Earnings Call: Q3 2020

Oct 30, 2020

Good day, and welcome to the EDP nine month twenty twenty results conference call. Today's conference is being recorded. At this time, I would like to hand the conference over to Miguel Viana, Head of IR. Please go ahead, sir. Good morning, ladies and gentlemen. I hope that you are all safe as well as your families and friends. Thanks for being with us today in the conference call on EDP's results for the first nine months of twenty twenty. As usual, we will begin with the main highlights of these results, and then we'll provide an update on strategy execution. We'll then move to our Q and A session, in which we'll be taking your questions both by phone and via our webpage. The call is expected to last no more than sixty minutes. I'll give now the floor to our Interim CEO and also CFO, Miguel Stjordan Rath. So hello. Welcome, It's nice to have you back. Thank you for attending EDP's third quarter results call. I hope you're all well and safe as this pandemic rages on. First, I'd just like to take this opportunity to thank our EDP teams. And I think our ability to adapt in the face of these unprecedented circumstances that we're living has been thanks not only to the measures we took as a group, but also definitely the individual actions of all those that work with us within the EDP network and our supply chain partners. Together, we've remained alert and very aware of our responsibility towards all of our stakeholders. As we look to the future, EDP's investments in the energy transition can, I believe, play a key role in the recovery of the economies where we're operating as well as create much needed employment? Turning to our nine month results. So I'm pleased to present a solid set of results this morning in a challenging period marked by the current COVID crisis. In the 2020, we saw a recovery of the electricity demand and electricity prices when compared to the remarkably lower levels we saw in second quarter. EDP's positive performance in this volatile global economic environment has been very much supported by our resilient business model, with more than 75% of our activities being long term contracted and regulated and also supported by conservative hedging policy in our energy markets. So as you know, EDP has been the first move in renewables, our main growth driver. Today, we have more than 20 gigawatts of renewables installed capacity. And despite COVID, we have secured long term contracts for over 700 megawatts in 2020. Looking ahead, we have currently 6.5 gigawatts of secured renewables additions, providing a clear path for future growth. In addition, the strong public support for post COVID green economic recovery represents a crucial growth opportunity based on investments in new clean energy infrastructures, which will help accelerate the decarbonization and the energy transition in Europe and in The U. S, EDP's two main renewable development markets. Over the last nine months, we've continued to execute our strategic plan with a proactive portfolio management, which aims to reinforce EDP's low risk profile in our alignment with the energy transition. This includes the agreement for the acquisition of Viesgo, which we announced back in July, for which we received antitrust approval from Brussels yesterday, as well as the disposal of the Castaron, CCT and the retail energy supply operations in Spain to Total, as agreed last May. The decision to anticipate the shutdown of our coal plant in Iberia was also very important in terms of accelerating our decarbonization targets. Finally, in August and September, we announced two renewable asset rotation deals that we had planned for this year, which we closed at valuation multiples well above our initial expectations. So we continue to believe that all these transactions will close before year end. So you can see we'll have a very busy next few weeks. We also maintain our commitments to a sound capital structure and to our financial deleveraging targets with the execution of a €1,000,000,000 equity rights issue in August. In the debt markets, issued €2,200,000,000 this year, all green bonds, at an average yield of 1.7%, even including a hybrid emission. Green bonds already represent 30% of our total debt. So what's clear to me is that these challenging times can represent an interesting opportunity if we stay focused on our long term strategic targets, but also maintain our flexibility to adapt to short term circumstances, allowing us to deliver superior value to our stakeholders as the energy transition moves forward. I'd ask you to move to Slide four, the key highlights. So first, in the first September 2020, our EBITDA fell 2% year on year to €2,600,000,000 On one hand, the EBITDA benefited from the recovery of the hydro resources in Iberia, but also robust results from our hedging strategy in the energy markets. We saw negative pressure on EBITDA from weak wind resources, the depreciation of the Brazilian real and the contraction of electricity demand in our key markets versus the same period of last year. Recurring net profit increased by 14% to around €700,000,000 driven by Iberian activities, which compensated the lower net profit contributions by EDP Brasil and EDP Renewables. Furthermore, net