Earnings Call: Q4 2015

Feb 25, 2016

Buenos días. Good morning, ladies and gentlemen. I'd like to thank you for giving us the chance to present our year-end 2015 results and to give you an idea of our strategy plan 2014-2019. I'd like to thank both those of you who are here and also those of you who are following us on the webcast. Teresa Quirós is sitting next to me. She's the Chief Financial Officer of the company. What we're going to do is to leave the questions to the end in order to get through this faster. As you can see, 2014 and 2015, there have been many relevant milestones aligned with the achievements of the targets set in our 2014-2019 strategy plan. 2015 was an intense year, fundamentally characterized by the completion of the regulatory reforms initiated in 2013. This new framework, although demanding, along with the evident improvement in the Spanish economy and the macroeconomic variables, has provided a degree of certainty concerning transmission remuneration evolution in the current regulatory period. Moreover, apart from the regulatory framework, there have been other milestones that suggest that the company is going in the right direction, aimed at meeting the targets set for the period to 2019. Throughout the presentation, we'll go into detail with regard to hitting these targets. What we're going to do now is to go into the 2015 results and the most significant milestones attained in the course of the year. Net profits reached EUR 606 million, 8.3% above last year's recurrent profit. That year saw two one-offs, EUR 52 million that we were paid in compensation in the agreement reached with the Bolivian authorities for the nationalization of the Transportadora de Electricidad TDE, and also the positive impact of EUR 106.1 million resulting from the tax reform. Consolidated EBITDA was 5.3% higher than in 2014. Over half of the growth was due to the growth of the telecommunications activities, and the rest comes from the conventional activities of Red Eléctrica. The board of directors has proposed a dividend of EUR 3.21 per share, booked to 2015 profits. This is a 7% increase against last year and delivering on our commitment to ensure profitability for our shareholders. At 31st of December 2015, the net financial debt was EUR 4.906 billion. We've finished the year with a high solvency ratio. In 2015, the rating agencies, Fitch and Standard & Poor's, both issued favorable reports on the company. Fitch confirmed its A rating for Red Eléctrica with a positive outlook, while S&P's, at the end of the year, raised the level of the company to A-minus and also with a stable outlook. In October, the National Infrastructure Plan 2015-2020 was approved with an investment of EUR 4.554 billion. This plan gives us the certainty that we need to consider the company's investment plans for the coming year. This represents a crucial milestone in consolidation of our strategy plan. We would also like to point out the agreement adopted by the European Union in June, aimed at fostering international interconnections with a view to creating a unified electricity market. To this end, the European Commission has created, made up of the European Commission, France, Portugal, and Spain, in order to foster key energy infrastructure projects in South-Western Europe. The group will ensure regular monitoring and provide member states with technical assistance. In 2015, with regard to the national transmission network, we have invested EUR 411 million. Moreover, we started the commercial operation between Spain and France, and major progress has been made in the Majorca-Ibiza cable, where the first of these cables came online in June, and the second one should come online in April 2016. One thing that is worth noting is that this is the longest submarine alternating current line in the world. We also saw significant strategic investments at an international level aimed at expanding the company's business base. As you know, in December, we reached an agreement with E-CL, which is run by ENGIE, to take a 50% share in TEN in Chile for $218 million. The purpose of TEN is to build and the commercial operation of the first interconnection between the northern SING and the central SIC, the electricity subsystems of Chile, within the project that is called the Mejillones Cardones Transmission Line Project. The project consists of building over 600 kilometers of 500 kilovolt transmission lines with a small 220 kilovolt section and three new substations. This is due to come online by the end of 2017. We have also won a concession in Peru, the 220 kilovolt line from Azángaro-Juliaca-Puno. The construction of this is expected to start this year. The line is to be brought into service in mid-2018. The project involves an estimated $70 million investment. We have also won a contract to install the Montalvo-Los Héroes line of 129 kilometers and 225 kilovolts. The investment in this project is estimated at $40 million and will come online in 2019. In 2015, another important steps we are taking in our new business of storing energy in the Canary Islands. REE took a EUR 12 million stake in the Chira-Soria storage project in the island of Gran Canaria. To do this, we have set up Red Eléctrica Infraestructuras en Canarias or REINCAN, which will be build and run the reversible hydroelectric power plant and a desalination plant. Finally, in the area of telecommunications, due to the importance of dark fiber optics in the company, last July, we set up Red Eléctrica Infraestructuras de Telecomunicación that has a mesh network spanning over 33,000 kilometers of fiber optic is deployed over two complementary infrastructure systems. We are currently moving towards interconnecting the two fiber optic networks, which will enable us to market a network with high service quality. In 2015, this activity contributed EUR 83.5 million to the consolidated revenues and to over 50% of the growth in EBITDA in 2015 over last year. 2015 was a year where we saw the completion of the regulatory reform that started in 2013 in order to define a transparent, stable, and predictable regulatory framework. Standard costs have been approved and whereby the residual life of assets earlier than 1998 can be increased to another 5 years on top of the period recognized by Royal Decree 1047/2013, depending on the renovation improvement done on these assets before 2019. Once we know the standard costs and the parameters have been approved, the Ministry has to calculate the 2016 tariff by applying the new parameters. Until that time, transitionally, the last year's tariff will be used to estimate the permanent costs of the system according to the provisions of ministerial order IET/2735/2015. With regards to system operation, I would like to point out that our company has very high quality standards and highly efficient operation, which guarantees electricity supply at all times. The availability of the transmission grid in 2015 has been close to 98%. I would also like to highlight that the commission of the new interconnection with France has been a challenge for the operator of the system, as the cable runs in direct current in parallel with alternate current lines. Finally, Red Eléctrica continues to organize and manage the auctions initiated in 2014 for allocating the interruptibility service in a competitive and efficient manner. This started in 2014. In 2015, 2,890 megawatts of interruptible resources for 2016 were allocated. 