussion that we see to have assets giving a better service to society. We're talking about extension of nuclear power plants. Why not apply that also to the grid? That could be an interesting approach. Another are incentives to avoid further investments. For example, if I reach the useful regulatory life, if I don't reinvest or if I do invest, I generate another financial load to the system, maintenance, depreciation, amortization, and so on. But if I have an incentive for not investing, it's a good system because we won't be loading up the system with more charges or greater burden, that is. But unfortunately, we have not reached any specific agreement on this yet. But as I said, we're open. There's open dialogue. Certainly, the company is still in discussion with the ministry regarding these subjects. But again, we have to defend our shareholders' interest. We have kicked off the legal process because we think those 10 additional useful life of the assets has to be taken into account. I hope, of course, we won't have to go all the way to the end of the legal process. Regarding REBEX, again, we're making a lot of progress. This area is easier because basically we're just trying to see what sort of type of REBEX that we're taking into account will be accepted as a reposition investment. I don't think it's anything significant. There'll be some REBEX types versus others, but basically what we're doing is a substitution. So we don't really expect any major differences. Regarding the fee, there's always a significant controversy here. Vis-a-vis this controversy here, what we say is to stick to what the law says. That's all we can say. The Ley 24/2013, around the key 24/2017 says that the network operators, in this case, Red Eléctrica, but also the distributors have to come up with an adequate return for the investment, which has to be calculated as a bond yield plus a spread. There's a lot of controversy there, whether you can apply this formula directly or not. There's all sort of opinions here, legal too. I'm not a lawyer, so I won't go into that field. But what we are going to propose is a return to offer or provide an adequate return in yield on the investment. As the British say, it has to be substance over form. The law, the royal decree, said that they have to have an adequate remuneration. I think that has to override the use of this formula. But it's a personal view. It's not me who will be implementing that, of course. But that's what we need to do. Before the 20th of February, we need to submit a report whereby we are applying or requesting that spread, that differential. That has to be requested vis-a-vis meeting some features, the guidelines for it, such as interest rates, cost of financing, and other investments that we conducted for the following period. That's exactly what we are out to do. I think that in our particular case, often you read that the remunerations will go below our 6.5% to 3.5%, where that's the bond yields are plus the 2.5% of spread. That won't be the case. In our case, there's a change of return, which drops from 50 to 50 points. In the worst scenario, the average would be about 5%, 4.75% for the following period. That has, of course, its benefits on the way up, but also on the way down. That's what we are out to do. We've also had feedback from the CNMC, the regulator, the competition regulator, in that adequate remuneration, we need to take into account our costs of the investments. So we need to look at what is this concept of reasonable remuneration, because if we look at the low yields in bonds, then perhaps we need to look at the higher end of remuneration or higher spread. Anyways, we are going to look at our own. We have an independent consultant addressing this. We know that some independent consultants are also working with the industry to carry out analysis that we will also submit as part of our report. As I said earlier on, this is to summarize, again, a lot of hard work, and trust all the hard work, our principles, and the law, of course. [Foreign language] Are there any more questions from the floor? Sí, buenas. My name is Julio Esparta from Norbolsa. I have some questions regarding the Hispasat transaction, which seems to be quite likely, considering the Abertis situation. Is this contemplated as part of your strategic plan, considering that very significant figures have been mentioned? What would be the strategic fit of this acquisition? The synergies are not so clear. I believe I am the one who should answer this question as well. It's my turn once again. Please allow me to keep it short and sweet. I need to be very careful because this operation, this transaction is underway. We'd rather talk about realities than guesswork. In a takeover bid, one needs to be very careful and cautious. Answering your question, is it contemplated in the plan? Not specifically. As I mentioned, it was EUR 3.6 billion in the plan for consolidated activities, EUR 3 billion for the Spanish transmission grid and EUR 500 million for the fiber optic network, plus an additional EUR 1 billion for international investments and energy storage facilities. Of course, time might change things. You may exceed those figures or fall short. Initially, this transaction, which is quite significant, was