profit benefited from the improvement in the average cost of debt by 80 basis points to 3.2%. Our reported net profit was down 8% to €422,000,000 largely impacted by the nonrecurring items I'll detail in a moment. Net debt went down by 6% year on year or year to date actually €13,000,000,000 backed by higher recurring organic cash flow and the capital increase in August. So as a result, the ratio of net debt to EBITDA was down to 3.4 times in September versus the 3.8x in September 2019. So in this period, we've also accelerated our contribution to decarbonization with a 47% reduction in our emission factor, supported by a 10% increase in the renewables production and a 50% reduction in our total CO2 emissions. Moving on to Slide five. The third quarter showed clear signs of recovery in the electricity demand in the city markets where we have an integrated presence, including distribution and supply. So demand in Portugal had a small growth in the third quarter compared with the same period of last year, while in Spain, in our concession areas in Brazil, we saw declines of around 3%, although this still represents a strong recovery from the previous quarter. The volumes evolution is particularly relevant for the short term performance of our activities of distribution in Brazil, but also in supply in Iberia. On prices, we saw a recovery in the third quarter from the second quarter, both in terms of spot and in terms of forward prices. Moving on to Slide six and talking a little bit about hydro. So as a utility with a strong focus on renewable energies, we are obviously exposed to the volatility of the renewable resources. On one hand, in the first September of twenty twenty, we saw a good recovery of the hydro resources in Iberia. We had a very dry 2019, if you remember. And so now we're close to the historic average. But on the other hand, wind resources were 9% below the long term average, and this impacted our EBITDA by around EUR 100,000,000. So this volatility in renewable resources is one of the reasons why we think it's important to have a diversified portfolio, both in geography but also in terms of technologies. So moving on to Slide seven. So as I've mentioned before, consolidated EBITDA went down 2% year on year. But with this decline, it was mostly driven by the Brazilian real depreciation in the period. Excluding this impact, EBITDA, sorry, ex ForEx increased by 3%. On Renewables, EBITDA fell 6%, reflecting around €150,000,000 decline in wind and solar EBITDA. This was brought about by weaker wind resources with a negative impact of close to 100,000,000 in 2020 and a year on year decline of asset rotation gains totaling €200,000,000 in this first nine months of 2020. The decline of EBITDA from Hydro in Brazil is mostly explained by the Brazilian real devaluation. On the positive side, we have Hydro Iberia EBITDA, which increased €87,000,000 supported by the recovery of the Hydro production volumes. Going on to Networks. So EBITDA decreased 12%. It's a 4% decrease if we exclude the adverse FX impact, which accounted for most of the decline in Brazil. In local currency, the Networks in Brazil showed an 8% EBITDA decline. So although EBITDA from transmission more than doubled, it was based on the commissioning of new lines in the construction, the EBITDA from distribution fell 24% year on year following last year's significant gains on the revaluation of the residual value of the distribution assets. So we discussed this last year and we highlighted it in the presentation at the time, but also the 7% decline in electricity volumes. In Iberia, the EBITDA evolution reflects a decline in regulated returns, so 4.85 in Portugal and 6% in Spain. As you know, this is obviously following also the reduction in interest rates, and in the case of Portugal, the Portuguese bonds, and so it's more or less expected. Finally, the strong improvement of EBITDA in Client Solutions Energy Management, it's fully driven by the good performance of the energy management activity in Iberia. It's mostly Iberia. Consolidated EBITDA positively impacted by a good OpEx performance in the period. So we had OpEx decreasing 4% on a like for like basis. This is obviously not just due to tight cost control. It is also due to that, But it's also supported very much by a very fast acceleration of the digitalization fueled by all the changes associated with this pandemic. So it's natural that a part of this is as a result of less traveling and less costs associated with that. Slide eight, moving on to interest costs and financing costs. So the interest related costs went down 18%, supported by an 80 basis points decline in the average cost of debt to 3.2%. So as you can see in the table on the right hand side, the yields paying the new bonds issued this year were clearly below the rates that we were paying in maturing debt. But we also saw a reduction in the benchmark interest rates in Brazil and a 5% decline of our average debt in the period, which also contributed to this decline in interest costs. So this is a downward trend that we expect to continue over the next couple of years. And in Brazil, I think it's worth highlighting that the SELIQ is now at around 2%, which is extraordinarily low levels. Moving on to Slide