2015 was also a year with major progress were made in corporate governance. In line with the best international practices and the commitment to investment community entered into the Chairman of Board of Directors in 2012. The separation of the positions of Chairman of the Board of Directors and Chief Executive Officer of the company was approved by the EGM in July. We believe that this new model will not only help to ensure a proper balance of powers on the board and also to improve the company's corporate governance structure, but it will also help the company to meet the objectives and strategies envisaged under the new strategy plan that the group has and will also contribute to the sustainable development of several areas of business. It is also worth noting that following the increase in the number of board members from 11 to 12, the board has a majority of independent directors, while it also maintains the lead independent director. This latter position is considered a key counterweight in the structure and composition of the current board for obtaining an appropriate balance of the different powers and responsibilities. Recently, the number of members in both the audit committee and the appointments and remuneration committee was increased from 4 to 5 members each, with a majority of independent members. Finally, we would like to mention that in these months with the evaluation process of the Board of Directors by means of external assessment was finalized in recent months with a view to reviewing the board's operations on an ongoing basis. With respect to corporate responsibility, in September, Red Eléctrica was added to the Dow Jones Sustainability World Index and the Dow Jones Sustainability Europe Index in September. The company was chosen from the top eight firms in the electricity sector at the global level, and one of the top two companies in Europe with the best sustainability performance, with an overall score of 88 out of 100. Moreover, we still belong to the FTSE4Good and the Euronext Vigeo indexes. We would also like to say that Redeia, we regard our remuneration policy as a key tool for creating value. For this reason, this has been included amongst our management goals and long-term objectives to hit our corporate responsibility program and to fulfill it. The Climate Change Action Plan for 2015-2020 period was approved in May. The goals are to contribute to a sustainable energy model and to strive to reduce the company's carbon footprint. The target is to cut or offset our 2010 emissions level by 21% by 2020. Finally, I would like to comment that on November 27, Redeia renewed the European Excellence Seal 500+ according to the EFQM model, obtaining more than 700 points. This implies that the company is one of the best valued nationally. Now our Chief Financial Officer, Teresa Quirós, will explain how these were turned into numbers in 2015, which gives a brief explanation with regard to the closure of the regulatory reform. Thank you, Juan. We will now move on to analyze the main P&L figures for the year. Revenues reached EUR 1.939 billion, a 5% increase over 2014. This increase is due to the increase to transmission revenues in Spain, thanks to the assets commissions in 2014 and income from telecommunication services. These reached EUR 83.5 million in the period, as it also includes the income associated with the ADIF fiber optic network for the whole year. The EBITDA rose to EUR 1.458 billion, a 5.3% growth against last year. As we have already said, this was largely due to the company's telecommunications activity, which contributed over 50% of the growth in EBITDA. The EBITDA performance was affected by operating costs, obviously, and more specifically because of the operating costs that varied. More specifically, supplies and other operating expenses rose 5.9% in 2015 against the previous year. This is because the cost related to the new telecommunications business have been added. If we eliminate the costs associated with the above-mentioned business, operating costs would only have increased by 1%, thus reflecting efficiency gains obtained by Redeia. The net profit for the year amounted to EUR 606 million, an 8.3% increase over last year. If we exclude one-offs, where we take out the items that were mentioned before, obviously, we will take away the compensation that we got for TDE, which was EUR 52.3 million, and the EUR 106.1 million impact of the application of the tax reform. Last, we invested EUR 448 million, EUR 411 million of which investing in developing the domestic transmission network and EUR 12 million towards the energy storage on the Canary Islands. It should also be noted that this investment does not include $218 million spent on the acquisition of 50% of TEN, which happened at the end of January, once the European Commission had given its approval. We need to bear in mind also that the investment in 2014 included the acquisition of ADIF's fiber optic network for EUR 434 million. I think we conclude that the improvement in the 2015 results with respect to the previous year was due to higher income from transmission, the significant contribution from the telecommunications business because of the successful measures for improving operating efficiency and the positive impact of the tax reform. Balance sheet now. As we can see, the net debt at 31st of December was EUR 4.906 billion. During the year, there's been strong cash flow generation, mainly due to improved results, and this has enabled the company to meet over EUR 440 million in investment payments, EUR 405 million in dividends, and we've also reduced the consolidated financial debt by EUR 500 million. Moreover, working capital increased largely as a consequence of the fact that we recovered the VAT on the acquisition of the long-term rights to use the fiber optic networks in 2014. Therefore, by reversing the negative performance of this item in the previous season because of the improvements related to the tariff conditions. Net debt figure at 31st of December, as we said before, if we hadn't paid for TEN, it would be increased by $218 million once this payment is made at the end of July. It's also worth mentioning that the average cost of our debt falls to 3.2% from 3.49% in the preceding year, and that the average term to maturity increased to almost six years. 85% of our financial debt is at a fixed rate with a predominance of the euro because only 2% of our debt at the end of 2015 is indexed to the dollar. If we look now at the balance sheet, we can see that our prudent financial policy, coupled with our strong liquidity position, provides a solid foundation for delivering on our targets. Among the significant financial developments over the reporting period, we should note that Red Eléctrica carried out a EUR 500 million Eurobond issue with a maturity of 10 years and a yield of 1.176%. This issue included a swap for other bonds corresponding to previous issues in a nominal amount of EUR 446 million at rates between 4.75% and 2.375%. This issue Harnessed the favorable conditions in the debt markets. And it means that the long maturity of the bonds means that they will contribute value to the company in both the current and in the following regulatory periods. Moreover, in Peru, we also placed bonds. We made two issues. In April, one was for $70 million for 15 years at an interest of 4.968%, and the other for $40 million in 28-year bonds at 5.75%. Both have been milestones in the Peruvian market. The 15-year issue pays a corporate title, which is the lowest for any issue in Peru, and the 28-year issue is the longest term made of any debt issue in the last 15 years. Thus, if we turn our attention to the company's solvency, we can see that a notable improvement of the EBITDA to interest ratio to 8.5 times. The favorable debt performance implies a net debt EBITDA hedging ratio of 3.4 times. Obviously, this has been affected by the acquisition that we made last year. If we look at the debt structure by the different influence, we can see that our debt is well diversified with a maturity calendar that's highly diversified as well. In fact, the amounts to be repaid over the next three years are covered by the cash and cash equivalents currently held by the company, which are in excess of EUR 2.3 billion. Therefore, I think we can speak of an appropriate capital structure, flexible and well in line with the financial implementation of our strategy plan. What I'm going to do now is look at the closing of the methodology for calculating the transmissions activity. As I said before, one of the major milestones in 2015 was the completion of the regulation for starting the first regulatory period, as you remember, that runs