not contemplated in the plan. Every time an opportunity arises, we'll analyze it and we may accept it. This is underway. It hasn't yet been finalized. There's not a lot we can say. However, we've shown our interests for those assets. We like the assets, we like the company, something we've stated very clearly, and the antitrust authorities are aware of it. Why do we like it? What's the strategic fit? In our opinion, the assets can be used as fiber optics. Of course, physically, they have nothing to do with fiber optics because satellites are up there in the air. But the customers are very similar. Synergies for the ground transmission of the signal are potentially very interesting. Frankly, we believe that it is the best transmission point multipoint asset that we have today. The best point-to-point telecom asset is fiber optic, of course, but that's all I want to say, actually. It wouldn't be proper. It'd be a bit perhaps daring to talk about a non-existent transaction. Negotiations started before the OPA process because people are saying whether we're forced to buy or not. We are under no obligation to buy or not to buy this asset. We have shown interest in this asset for more than 15 years. In 2003, Red Eléctrica analyzed the potential of audiovisual and television that was then purchased by Abertis. There was a share by Hispasat that we considered, and we thought it was an interesting business. What else can I say about this? This is important. The board has not authorized any purchase or acquisition or the filing of any binding offer. We haven't filed or presented or anything. We've just expressed our interest. We're interested. That's very clear. We would have loved to be able to close that transaction, and we're looking forward to being able to close that transaction because we would like to take on those synergies and embark on a new adventure. Of course, there is a whole process, due diligence, and all the things you need to do for such an acquisition. There's something that we've always taken into account, something that we've always respected, the duties of both parties and the regulation in four and the corresponding period. We'll take things easy. We're not going to rush. This transaction is not a reality. We don't even have a binding offer on the table as Abertis has made public very recently. That's what I can say. [Foreign language] Hola. Sí, hola, buenos días. Fernando de la Fuente. Good morning. My name is Fernando de la Fuente from Alantra. I just have a question, a follow-up on your investments plan in your strategic plan. Juan, I'm sorry, but he's not using the microphone. Okay, that's it. Now he is. Okay. Can you hear me now? He's asking. I was asking about your investment plan as part of your strategic plan. You mentioned a slippage of around 10% of investments. Could you be more specific regarding what investments would be affected? I'm mostly interested on those EUR 3 billion you've mentioned. If there is a slippage, and if this is delayed, what would be reasonable to expect in the next few years as to investments on the Spanish grid? That slippage would impact precisely that. The main impact would be there. There are 2 investments in the strategic plan that will take place perhaps in the following period. That 10% affects those EUR 3 billion. Perhaps there'll be a difference of some EUR 300 million. As I mentioned, we continue to work very hard to prevent that slippage and to make more progress in other projects to offset that potential slippage. Perhaps we're talking about some EUR 300 million, 10% of those EUR 3 billion. Then the Chira-Soria storage facilities investment, amounting to EUR 500 million, I believe a sizable percentage will be postponed. We'll be investing EUR 30 million, EUR 40 million before the end of the year. There's been a slippage because technically, we had to change the design of circuits and turbines to have a true energy storage project and not a generation project. The project is underway. It has been commissioned, but we've had some delayed, so there'll be a slippage, very clearly there. But of course, international investments, as I mentioned in my presentation, we are now in a position to say that it could be EUR 300 million more than foreseen. That would offset part of that slippage. We still have 2 more years to go to take more advantage of international business opportunities, to speed up our energy storage projects, and to fill that gap in Spanish investments. Of course, if the Hispasat acquisition succeeded, we would not have any slippage because it would be sizable enough to offset any potential gaps in our investments. Teresa, do you have anything to add? Yes. We have mentioned such a slippage. That would mean that we are accumulating investments for the next period. You know that there is a group of experts looking at this energy transition, and the outlook for investments will be quite interesting after 2020. The world will not end in 2020. It will continue. These investments are linked to specific projects. We have talked about the interconnection line with France, EUR 1.8 billion, more or less, to be shared by Spain and France, and of course, we will have to discount subsidies from that. So eventually, it is more than EUR 600 million to be paid in