nine, so I'm talking a little bit about cash flow and CapEx. So recurring organic free cash flow increased 36% to €1,400,000,000 so it's almost twice the €700,000,000 annual dividend that we paid out in May. The net expansion investments rose by over 30% to €1,200,000,000 of which almost 90% was allocated to renewable projects under construction or development. Finally, the €1,000,000,000 equity rights issue that we did in August and also the €5,000,000 positive FX impact resulting from the Brazilian real and the U. S. Dollar versus the euro also contributed to the 6% decline in the net debt to €13,000,000,000 The net debt over EBITDA ratio improving to 3.4x, so again, low levels certainly by historic standards. Note that we expect to close a significant number of transactions before the end of this year, as I've already mentioned. And so the combined terms are not only fully aligned with our financial deleveraging commitments, but it will also reinforce the weight of the long term contracted and regulated activities in our portfolio. Moving on to Slide 10. Recurring net profit increased 14%, and the negative FX impact at the EBITA level is very diluted, both at the EBIT level and even more so at the net profit level, given that we're funding our operations in local currency and so this flows through the P and L. Below EBIT, the positive impact from the lower net financing costs and also from lower non controlling interests, namely EDPR and EDP Brasil, was partially offset by the slight increase of effective income tax. Reported net profit fell 8%, reflecting €50,000,000 approximately of nonrecurring costs in 2020, mostly related to our conventional operations in Portugal. So in the third quarter, we made a provision of around €50,000,000 after tax on the alleged overcompensation regarding the KEMEC plants and the ancillary services. So we will be contesting this decision in line with the recent appeal by EDP on the competition authority on the same subject. So again, something that we will be contesting over the next couple of months. It's also worth noting that we've conducted a review on the various outstanding litigations. And let me just take a moment here to talk about two points in particular. First, in relation to the sales, we will be withdrawing the litigation against the Portuguese state. Look, this was done taking into account the current pandemic crisis and also following an analysis we do periodically of the probability of success and the costs associated with these cases and the fact that the proceeds are being allocated to the system debt as we've always defended. So do we see some progress there? The decision will have no impact on financial results. The SES annual costs have been accounted every year since 2014, and EDP is up to date with all the SES due payments. So note, however, that we expect the SES to gradually decrease over the next few years in line with the system debt as foreseen in the state budget. The second point I'd like to talk about, which is social tariff. As you know, we've not been litigating on this, even though in accumulated terms, we've been charged over €460,000,000 including Ester's estimates for 2021. We've always said we understand and we agree with the social tariff, but that we fundamentally disagree with the way it's been financed. And I think we've said that repeatedly over the years. We don't believe it's compliant with EU directives and best practices, for example, the way it's done in Spain. So Spain, as you know, has already had several literations of this, and currently, they are compliant with EU directive. So as you know, in Portugal, it's financed through the generation business, which has no link to vulnerable customers. And so as a result of this, we'll be requesting that Brussels review this issue and evaluate the conformity with EU directives. And so that's something that also will be moving forward now in November. So we think that these steps are important to stabilize the regulatory environment in Portugal. I'd now move on to strategy and just a couple of slides here on execution of strategy. So we've already achieved 86% out of the seven gigawatts renewables growth target for the plan until 2022, even without considering the 500 megawatts that we're adding with the acquisition of Viesgo. We have a total of, as I think I've already mentioned, 6.5 gigawatts of renewable projects secured, of which 2.2 gigawatts under construction, and the rest is in advanced development stage to be added to our portfolio in the next couple of years. So all of these projects have a name, a location, execution deadlines and very importantly, they also have a long term contract already signed. And so I'd really like to stress that we have very good visibility on the returns associated with these projects. Even considering some slowdown in the decision process associated with the COVID crisis, we've already secured around 700 megawatts of long term contracts for new renewable projects in 2020. So in rough figures, twothree of secured contracts are relating to onshore wind projects. But I think it's also worth noting that solar and offshore wind are gaining weight and certainly versus historic, where it was almost 100% onshore. In regional terms, our renewable