till 2019. The new remuneration model comes into force in 2016 and is far more demanding in terms of standards, incentives, and availability. As you know, the reform of the electrical system started in 2013. The need for this, sorry, in 2012. At the end of 2013, the Electricity Sector Reform Law was approved. The main objective of this was to reestablish the equilibrium in the electricity sector and eliminate the large tariff deficits that had been generated in previous years. Royal Decree 1047 was approved in 2013, and this laid the foundations for calculating revenue for transmission activity, making such revenue stable and predictable. This then allows the transmission agent to share its efficiency gains with the system. With the experience built up over the previous two years, at the end of November 2015, Royal Decree 1073 was approved, which allows, as we will see, the introduction of improvements to Royal Decree 1047. The processes continue with the approval of the ministerial order of the unit values of investment and maintenance. These values will be applied to calculating our revenues in 2016. The Ministry has chosen to make temporary use of last year's tariff to estimate the permanent cost of the system. The 2016 tariff will have to be calculated by applying the new unit cost in OpEx and CapEx and maintenance and the residual useful life to be defined by the Ministry up until the end of 1998. In this sense, Red Eléctrica continues working in order to recognize the effort that's already been made in renewing and improving these assets, those prior to 1998. In 2016, the system operation, the retribution for 2016 stands at EUR 56 million. Although Law 24 establishes the retribution for the operation of the system activity will be defined as a function of the services given according to the methodology defined by the government, currently, this is still waiting to be approved. Moving on to unit costs now, and according to a ministerial order that was approved in December 2015, it should be noted that the values set therein are a faithful reflection of the recent years' performance in building and maintaining transmission facilities in Spain. Hence, they reflect the technological advantage. In recent years, most of which lead to better cost improvements and greater social demand for the construction and new installations that, unfortunately, have generally increased their costs. In summary, we can say that the investment unit values applicable to all assets post-1998, even though it increases the cost of investment in some specific assets, application arises, leads us to a more demanding scenario for the company that will have to double its efficiency efforts. With respect to unit cost of operation and maintenance, they are in line to Red Eléctrica's expectations and in line with the previously announced objectives announced by the Ministry of Industry. In addition, the Spanish methodology now incorporates for the first time, the specificity of such infrastructure in the islands, with recognition of the ad hoc costs for these areas. As we have already said, to summarize these unit costs, even though the results from applying these new investment and operation and maintenance values are completely in line with what was previously announced by the Ministry, it will still require us to increase our efforts in the area of efficiency. What we are going to do now is to look at some of the major milestones of the calculating active. As we said before, in the 2 years of the Royal Decree 1047, some modifications will have to be made based on our accumulated experience. Firstly, and in recognition of the renovation improvement of existing assets. Although in the first stage, this concept will only be brought in order to make it possible to increase the residual life of the installations that have been brought online prior to 1998. Another modification concerns investments in international interconnections. As you know, annual investment in new transmission installation is limited to 0.065% of GDP. The new royal decree, however, excludes the GDP limit, any investment in international interconnections and installations necessary to make them feasible. This modification aims to facilitate Spain's electricity interconnection with the rest of Europe. It also applies Law 2/2015 relating to de-indexing the transmission remuneration system from the Spanish economy. This was included among some of the calculations, such as remunerations of operations and maintenance, indexing to the CPI. Finally, mechanisms have been established to reduce the time required for receiving administrative authorization for outstanding projects. The Spanish regulator has now become aware that renovation improvement existing assets has an obvious effect on the quality and security of supply. So it has deemed it necessary to recognize a system to provide incentives for such activity. Although the regulator will finally decide not to extend the residual useful life to pre-'98 assets on top of the 20 years already recognized in 2013, it does admit that renewal and improvement lengthens the residual useful life existing assets and recognizes a process that allows investments in the renovation of the grid. In the first stage, which is the first regulatory period, it sets out that renewal and improvement of assets brought into line prior to 1998 may extend the useful life of these by up to 5 years. It has established a series of requirement for this, such as, for example, that the renewal and improvement has to be booked as investment, and apart from that, audited documentation accrediting the actions undertaking has to be provided. From 2019, the regulator has left open the possibility of recognizing any renewal improvements as an investment, so that such actions made to transmission assets will have a positive impact on the company's accounts. The mechanism for doing all this has still to be defined. However, Red Eléctrica takes a very positive view to this first step. Having reviewed the main aspects of the regulatory reform, I think we can say that the impact of new treatment of renovation improvement, we can say that the evolution of revenues related to the transmission tariff will be in the range of 1.5%-2% in the strategy plan. This does not include the new effects of renewal and improvement. To conclude, I will hand the floor back to Mr. Juan Lasala, who will continue confirming our targets for 2014-2019. Thank you, Teresa. What we will do now is to discuss the tools that will enable us to confirm our targets for the reporting period. Under the current scenario, after the recent closure of the regulator revision, the company has certain levers and mechanisms that will enable us to meet the targets set for the 2014-2019 period. First of all, the drivers of the important progress made at our consolidated activities in the period are investments in the Spanish transmission network, as supported by the recently approved National Infrastructure Plan, that even offers visibility beyond 2020, including significant investment projects. Moreover, the telecommunication business is making satisfactory progress. Secondly, our second driver are the opportunities for investment on the international scene. The new standards of operation and maintenance, although they are a challenge, offer a clear reference framework for redefining our processes. Another driver is the possibility that certain of our maintenance costs, as Teresa has just said, the ones that are related to renewal improvement, will be recognized as investment and above all, the company's resolve to redouble its efforts in the area of efficiency. The financial policy, as usual, will be a basic management tool for the company, and the main actions will be focused on reducing the financial cost during the development of the plan. The combination of these factors offer Red Eléctrica mechanisms for meeting the targets of the strategy plan under this new scenario. As we have said on other occasion, our strategy plan rests on the core of our business, the management of power transmission