the next strategic plan. In the annex of the current document, we contemplate a new interconnection between the peninsula and the Balearic Islands, and that would be a sizable investment exceeding, most likely, those EUR 600 million we have mentioned. Then other important interconnection links amongst some Canary Islands. There is a possibility of an interconnection with Ibiza. So the annex to our plans includes a long list of potential investments from EUR 500 to EUR 600 for the next period. It could be reasonably expected. Even more so if part of our investments contemplated for this period are slipped or brought forward to the next period. With no further questions, then we will move on to queries coming through our webcast. Oh, sorry. No, we do have one, actually. Gonzalo, please go ahead. Sorry, I apologize. I did not see your hand up. Good morning from CaixaBank BPI. My question is regarding, well, you have just been discussing regarding this particular plan. Do you have any idea as to a timeline calendar when we will have more visibility on these investment, these projects specifically on, well, when you know the sort of level investments and when they will be commissioned? Also international investments, any other international opportunities, in addition to the ones you are already carrying out. Organic or inorganic, or any sort of tenders that you are considering in more detail. Can you give us more visibility on that? Thank you. Okay, Gonzalo, I presume you are talking about our 2026 plan. Sure. Well, naturally, we are interested in having, as soon as possible, more details on this plan because we get more visibility. But as you know, we have a committee of experts that are working on energy transition. Some conclusions, of course, will be reached, and those are very important for our plan. So we have to wait a little bit for that. Of course, we do have some points as to where everything is heading, but I think we are going to have to wait. We are going to wait for the conclusions of this group in order to be able to have a proper develop of our 2026 plan. Indeed, there are too many question marks here. We do have the annex for the planning of these projects that it appears that we may this or that, but you obviously feel more comfortable when you have a plan. The return on whether to implement it or not, and when do you apply it or not? Obviously, that does produce a high level of uncertainty. So there are a few months ahead of us where this will be lacking information, but we have to wait for that to happen so we get more visibility. As for international investments, yes, naturally, we do have more initiatives in sight. There are opportunities doing things in brownfield, that is asset acquisition, and also greenfield. There are both brown and greenfield opportunities. The expansion plan in both Peru and Chile, there are considerable projects there, and some of them are being tendered off this year. Some are closer to where we operate, so they might be interesting for us than others. But the Chilean and Peru assets, we always look at them very closely. But also we address other markets as well, because it seems that certain markets, we are going to kick off certain tenders but then slow down, for example, Mexico. But there are certain opportunities. There might be some tender opportunities in Mexico. There are opportunities in many areas. But as I said, we do address very carefully all the opportunities in Peru and Chile. And in fact, in both countries, there are assets that are potentially up for sale, and of course, we will consider them accordingly. Okay, so now we will look at the questions that have come in through our webcast. We have got questions from Merrill Lynch, Harry Wyburd, Hightown, Jorge Malaev, McGuire, Jose Ruiz, Mediobanca, Javier Suarez, Morgan Stanley Questions, Carolina Perez from UBS, Roy Diaz, Associate General, Jorge Alonso, Santander, Mr. Charton, JP Morgan, Javier Garrido, and Citigroup, and others. To simplify them, we have grouped them on similar grounds. So some of them have already been answered, so we will not repeat them. Most of them are focused on regulatory issues. So we are being asked about how do we see the impact on a potential cut or reduction of the tariffs in 2019? Are there any opportunities? How do we view that, and how will we be able to offset that? They are also being asked on whether we can comment on costs of the tariff. If there is a decrease in the deficit, would that justify a decrease in revenues for the following regulatory period? Also being asked, another question is on 2020, if we had a regulatory return of 3.5%, that is 10-year bond yield plus 200 basis points, where would the investment levels be in the company? How much would we be investing? And also, would it be possible to establish a revenue system? Would it be possible linked to the cost of capital? How do they view that possibility? I think we'll both take on those questions. The first one regarding the impact 2019 on tariffs. As of today, that does not appear likely. Not as of today. The initiative has been stopped, so that doesn't appear possible, and the regulatory extends all the way to 2020. There might be a change in the law that may suggest an adjustment in 2019. Well, if that were