investments are pretty well distributed between Europe, North America and Latin America. You can see that in the graph here on the right hand side. So this is aligned with our strategy of diversification of investments, both at technology level and also geographically. And in parallel, it's also allowing us to consolidate some of our positions in those key geographies. I think it's worth noting that we live in a moment of increasing global public support for the decarbonization, and I think that will be a certain trend moving forward. In Europe, European Commission has already favored an increase in the targets of emission reduction to 55% in 2030 versus the 1990 levels. And the next generation EU fund will provide additional liquidity with at least 30% of the €750,000,000,000 being directed to decarbonization projects. So clearly, there's a lot of funds that are being allocated to the energy transition. In The U. S. This year, we've already had extraordinary PTC extension, and there are also pretty ambitious renewable policy proposals out there, as you know. Moving on to Slide 13. So we've been conducting asset rotation deals since 2012, although initially on a smaller scale and selling only minority stakes up to 2018. In 2018 onwards, from December, which was when we announced the first majority transaction, we've really decided to intensify this activity and focusing on these sales of majority stakes. So the asset rotation strategy is really allowing us to crystallize part of this value upfront, and we've discussed this, I think, on several calls. And it also allows us to reduce the age of our portfolio, and I think that's also an important variable to keep in mind. So after nine years of this type of activity, we see these deals as a key part of our recurring business, and we certainly intend to continue to do this going forward. Since 2012, we've done over 20 asset rotation deals totaling 4.3 gigawatts and more than €5,000,000,000 in proceeds, of which €2,100,000,000 were in 2019 and 2020. I think you all know that so far we're also exceeding the business plan estimates. We're getting higher EV per megawatt multiples than expected both in 2019 and 2020. And I think it's also important to note that these multiples depend, though, on the location of the portfolio, and they're quite different in Europe or if in there in The U. S. So in these two years, we should reach roughly around €700,000,000 of asset rotation gains. So this is in line with the amount that we're planning to achieve over the entire four year period of the business plan, so a clear outperformance here. These transactions, coupled with the positive market environment, I think, have given us a lot of confidence on the performance of the asset rotation activity for 2021 and 2022. Move on to Slide 14, talking a little bit about decarbonization. So decarbonization, as you know, has been at the core of our strategy for a number of years now. And in the first nine months of the year, weight of renewables in our energy mix increased to 74% versus 58% just five years ago. Coal fired electricity production fell by more than half year on year to just 7% of the energy mix. And the weight of coal in our revenues decreased to 5% versus seven percent one year ago. As a result, and I think this is also a number which a lot of people are focusing on, our specific emissions factor is almost half to 122 grams of CO2 per kilowatt hour. So we have good prospects for the evolution of our carbon emissions for the near term. And certainly, if we factor in all of these portfolio restructuring deals that we've announced, especially including the shutdown of the Iberian coal plant. So I really wanted to reinforce our commitment to a more ambitious decarbonization target for 02/1930. We will be reducing our CO2 emissions target or factor by 90% in 2030 versus 2015. I remind you that the previous target was a reduction of 90% versus 2005 and it's now versus 2015 levels. So this is equivalent to halving the specific emission factor by 2,030 to 30 grams of CO2 per kilowatt hour. So this target's also been recognized by the Science Based Targets Initiative, and it's aligned with the pathway to limit the global warming at 1.5 degrees, which, as you know, was something that we've explicitly outlined as being a core issue for us. So moving on to Slide 15 and just a word on Brazil, and we get a couple of questions on this. So Brazil is currently 15% of our EBITDA and 10% of our earnings in the period. Obviously, and I think this is recognized by everyone, the Brazilian economy has been impacted by the pandemic. But I think it's also worth noting that the institutions in Brazil have created several mechanisms to support electricity companies and the consumers. And so they've reacted, I would say, quickly and strongly to the COVID. In the distribution, in particular, I think it's worth highlighting the creation of the COVID account. This has increased liquidity for the companies, but it's also provided a pass through of costs related to the estimated COVID impact on the increase of involuntary surplus of long term contracted electricity volumes. So this is obviously key for that business. In the generation business, and I think this is something that we discussed, new