grids. Our main lines of actions concern efficient management of TSO and management of fiber optic networks, which is what is known by way of consolidated activities and the development of new opportunities in stable internationalization markets, along with the new tools that the operation of the system places at our disposal, for instance, wind storage. Our strategy plan, we consider that represents an optimum mix of consolidated and new activities. The infrastructure plan approved in October permits us to confirm our commitment of EUR 3.1 billion investment in the period, in which we estimate new lines will be built in Spain, comprising 2,500 kilometers of circuits and 650 new positions. Moreover, the 2015-2020 infrastructure plan includes certain projects that, due to their scope, will not be able to be brought online within the timeline of 2020. But due to their strategic nature, they are included as planned projects, so the steps required for their execution can be taken over time. These projects are contingent on the requisite augmentation of the capacity for exchange between Spain and France, with a view to reducing Spain's isolation from the rest of the European system, increase the system's safety, and facilitate the integration of renewables in the Iberian Peninsula system. Basically, we are talking about a submarine interconnection under direct current across the Bay of Biscay, involving four submarine cables. Two further projects will have to be implemented in the Pyrenees, too. The total estimated cost of the interconnection projects will be about EUR 4 billion, but it affords us visibility for our investment plan beyond 2019. This does not include the second mainland Balearics interconnection that is mentioned in the plan for after 2020. In managing fiber optic networks, it is expected to strongly progress their efficient integration. The two networks complement each other to an enormous extent, as the acquired one is hugely important in the urban areas regarding international infrastructure for electrical power transmission, as everybody knows. For 15 years, REE has maintained a presence in South America, where it has been managing transmission networks with excellent records in terms of availability and with smooth cooperation with all our relevant interest groups. Our strategy plan contemplates a major investment undertaken in low-risk environments in search of adequate returns, preferably with majority stakes and always with the active participation in management activities. Finally, I would like to mention the areas of energy storage. We continue to make progress in the Chira-Soria pumping station. Although work on the engineering, geotechnical, and topographical studies are expected to start this year, the allocation of equipment and the development of remunerative models is expected to start in 2016. The start of the aforementioned facility is expected to be delayed. It is thought this will be compensated by greater advances at international level. For the REE group, the international business transaction carried out in 2015 represents an important milestone for the Red Eléctrica group in the execution of its 2014-2019 strategy plan, since they significantly expand the group's presence in South America in two adjacent geographic regions in the north of Chile and the south of Peru. As we have already said, in 2015, we have obtained two new concessions that will enable us to secure electrical power supply in the south of Peru. This will expand the 942 kilometers of circuit Red Eléctrica currently manages in Peru by another 244 kilometers under a concession in which the company is already a strategic shareholder and operator. Moreover, the aforesaid 50% stake in TEN in Chile gets us into the most emblematic interconnection project to be developed in Chile, consolidating Red Eléctrica in its strategic position in Latin America and in Chile. The recognition of our capacities in projects consistent with Red Eléctrica's core business will remain one of our key growth drivers. Regarding the interconnection between the SIC and SING systems in Chile, Red Eléctrica recently submitted a tender at the beginning of this year in a new tender process for the constructing three new lines and install three substations by way of the above-mentioned interconnections. According to the time schedule set forth in the terms of the tendering procedure, the contract will be awarded in mid-March, so we will soon know the outcome of this. On the other hand, the company has to adapt to a more demanding remuneration environment, where discipline in operating and maintenance costs will be crucial, while at the same time maintaining the same levels of safety and service quality. In this context, there has been an in-depth analysis of our maintenance policy, which on the one hand will impact OpEx, limiting cost to a greater extent by optimizing the frequency with which predictive maintenance tasks are carried out and by implementing new technological solutions that will enable us to improve our operating policies. On the other hand, CapEx will also be affected by means of investment in renovation improvement, which is now recognized by the regulatory authorities as investment, and will allow us to extend the useful life of assets for regulatory purposes. All our strategy has to revolve around a continuous process of greater managerial efficiency. Moreover, as we have already said, under the new remuneration framework, it is important to go deeply into efficiency issues while maintaining adequate quality levels. Our main priority areas are efficiency in the engineering and construction process for facilities by optimizing their design, managing supplies, meeting new demands in terms of quality, and looking for efficiency throughout the entire process. This is also true to the subsequent maintenance of the facility by adapting our maintenance policies. An organizational restructure that will enable us to lower our structural costs by adhering to criteria of austerity, demands, and prioritizing the costs generally in all of the company's business area. All of this will allow us to achieve the aforementioned EBITDA margin improvement of 200 basis points or more by the end of the period. On the other hand, a sound financial management by optimizing capital costs, taking advantage of current interest rates with a flexible financial structure, together with the application of other criteria such as ensuring sustainability and efficiency in our activities, linking salaries and wages to the company's goals or tax optimization, all of this will enable us to secure additional increases in profit targets. In addition, the useful life of assets will be adapted to their regulatory life. We estimate that this will contribute to a compound annual growth rate of 5%-6% in the company's profits during the period, as we mentioned before. To conclude by way of summary, we would like to confirm the target set for 2014-2019 period that we launched in our strategy plan last year. This way, our activities will continue to be geared towards implementing an investment plan coherent with the current economic environment, which involves investments of around EUR 3.6 billion over the period. Moreover, we will be looking into new business opportunities that may arise, with a focus on new activities and international expansion, which will allow the company to optimize its current capital structure. This activity will allow for an improvement to the EBITDA margin of at least 200 basis points by the end of the period, while maintaining the average solvency ratio of around 3.5 times throughout the period. Despite the efficiency efforts required, we expect a cumulative EPS growth rate of between 5% and 6% over the period 2014-2019. With respect to our dividend policy, starting with a dividend in 2014 of EUR 3 per share, as you remember, we intend to maintain dividend growth rate of 7% CAGR over the period. Redeia will continue to focus its efforts on generating value for its shareholders. We plan to do this while at the same time