the case, and if we had to review and upgrade our plan, of course, we would then immediately, and we will report that, of course. But at present, I don't see that happening. I don't see that possible. Of everything that's been discussed regarding this initiative, what's really impacting us is a delay factor. That's the only thing that's impacting us in a direct way, and it has a limited impact. It also depends on how they rework their calculation, because one thing is to remove that factor, the delay factor, or take it to the spot factor of our one-year financing to do it against the average cost of the company rather. The delay factor doesn't really try to offset the return of the first 18 months of the investment. What it does, in fact, is guarantee that the operators are being paid the bond yield plus 200 points. Because if there is a delay in those cash flows, it has been pushed to the future, pushed back, then the financial rate is not the bond yield plus 100 points. It's a bond yield plus 114. So if you push back all the flows, obviously your IRR is impacted. So we're not trying to refinance the commissioning to final collection of the assets, but rather all the different receivables that we'll have for the next 40 years. So we're trying to correct the situation. So the real return of investments produced will be the bond yield plus 200 basis points. But my opinion regarding the delay factor is to have that withdrawn entirely, but to collect on time. To collect when it's due, and remove that delay factor, because if it's going to add additional controversy, which is not good in my view, then we need to collect when those payments are due, which is what should happen. Now that regarding 2019 tariffs, again, any changes Like any director should do or like any managing director should do, we will report it immediately to the market. On the cost performance, the deficit, I'm not aware of any factors that would lead to a tariff deficit. I don't have all the information, of course, on what's happening in the market. It could be, or it might, if any of those items in the tariffs are being questioned, then perhaps an adjustment would have to be made. But for us, we're not aware of anything in that regard. There was a surplus last year. It was, I think, EUR 500 million surplus last year. And we're not expecting any negative swing in the current scenario. Most of the items contemplated in the tariffs are generally actually falling off from highs. They're going down. In whether in 2020 we can apply the 3.5%, well, as I addressed in the previous question, obviously not. We have that ladder, that 50 basis points. They could very well decide that they apply the bond yield plus 20 basis points. Obviously, that bond yield could be 1.5. If the year and a half that we have for the calculation of that rate were upheld. If that were the case, even if that were the case, the financial return would be 5.5 in 2021, and so on and so forth, 50% ladder, as I said. That would give us average remuneration of about 5%, 4.75%, I think it was, to be more specific. Will that impact our investments? As you know, our investments is compulsory from a grid point of view. We need to continue to invest, and we probably have to be cautious on ensuring that we invest where there's value creation, and that's what we're going to defend. We want to invest where there's value creation, naturally, and we can defend that. Naturally, if the regulatory system should converge with the cost of capital, that makes sense. When the regulator suggested back in 2013, the bond yield plus 200 basis points, it was probably looking at pre-tax WACC or the average cost of capital. There was low spread then, but the combination of both was pretty good approximation of pre-tax WACC now or WACC. But that's changed now. We probably need to do the same thing. We need to find, as a principle says in the law, we need to look for an adequate remuneration. Is the adequate remuneration is whether it's a bond yield plus 20 basis points, then, we can consider that in an open process now in that report that needs to be attached to the expert's report. We will continue to address that, of course. I think I've answered all the questions. Back to you. The next questions revolve around investments. We have a question about the potential delay of our investments. What are the reasons for that? Do we believe that potential delay could have a negative impact on the regulator or on the upcoming regulatory revision? The main reason accounting for that delay was the delay in the approval of the 2015-2020 plan. It should have been approved almost two years before. It was finally approved in late 2015. Once the company has certainty and visibility regarding investments, of course, we file for authorizations and permissions, and there was a delay there already. It makes sense to have had this delay, considering the circumstances, and the regulator is very much aware of this. I don't believe it'll have a negative impact. We should all do our best to offset that delay by slipping those investments beyond 2019. It's 2015, 2020. If we do things before 2020, this will fall into the scope of the existing plan. The delays are outside of our control. We want to invest. It is our wish to invest with