legislation has been published to solve the disputes on the GSF cost in the free market. The detailed rules are still being designed by the regulator. The approved solution involves extending the concession period in some hydro plants in exchange for the settlement of the current legal dispute, and that will solve the uncertainty that exists until now. Our expectation would be that, that would be in place by the end of the year. But obviously, we're monitoring that closely. Looking at the macro environment, the depreciation of the Brazilian real has obviously impacted our financials in euro terms. However, the fact that we fund our fund in local currency and the fact that most of our regulated activities have revenues indexed to inflation indexes, either the IGPM or the IPCA, depending on what you use, it significantly mitigates this impact at the net income level. So on our distribution concessions, they recently had their annual tariff revision, and they benefited from the update of the GPM. This is more correlated with FX changes than the IPCA. In the case of Sao Paulo, EGP Sao Paulo, it had a tariff revision a couple of weeks ago, so it's communicated by Brazil, had an increase of 21% in the Barcelo B, which is the part of the tariff which can be managed by the DISCOs. And it's backed also based on an IGPM of rise of almost 18%. In transmission, so we had some delays in construction, as you know, relating to COVID, but construction has resumed. And we already have almost 80% of total CapEx for the six transmission lines already executed. Slide 16, and we're moving towards the end. So guidance, and I think there's obviously key slides. First, we are upgrading our financial guidance for 2020 since we now have more visibility until the end of the year. So we now expect a recurring EBITDA at €3,700,000,000 Previously, we were aiming for the €3,600,000,000 And in terms of net income, so recurring net income, we're looking at around €900,000,000 so towards the upper end of the range we communicated previously. So just to remind everyone, in the past as in the past, this net profit recurring net profit assumes that the sales in Portugal is a nonrecurring item, okay? So what are the drivers that are leading to this upgrade in guidance? First, obviously, the high levels of hydro reservoirs in Iberia, so we're having a relatively well, it's an average year, but certainly better than last year. Better outlook also from the activities in Brazil. Quite frankly, I think we were a little bit pessimistic about Brazil a couple of months ago, but I think things have started to shape up, and so we're more positive on Brazil now. Good visibility on the asset rotation gains. So we expect an additional around €200,000,000 versus what we were our estimates a couple of months ago. And then also some benefits from the increase in volatility in the energy market in the energy management activity and finally, also obviously the decline in the interest cost. I think these solid results really show that in these challenging times, it's not just the resilience of our earnings and the business model, but I think it also really shows the focus of our teams in delivering the commitments to our strategic plan. I started out by thanking the teams, but I think it's really been tough times on the ground. We have a lot of people actually on the day to day business, whether it's in the distribution networks or in the generation plants or in the supply business that are out there making sure we are delivering high quality service and electricity to our customers. And I think that's something I really like to highlight. I really believe we're well positioned to deliver stronger long term growth and value creation for our stakeholders. We have a unique starting point, and I think we'll really continue to benefit from the green economic recovery programs in a post COVID world. So I think we'll have a lot of good and positive news and targets to talk about when we go back to the market in the first quarter of next year. So thank you all. I'll stop now and open it up for questions that you might have. So thanks, We will now take our first question from Alberto Gandolfi from Goldman Sachs. Please go ahead. Thank you. Good morning and thanks for taking the questions. I have three, but premise the one is quite brief. The first one is, given there's a lot of moving pieces, assets leaving the business, Versus were being consolidated, more disposals to close, CapEx potential acceleration. Would you mind guiding on net debt for year end and maybe commenting a bit on your leverage situation? It looks to me as you are overshooting your own target. A second question, which is a continuation of the first one is, I mean, considering the exposure to contracted capacity and networks, do you really need to to stop there, or are you gearing up to capture some of the upside that we are seeing in the industry? I mean, lots of your competitors are open to chase as much growth as possible. We are seeing, you know, strong year ahead of us in in offshore, more and more regions moving to net zero from Asia to, you know, potentially even The United States. So I I guess the question is, you're gonna talk about that in the CMD, but is now the balance sheet no