moving towards a sustainable, flexible, smart, safe, and efficient network and maintaining a solid capital structure in our efforts at guaranteeing high-quality, efficient electricity supply. This concludes our presentation. I'd like to thank you for your attention. We're now open to take any questions. First of all, we'll take the questions from the floor before moving on to the questions that we get over the webcast. Hola, buenos dias. Good morning. Cesar Gonzalez, JB. Three questions, if I may, please. The first one is concerning the regulatory remuneration transmission for 2016. Could you please tell us or indicate when do you expect, as far as timing is concerned, when will this be published or released? Second, on the remuneration model for the regulated generation. Can you give us an idea? Will that be similar to your other activities? And more or less, what sort of lines are you working on? The third question is concerning the renovation and update of your current assets, pre-'98 assets I'm talking about here. What impact do you think this might have on the EBITDA margin? Thank you very much. Okay, I'll answer the second question, and I'll leave the first and third question to my CFO. As far as remuneration, the regulatory generation, we obviously are looking for a regulating generation and remuneration model similar that we have for transmission. So that's based on the assets, useful life, and so on, based on these latter statements. But strictly looking at generation, we don't look to benefit a profit from the price per kilowatt. As usual, approach, because otherwise, we'll find ourselves in a very complicated position vis-a-vis competition against generation. That's something we don't want to do. As far as storage is concerned, our performance here is the idea here is basically to improve the supply, guarantee the service quality, and maximum integration of renewable energy. So we are never going to try and maximize profit vis-a-vis generation. As for the specific regulatory framework, as I said, Cesar, and again, thank you for your question here. Similar to ours, we have to understand and define whether they have the same margin as a regulated activity or whether, which is what we're trying to support, is whether this activity has more risky than developing substations in line, which is what we used to do a long time ago. So again, we might be discussing the margin, but the overall framework will be very similar. Regarding the 2016 tariff, and when will this will be published? I expect the tariff for distribution and transmission will be published. And of course, we should have all the parameters to be clearly fixed. As for transmission, the unit values for operations and maintenance have already been published. But the final decision, as I said earlier, regarding the useful life of pre-'98 assets, that is yet to be defined and to be made final as well. We expect it to be quite soon, but unfortunately, we don't have any visibility on that. I can't give you a date, sorry. The impact of RePEX on the EBITDA margin, as mentioned earlier, as I said, our commitment is to have that EBITDA growth for 200 basis points for that period, and we have to look into this to see which OpEx can be considered CapEx and not cost, something that can be capitalized and not a cost. That's enough, because that would impact EBITDA. Good morning. TBA. I have three questions. First question concerning interconnections, international interconnection. You mentioned that starting June, the EU is driving and promoting and fostering these interconnections. As far as I knew, there was no plan in that regard. Do you think this new initiative might drive your investments, like the new interconnection that might be finally built? Second question is regarding the standards which you've already discussed. As far as I knew, the earlier plan of regulation, the estimated growth through 2019 was about 3% per annum. You said 1.5%-2%. That means that in 2019, instead of EUR 2.9 billion, it'd be more like EUR 1.83 billion or one approximately. Are you going to offset that through greater efficiencies via initiatives in maintenance? Can you give us some visibility on how much you would carry out on either one? That would be very useful. Thank you. Lastly, concerning the final regulation and all those outstanding points, is there any sort of impact on the current political situation in Spain, or is this already external, foreign to, or does it depend rather on a new government? If there isn't any, or if you're expecting an impact, can you please explain what sort of impact you'd be expecting given the current political situation in the country? I'll answer that question. This is Fiocra. Well, interconnection, of course, we're finding that they're being promoted, but these are long, long-term projects, even in the processing of the whole thing. So we don't think anything will actually be approved before 2019 or passed. But there's obviously they've been promoted. One is that under submarine cable in the Gulf of Biscay. But it could be. I don't think it'll be easy because there's a lot of agreements, regional agreements, national agreements, international agreements. It's a very complex project, but not impossible. When governments sit down and work together, and they want to develop these projects, these things come to fruition. But it's not easy. As you said, the investment for this project, except for assessments and reviews and so on, is beyond 2020. Regarding the new standards, you're absolutely right. The previous path that was published, it was 30%. You're right, it was 30%. It was odd because it considered the previous standards, it considered as well an investment level and per annum service level that was very similar on a yearly basis. It was an approximation, and that was very useful back then to all of us to help us understand what was coming up, what to expect in the future. But we always knew that there'd be a final rollout. We don't always put EUR 650 million to roll out in our plan on a yearly basis. So we know and we estimate how many kilometers we want to put online every year. This means that some years it's 750, other years it's less. We knew that this could very well change. 1.5% is less or 2% is less, and the numbers that you're talking about are more or less correct. Are we going to offset? Yes, we do. We're sort of confirming our objectives for the strategic plan. I won't deny that already at the very beginning, when we look at a 3% plan with standards, well, using the old standards, and with an standardized online approach, then we did our own analysis to see, okay, so what would happen if the standards are raised or lowered, or if the online servicing is different, or the standard commission rate changes? We used our own rate, and that's what we published in our plan, and that's where you can see this. How much of that is investment efficiency? Well, a significant amount will be in efficiency. In fact, the highest amount will go to efficiency. I hope. In fact, new investment will help us to gain efficiency. That's what it's aimed for. In fact, there's this small issue, though, this minor issue, I should say. I don't like to talk about negative things. In the previous plan, the Chira-Soria plan would go online in 2019, so we started generating income or revenue flows in 2019. That project will definitely not be put online in 2019. We've asked all the different units working on that, operations and transmission. A lot of people involved, however, in that project, and in updating and modifying a project that was a generation project, updating it for now that is a renewable and guaranteed service project. Very complex and nothing to do. If you read the press last week, in fact, we were both in the Ministry of Industry and with the regional government of the Canary Islands. We were very pleased with how they welcomed those changes, because when there's a change in a project, of course, there's a lot of uncertainty. The press said that the Red Eléctrica project was going forward or supported it. It's very