adequate returns, of course. We do not want to delay any investment. If they are delayed, it's because of reasons beyond our control. Going back to investments in the case of international interconnections, we have a question here. Do we believe the government could introduce competition in these projects similarly to what we see in the U.K.? Yes. The European directive is what it is. It's there. What a directive stipulates cannot be argued. It's just transposed to the national legislation, and the directive stipulates that there's room for competition in direct current equipment. In the Bay of Biscay project, we are the main developer, so this project is no longer. There's no possibility for competition in this project now. Regardless of what the legislation states and the European directive, we've always been in favor of actual, real competition. We may have an interconnection where the owner makes money out of the congestion rates, that is, the differences between two countries. This is not acceptable, whilst in other interconnections, such as Red Eléctrica, all that profit goes to, or that benefit goes to Spanish consumers. It is unacceptable to have some interconnections under one regime and other interconnections under a totally different one. If we had that regime or that money, we're returning to consumers EUR 80 million in the first year of that interconnection. We would have kept that money, but that wouldn't make any sense for citizens to be paying, for taxpayers to be paying for a service provided by Red Eléctrica, and for Red Eléctrica to retain the profits or the revenues of that interconnection. If that's a positive flow in a regulated environment, that flow should go to taxpayers, to citizens. We want to be infrastructure managers. I do not want to be an agent, an actor in interconnections. If the European Union truly wants a single market, they should make this very clear. Of course, we have the merchant lines, the liberalization of interconnections that could be used on a one-off basis if some of the TSOs don't have enough financial power to fund those investments, and then an agent, a company may pop up, but that's another story. In the case of Spain and France, both TSOs have the muscle it takes to invest and also the will to put all investments in the hands of taxpayers, of citizens, of course, discounting our investments on infrastructures. The next questions refer to the increasing importance of. What is the contribution at the end of the plan of these activities at the end of the period? Interconnection, I think she said. What about the expected cost of the debt at the end of the period? Are we considering some debt issue in 2018? Are we going to issue any debt? Regarding the 2019 horizon, the TSO activity, which is our main activity, as you all know, will continue to represent a very high percentage of all of our activities, 92%, 93%. Telecommunications will account for around 5%, and the rest, mostly international activities, financial costs. But of course, all of this in the present environment regarding the split between TSO, telecommunications, and international activities. Regarding financial costs, as we stated before, our funding is 90% long-term and at a fixed rate. If interest rates go down, of course, every time they go down or up, those ups and downs will be incorporated into our outlook. We've seen that from 3% in 2016, we've gone down to 2.75. We believe that in 2018 and 2019, it'll be around 2.5%, the rate. It was that 92, 5, 3 is the split we have today. We continue to invest in international activities and in other areas outside of the Spanish TSO scope, but we continue to invest in the Spanish TSO, and we invest sizable amounts. Were we to invest in Hispasat, or were we to acquire something new, of course, the percentage won't change dramatically. Instead of 92, 5, 3, it could end up being 85, 10, and 5. That's a possibility. But since we continue to invest heavily on our traditional business, that split will never undergo a remarkable or a huge change. To conclude, we've received many questions regarding Hispasat. We're asked about the strategic fit. I believe Juan has answered this question. Other questions are quite detailed, so we're not in a position to answer them now. Are there any synergies with fiber optic networks? Is one of the questions we've received. I believe the other questions could be answered at a later date and not today. Again, it's very difficult to address a deal that hasn't been done, because you're giving a tip-off to someone that would be good. But synergies, sure. Businesses have synergies, both in fiber optics, geographical synergies, with customers. Naturally, synergies are there. That's one of the things that we're assessing, we're evaluating. This is one of the reasons why we believe in the business itself, in the business and the company. Okay. Well, having said that, I think with that, we've answered most of the questions. Any questions that you may have, the team, of course you're welcome to pass them on, and the team will be available to respond to any questions that haven't been answered here in the room or through the webcast. Thank you very much again for joining us today and for all those who listen to our webcast. Thank you very much.