longer a constraint for a CapEx upgrade? I think that's a very specific question on on on on the funding. And the last question is a little bit detail and perhaps boring, but I think very important. So the 900,000,000 net income guidance, you talked about 400,000,000 gains. Two points. The 400,000,000 gains, am I right in assuming they all come from EDPR? So we should take about 80% of those, and they're largely tax free. So perhaps, but not fully. So perhaps the in the 900,000,000, am I right in thinking there's a bit less than 300,000,000 of gains? So the clean, clean net income would be 600. And you said two important points. One is that capacity factor normalization in wind is worth 100,000,000, and COVID volumes was, I think, 57, 54. So what I'm trying to say, there's probably another 150,000,000 we could normalize these figures for. So if I take out the gains, add back those items, are we talking about the €750,000,000 underlying, net income before any asset rotation gain? Thank you so much. Alberto, so thanks for the questions. Also very insightful. I'd say in relation to the first one, in relation to net debt, so we are aiming to definitely meet our target of net debt to EBITDA by the end of the year and probably be close to around €12,000,000,000 of net debt. I think when you look at this, you need to take into account though that, as you yourself mentioned, that the the pro form a of these various things. So we have, for example, a full year of the the hydro or pretty much full year of the hydro. We won't have yet the VAs will consolidate it. So when we talk about the net debt to EBITDA, it's it's worth doing, let's say, the pro form a of all those different moving pieces. But I can say that from our forecast and our estimate, it's we'd be net debt of around 12,000,000,000, as I say. Regulatory receivables, you know, well, net EBITDA around 3,700,000,000.0, as I've said, and regulatory receivables maybe about point eight included in that. So hopefully, that can help you get to the numbers that you need. In terms of the second question, contracted capacity and gearing up. Listen, I think we've been gearing up over the last you know, two years, certainly since the the strategic update, you know, with the revised targets. We've been ramping up from 700 megawatts to to around two gigawatts. That's sort of, let's say, the the cruising speed we're aiming for. And we continue to do that exercise, and, you know, we continue to look forward and and think about how we can, continue to grow the business, optimizing the number of megawatts, the profitability of those megawatts, and the risk of those megawatts. And so that, as you say, that's something we will talk about, I think, more holistically at the the CMP. But but we're definitely thinking about it and are, you know, looking at what we can do in terms of additional growth or in terms of our the growth of the business going forward. In relation to your third question, which is a very specific question, but I think it's good question. I mean, I'd say, yes, you can basically do that calculation that you've outlined. So I would, you know, tend to agree with those numbers. Obviously, bear in mind that this year, we had the pool price is already fully hedged, and so we had a pool price of around €55 per megawatt hour. And as you know, for next year, we have it at around €45 per megawatt hour, already fully hedged. So that's something to take into account. There are other things that are moving pieces, things like FX, etcetera, which can also vary over time. But let's say, doing a simplistic calculation as you've done, I think it's roughly right. Thank you. We will now take our next question from Harry Wyburd from Bank of America. Please go ahead. Hi, everyone. Thanks very much for taking my questions. On the first one, I wonder if I could just add on a little extra to Alberto's question. And so Alberto's set out the base, I guess, for this year, but just thinking about a few more of the kind of year on year changes. So firstly, the most obvious one is scope. So coming from this year into next year, we see a lot of scope changes to account in our models. Can you give us any kind of flavor, maybe even just the EBITDA level as to what you think the year on year scope impacts are, particularly from things like if you add together all the asset sales and Viesco and stuff, mean, we're pretty familiar with the hydro sale. But if you could give an overall view for scope changes year on year. And then also just on on wind and hydro volumes, and I think on the nine months, you you said in one of the slides sort of wind is worth about 150 negative up to nine months. And also hydro still this year, that's much better than last year, still slightly worse than an average year. So again, maybe could you just give us any kind of sense for what year or the year impact of those volumes could be? Second question, just obviously, very busy year for M and A. So excluding EDPR, so just focusing on the other parts of the business, are you now happy with the scope of the business? Or could or should we be sort of bearing in mind that there's potential for further reshuffling, either adding or selling assets in the non EDPR business? And then finally, this could be an