complex to adapt that particular project. Again, looking at the numbers, it won't go online in 2019. What does this mean? This means that in the last year of our plan, certain revenues and EBITDA will be impacted. The debt, or the significant part of the debt, is still there. It's still in that flat period. So debt to EBITDA ratio in that particular year will be higher than we'd like. Given all the gains in efficiency and the investments, it's good news in addition, particularly in international projects. Also strategically speaking, very interesting. Again, investments in efficiencies, I think we'll be able to make up for the negative impact or any negative impact that we have from, well, things that happen. Particularly just how the plan actually materializes in the future. As far as the political situation in Spain, whether we'll end up approving this final regulatory framework, well, it's a very good question like all the rest. I think that what's lacking here to wrap up this regulatory framework is just so technical that it should be impacted by a political problem or change. I don't think they can go into deciding, for example, the lifespan of the investment. Should it be 10 or 20 years? I don't think the political side can go into discussing that. However, having said that, given the overall uncertainty that we have in the whole country, it's not up to me to give you more certainty given the current level of uncertainty. There's a number of things that we know that are certain. What I've seen regarding the operation of the system and transmission is full support to interconnections. That's a key part of our future growth and full support on the network that should support the interconnections with other countries. That thing is good. Then I think there's going to be audits on the regulated audits. That's nothing new. I think Redeia is probably the most audited company in the world. Every project that we put online, our costs get audited, and the regulator approves them. That's the standard value that's given for the remuneration of the asset. As for the separation of our activities, we fully report on that. The level of audit in our costs is such that I think we've passed that test a number of times already. On the other hand, I also want to be positive regarding these things. I think the electricity sector has been through a very complex period. We've managed to work through, rather painfully for many agents, even Redeia, a lot of things we worked through very painfully. Most of you who have been here frequently knows how much the tariffs have impacted us. All of us had to put up with part of this pain. After this period, I think we're now in a period where there's no longer any tariff deficit. In fact, we have a surplus, small, but a surplus. That small surplus is enabling us to make certain measures which are good for us. It'd be very odd for someone to come in now and completely change the system. Of course, we're reading about closing the coal-fired plants before such a, whatever period, nuclear power plants and so on. There's a lot of ideas bouncing around in the market, and we hope some of them are pretty good and probably better than we expect and better than we've had in the past. Daniel Rodríguez. Daniel Rodríguez, Fidentiis. One question regarding results. I noticed that the OpEx have grown by around almost, I think, 6.8%. Just wanted to ask, were there any one-offs there, something we can extrapolate? Because we shouldn't have any more impact of ADIF, because that was last quarter, last year. Then another question, accounting. The weight of international project. The Chile project, will that be affected by the equity method? Then the extension of the useful life by maintenance. Does that set up a mechanism? Is there a mechanism to see how your CapEx is turned into years, becomes more years or parameters? Are you comfortable with that? Because it'll be 2019, we'll actually recognize the years, because you may be investing all the way to 2019, and those is going to be recognized, or will that be less stranded, unrecognized? Then another question, more on the philosophical end. Again, extending the. It's not a political issue. We know how politics works, but why is this taking so long? If you have any input on that, any insights. Thank you very much. Can you answer the first three, and then I'll answer the last one? Yes, sure. Okay. The change in OpEx, of course, the OpEx is the impact on last quarter of 2015 by 2014, by consolidation, only a part of the ADIFs, which took place at the end of November. So obviously, like for like, 2014 to 2015, that has an impact. Yeah, because obviously we look at the total quarter. Can we extrapolate that vis-à-vis the future? No, it is just a one-off, which is why we bought ADIF. As for Chile, we have 50% stake there, so obviously that will be impacted. We will go in as a financial result. For extending the useful life of the assets, the mechanism is very straightforward. It is very clear, and we understand it. It is a mechanism that enables us by comparing the investment in renewals and reformation improvements and look at the value of the assets prior to 1998, and therefore you can calculate how many years. First, what needs to be done is first we have to close the investment on that RePEX. In other words, RePEX has to be considered as an investment and has to be accounted as an investment and adequately audited. But of course, there are some loose ends that we have to tie together. But conceptually, the mechanism is very clear. Safe. It has been established. We have a framework there, but we know that in these particular cases, it is quite insignificant. It is honest, if I may. Extending the useful life, this should be a very straightforward process, actually, because I think the Royal Decree of 2014 was very straightforward. You spend so much time, so much money over a certain period of time, and these assets, you compare that against your asset base, that gives a percentage, and it gives you a number of years. It looks very straightforward. The problem is that when I said spent, and the Royal Decree says investment, spent versus investment. So here, how do we interpret investment? Because one thing is to do a literal translation of investment, and as you transpose into accounting, investment, therefore asset. But if you look at the definition of investment, there is no reference to accounting almost to the very end of this definition. So investment is the effort that the company had made, investment, over these years, and all this effort had been done as an expense. Why? Because it couldn't be accounted as an investment because you didn't really have a new investment. And if it was considered as an investment, then we would have to conduct an impairment because we weren't getting additional revenues from that investment. Now, that interpretation of investment is now under discussion. What we are saying is, look. What we are trying to do is the regulatory useful life of these assets. We are trying to determine the regulatory useful life of these assets. The calculation wasn't that difficult. Instead of working out the expense over so many years, over total asset base, then we could send some consultants to tell us the useful life, to determine the useful life of all the assets, probably would have been better, and we wouldn't have this problem in the hand. But it is a key problem, now, it is whether we have it present. Interestingly enough, in the 2014-2019 plan, the impact is minor. It is small, as far as revenue flow is concerned. The revenues from extending the useful life of the assets will be just a little bit higher, but nothing significant. We, of course, are very much focused on this because we find it odd that you can acknowledge that in the future, what you invest in renewal and improvement, because you count it as investment, will be taken into account to increase the residual value or the useful life, rather, but not more investment in the past. Because from an accounting point of view, it was an expense. I would have liked to know what the audit would have said if that amount had been capitalized. Basically, this is exactly the same thing in the past and now. Why do you take into account now and not before? That is what we are fighting over, because there are also opinions here. Anyway, what we said in our base scenario, we are considering what we have now. Okay, the 10-year period plus a potential increase in the useful life from renewal of the assets and reformation of the assets. Again, it is an ongoing discussion. Again, it is highly technical, and I do not think it should be impacted by any political issues, whether we are going to have our new government 5th of March or whether new elections in 26th of June. I think this should be settled favorably. It is a tough nut to crack. Thank you very much for your question. Okay, now we are going to answer questions that have arrived through the webcast. First question is Javier Suárez from Mediobanca. This is on the capital structure of the company, and he is saying that benchmark companies appear as a level, the EBITDA debt level is 5 to 6 times comparable to Redeia. Is there any reason why Redeia should be lower? Javier is also inquiring whether the company would consider rounding up its dividend policy by buying without share buying policy. Chile, what do you expect from this project? Part of the revenues are not dollarized. Could you give us an idea of the return of the project, considering the depreciation of the local currency? Would the company also carry out similar TEN acquisitions during this period? There are some questions on regulation and political risk, which I think have been answered in this room. Also, questions on whether we can quantify additional investments by Red Eléctrica beyond 2020 regarding the Bay of Biscay project, plus the two Pyrenees projects and the second transmission line to the Balearic Islands. I can answer the IRR project on Chile. I am sorry, those investments, international projects and on the second cable, on submarine cable. It is a peninsula to the island. Okay. Okay, I will try and answer some of those questions. Okay, regarding the second question of a buyback, what we have chosen to do here is the most transparent remuneration policy to the shareholders. We could consider something else in the future, but right now we want to increase dividend by 7% per annum, and we do not expect any changes to that policy. Regarding the Chile side, you can answer, but sorry, the IRR, the Chile project, I cannot just say it openly because we do have competitors vis-à-vis new projects, and if I answered that question, and I told you what the IRR is, it would put me in a difficult situation vis-à-vis getting new projects. But what I would like to say, and I think I have stated this before as well, we do not expect to grow just for optimizing our capital structure, and certainly projects that do not have a required return. They do not give the required return. We have a mandate from the board of directors. We must have an appropriate rate of return, and I think 100 points on a project that costs a capital of 1% is maybe a lot, over 190% is very small. But what we are out here to do is to try and create value from these projects similar to what we get in Spain. That is why those 100 points we find that to be reasonable. I think it is very difficult to give you more details on this for the breakdown because we are competing in Chile with other projects, and I do not think we should give you the IRR rate that we are requiring for these projects. Perhaps you can answer the other points. Sure. The EBITDA debt ratio, whether it should be one or the other. Again, I want to say that when we looked at our strategic plan, the capital structure that we decided upon was, one, to enable the company to deliver on its objectives and targets. And one of them was to have an adequate financing cost and fully optimized. This is important because our remuneration is linked to the Spanish sovereign debt. That means we are a Spanish company, and as such, the capital structure requirements for us is different. In other words, we get the same rating. The rating companies require us to be more prudent. So there is 3.5x EBITDA debt for that period on average, I think, delivers on our targets while keeping our rating level aligned with that of Spanish sovereign debt. Javier was also inquiring about the exchange rate risk. The TEN project, part of the income there is collected in dollars, and another part is used in the local Chilean currency. The hedging that we considered here, this is a natural hedging. The percentage that we have covers the repayment of the operating costs paid in Chile, and financing is set up accordingly. So there is a part in dollars and a part in Chilean currency. So the flow includes operating cost. The flow in local currency pays for local debt and local OpEx. So there is no exchange rate risk there because we have matched it accordingly. Other points in terms of the project, as Juan just said, we are involved in a second project. Right now, Chile, for us, it is a country we are comfortable investing in Chile as a target country for us, and we are focusing on the north of Chile, and we also want to invest in southern Peru. So that gives us a strategic position there for potential interconnection between Peru and Chile. As for the cost of international interconnections, as you know, there is three, the Bay of Biscay, the Pyrenees. Total level of investment for these projects will be EUR 4 billion. 50% of that, again, it would be the same approach. 50% will be paid or financed by REE, by Red Eléctrica, and the other one by RTE. That is only for interconnection. This, of course, involves strengthening the Spanish network also to enable that interconnection. But again, for Red Eléctrica, it would represent about EUR 2 billion investment. The next question is by Oliver Salvesen of Jefferies. He is asking about the investments for transmission in Spain for 2050. They dropped by 17%. Is this something we should be concerned about? Do you think that you can deliver on the investment level that you committed to and that you reported on, that you announced? Why do you need to have such a high level of investment levels in future years? Thank you for your question. Indeed, investments in transmission has dropped around 70% in 2015. We knew that our investments would go down in 2015. I thought 2015 was probably going to be the worst year of the overall period. I am not so sure of that. I know 2016 will also be similar to 2015. Why? Well, because the delay of the infrastructure plan means that a lot of projects have been pushed back, or the processing of these plans have been stopped. When you stop a plan and then in order to pick up the pace, it takes some time. Infrastructure planning was approved late in 2015, so by 2016 will probably be a complex year. However, we are processing the entire plan for the network in the Canary Islands as well. I will explain in a minute one of the reasons behind this, and you will see one of them is. But again, the plans in the Canary Islands are fully presented for processing, and 2016 will be a year where we are still taking off. We are not quite at cruising speed yet. I do not think we will be able to deliver those 3.1 billion that we expected. Why such a high level of investments? Well, we have gone through periods of where we are planning eight billions, and now it is 4.5 billions, what we are planning. That reflects the current needs for the country. Demand has slowed, significantly, in fact, considering the pace that we had all the way to 2007 and 2008. So the country probably needs lower investment. But why do we need such a high level of infrastructure investments? Well, if I try and outline the plan that we have for the 2014-2019 period, what you would see out of the 4.5 billion that we are talking about is, sorry, the 2015-2020 plan. About 25% of these investments are in the Canary Islands. 