incredibly naive question because, obviously, there are lots of different arms of the state and the judicial system in Portugal. But, you know, we we keep sort of returning to lawsuits both from from parts of the government to you and now today, you to parts of the government and so on. And I guess, in the in the kind of old olden days, quote unquote, when utilities were sort of seen as as, you know, often politically as sort of punch bags, perhaps to use an unfair phrase. But nowadays, you know, you guys are the sort of renewables leader, and particularly in the scope of Europe, you know, you're a major export force now. I mean, Europe has the biggest renewables developers globally. Is it still relevant in today's environment for the government to keep sort of attacking you from lots of different angles? And is there do you think for EDP, there's a scope now potentially to and again, this could be incredibly naive, is there scope just kind of come to some sort of settlement with the government to stop this treadmill of sort of you suing the government on for one thing and the government suing you back for another thing? And and particularly with governance, such a focus nowadays, I just just wonder whether the scope to to perhaps, you know, stop these these headlines or or or or reduce them. Thank you. Okay. So thanks, Harry. As you say, I mean, the the scope is it's definitely several moving pieces, and so, that's one of the reasons why I think it would be important for us to go back to the market and do a CMD at the beginning of next year when we'll have, let's say, be able to give the the full picture with more specific numbers. In any case, I think we've over time, we've given up, you know, given out some of the deltas for these, different pieces, whether it's the Viesgo, the asset rotation, the sale of the b two c slash the CCGT in Spain, and also the sale of the hydro in Portugal. I don't have all those numbers specifically here, sort of details so so that I can give them to you, but but we can give that after through the IR. So we'll get back to you on that with, let's say, what we've said publicly about this so that we can make sure we're reconciling this with what's public information. In relation to the question on reshuffling or the additional changes of scope outside of EDPR, I mean, I'd say the answer is definitely yes. We all we are constantly looking at our portfolio and thinking about how we can continue to optimize it, continue to align it increasingly with these energy transition trends, which we really believe in, whether it's renewables or networks or some of the newer businesses. So, you know, we will continue to to do that going forward and and look at it and think about what makes sense in terms of the portfolio. I can't I'm not gonna give any specifics. To be honest, it's not anything that we're specifically doing right now, but but it is a constant exercise that we do. In relation to your last point, and I think I don't think it's a naive question at all. I think it's a it's a great question. You know, we don't litigate to litigate. I mean, we obviously only do that if we think that something is either unfair or not not legal or not justified. And and, obviously, that's not our objective. So we would very much like and expect and hope to have, you know, a stable, what's it, productive relationship, whether it's with the Portuguese government or the Spanish government or the Brazilian government. I mean, whatever geographies we're operating in, you know, we need to obviously comply with the local regulation and legislation, and and we expect everyone to do the same. I do believe, again, and you mentioned that that, you know, the utilities, the traditional utilities are becoming increasingly international, increasingly, you know, drivers of economic the potential future economic recovery. You know, so this energy transition is a key part of, for example, the the Green Deal and the EU recovery fund. So it's something that we see a a big political alignment around this industry. And, you know, and so, yeah, I I think, you know, we are all working in the same direction just to make sure that we can deliver the energy transition going forward and, you know, and obviously make this a better economy and a better place to live in for everyone, so whether it's us or the government or everything. So I think, hopefully, we'll have a a good relationship with everyone, and that's certainly what we're Many thanks. Just to complement on Eric, just to complement on numbers that we provided already in the presentation. So Viejo, EBITDA in 2019, it was in the region of two forty million euros So we expect to consolidate from the January 1. The disposal to of the portfolio in Spain to Total, so it's an EBITDA, around €35,000,000 in 2019. And the hydro portfolio, 'nineteen, again, €150,000,000 EBITDA. So net impact would be around €40,000,000 based on these numbers that were ones that were historical and public, the ones that we provided. Got it. Many thanks. Our next question comes from Arthur Seidmore, Seidmore from Morgan Stanley. Please go ahead. Hello. Thank you for taking my question. I have two. The first one is, it seems that the recurring net income guidance of €900,000,000 implies quite