25% in the Canary Islands, and this includes the 3 billion in pumping, in addition to the storage in Chira-Soria and others. Why is this? Well, this is strictly related to demand. Is demand growing up in Canary Islands? No, not necessarily. But the problem is the quality of supply and the guaranteed supply is not what we would like to see in the Canary Islands, and certainly not what we would like to have, and not what the population needs. In addition, there is another problem. Generation in Canary Islands, as we have discussed a number of times, is generation in Canary Islands is very expensive with high CO2 emissions. So the only alternative to reduce the cost outside the peninsula, which is EUR 1.5 billion to EUR 1.8 billion a year, is to introduce renewables. As you know, there is a wind farm tender for 1.5 megawatts, but we need to integrate the 500-megawatt project in the islands. Every megawatt that we built in the Canary Islands, although it has a small premium, we will see the premium, and we will look into it, each of the premiums. But the cost is a lot lower than if we are consuming that kilowatt and if that kilowatt is being produced differently. So that means the extra peninsula deficit will be a lot lower because we will not be using fuel oil and so on. Also, we are reducing the system costs. So that justifies 25% of that investment in the Canary Islands. Then there is another very important sum, about EUR 600 million or EUR 700 million, and about 20%, which is connected to supporting the future interconnections with Portugal to a lesser extent, but particularly with France. In other words, the Spanish network has to be upgraded so that when we get considerable traffic in those new future interconnections, we find ourselves that we do not have any restrictions because we do have very good infrastructure, but we have to upgrade them for these interconnections. Then the other projects are smaller one-offs, but we are talking about 40%, 45% of these projects, which account for a greater improvement in the grid in some areas that are not as good as the, do not have the adequate grid or better grid than they should have. The next question is from Borja from Caixabank. Many of these questions have already been asked, so I will just add how much do we have in annual investments, which considered as OpEx but is now as CapEx, because it will be eligible for investments in renewing our pre-1998 assets? Is that the only question? Okay, fine. Each year, Red Eléctrica spends between EUR 40 million and EUR 50 million on renewal and improvement. This is what we spend on renewal and improvements of all our assets. Obviously, if we talk about all of it, we are only talking about some of these, the older assets, pre-1998, can be capitalized. Basically, what we are doing, and the comments we have been made with regard to efficiency, is we are doing an in-depth analysis of our maintenance operation and the renewal and improvement of the company in such a manner so that any in-depth actions that we take that will extend the life of these assets can be counted as investments and can be booked as such. But I cannot talk about any global figures just yet. Several analysts have asked us questions about international investments. We are going to put all of these together to keep this moving. We have a question from Jose Luis Diaz de Aguirre from UBS, and also a question from Oliver Samuelson from Jefferies. They asked us, we are seeing increasing competition in tenders for projects in Latin America. Are we going to see Red Eléctrica putting up its prices in order to get projects to offset the slowdown in new projects in Spain? We're also asked if there's any possibility of taking part in projects in the U.K., either on our own or together with international investors. Is it true that there still aren't very many details about the framework and the projects, but do you think it would be interesting for Red Eléctrica? We're also asked whether the EUR 1 billion investment in new activities include the TEN investment in Chile, and can you give us an idea how this investment would be distributed over 2016 and 2017? With regard to international investments, I'd like to thank all of you for your questions, first of all. It's true that we are seeing more competition in Latin America. In this last project in Chile, Terna did make a bid, and they played an important role in Brazil a few years ago. I think they had almost 20% of their turnover in Brazil. Then they decided to sell all their Brazilian business and go back to Italy to buy part of the grid, which they changed over to transmission. We're really not sure what they're doing. Terna is a major player. Obviously, it's a strong company. Yes, competition in Latin America is certainly increasing because people see the same thing that we do, i.e., Latin America is an interesting area with regulations in many of the countries that are very sound, stable, and strong, and this is obviously going to attract investors. With regard to whether Red Eléctrica is going to have to make higher bids because of the competition, the answer to that is no. We will continue to bid when we have to, in order to create value for our shareholders. We're not going to get into a bidding war with anybody just to increase our debt or to compete with our peers. If we see a project, if we can create value for our shareholders, then fine. If somebody wants to get into it for strategic reasons, for getting into a country, that's their problem then. But in our case, the answer is no, we're not going to increase our bid. Participate in the U.K., either on our own with our other investments, it's always a possibility. It's true that the return in Europe is not very attractive recently. There is more attractive return outside of Europe, but this is not especially the case of U.K. The remuneration model is quite reasonable and quite stable. Certainly, it's a possibility. It's true that there are excellent TSOs in the U.K., which would be fierce competition, which would make it complicated for us to get into the U.K. market. But if there are projects, we'd certainly look at them with interest. With regard to the EUR 1 billion includes the investment in Chile, of course it does. The EUR 1 billion investment that we're going to make between storage and the Canary Islands, basically, and the international market, it does include TEN in Chile. With regard to the distribution of the investment in 2016 and 2017, about 60%-70% of the project will be the end of 2016 because the commissioning is set for after the summer of 2017. Projects may alter a little bit their rhythm of progress, but the important thing here is that the project will be online in the second half of 2017. That's the best forecast that we have at the moment, and progress is fine. How this is going to affect our accounts, that's got nothing to do because we have a 50% share. We're not going to see anything, basically. We'll start to see this when it is commissioned, and they start distributing dividends later on. We'll talk about that when that happens, when we start to see the earnings, then we can bring them onto our books. Then a final question from Olivier Mandos from Santander. He asks, in order to approve the 2016 tariff, does the parliament have to approve this, i.e., do we need to have a government to approve this tariff? It's a ministerial order, the 2016 tariff, so that has nothing to do with the government. As we said, it's a highly technical issue, all of this. We have an acting government, so they can publish it in the official Gazette. I think right now, the whole issue of the tariff depends more on the minor calculations that many of the distributors have to make because the transmission tariff is distribution. The distribution model has changed, so we have to set this tariff for loads of distributors, and obviously, this is going to take time. So those are all the questions that we received over the webcast. If there are any other questions, our investor relations team will be only too happy to take those. That ends the Q&A. Thank you very much. I'd like to thank everybody here and everybody who's following us over the webcast.