a sharp fall in net income in Q4 'twenty versus Q4 'nineteen. I was wondering if you could spend some time walking us through the moving part from, well, from last year to this one on the fourth quarter. And my second question is actually fairly detailed is, could you quantify the EBITDA contribution at EDP level of the transmission lines in Brazil for the future years? Thank you very much. Okay. So thanks for the question. I think in relation to to the nine or you said around 900,000,000. Okay? Obviously, this will depend very much on what happens now in November and December, which are typically important months for in terms of hydro factor. And last year so when you do a year on year, don't forget last year was very we had a very strong December. So you need to take that into account. If you assume the, let's say, an average month of December, it would certainly get you to a different number. Then some other points I think that are relevant when thinking about the fourth quarter. First, in the asset rotations, we are expecting some tax impact. And also EDP's share on those gains is around 83%. Another comment I would make is that the contribution of thermal and, to a certain extent, energy management is penalized by the uncompetitive coal production from us winding down the thermal plants. And so as you know, we're doing that in relation to Sinus, which is expected to close at the first couple of days of 2021. And then we're also assuming a relatively weak Brazilian. We also continued in a very low rate, which we're assuming at around 6.7. And, you know, the average for, let's say, the first nine months of the year was 5.7. So I think there's also maybe a component of that there. So I think that hopefully helps you think about that fourth quarter. In any case, as I say, let's see how these next two months come out. In terms of the EBITDA of the transmission lines, I don't have the specific number with me. But to be honest, we can get that to you. So the IR will follow-up on that with the exact numbers. Okay? Okay. Thank you very much. Thank you. Our next question comes from Sarah Bikini from Mediobanca. Please go ahead. Hi. Good morning, and thanks for taking my questions. The first one is on the upgrade of the guidance. Looking at the EBITDA, my question is, are you including any impact from the lower demand in the fourth quarter related to the lockdown measure? Or there could be any risk that the slowing down of the demand could impact the guidance by year end? And still on the guidance, the question is on the energy management. I'm not wrong, in the first half, you were indicated that you were not expecting a strong contribution in the from the Energy Management as in the first half during the second half. So I was just questioning if you have seen an improvement in the Energy Management in the second half, the contribution will be stronger also through the year end? The second question is still on the net debt. You have clearly outperformed versus expectations. My question is, is there any managerial actions behind these reductions that the management has done to reduce this debt? And how do you see the evolution of the working capital and bad debt provisions also related to the impact from COVID? Many thanks. Okay. So, Sara, thanks. In relation to the EBITDA on 3,700,000,000.0 and the operating guidance, so if I understood the question, are we taking into account the lower demand that could come sort of over the fourth quarter? I mean we are we're being, let's say, hopefully realistic, and I won't include it, but realistic in terms of the the estimates we're doing. You know, we're also taking into account things like what could be any uptick in bad debts from clients over the fourth quarter, also given everything that's going on. So we've tried to sort of build in, let's say, a scenario which takes into account the current, let's say, pandemic situation. In relation to the second question, the energy management, so October was a relatively good month or an okay month. I think what's what's happened and what I think has been probably more positive for us is an increase in volatility. I think we've always said, you know, we we like volatility or we think that that is ends up being positive for the business. As I said, let's see also November, December, but October was already a relatively good month. And so that's also incorporated, let's say, into that upgrade of the guidance of the 3.7. In terms of net debt and the outperformance versus expectations, I mean, to be honest, it's in line with our plan. So I think we're we're delivering on on what we said we're going to deliver. And, obviously, we've been working hard So doing the various different transactions, the hydro sale, as I say, the sale in Spain of the CCTs and the B2C, I mean, that was, let's say, unexpected probably by the market, but it was a very concrete action that we took to to make sure that we were delivering on that, you know, as well as the asset rotations, which have also come in better. Finally, don't forget also that, this also includes a rights issue, which we did, of the, let's say, 1,000,000,000 to help fund the the acquisition of Viego. And and so that also, you know, works into that number of the, let's say, the 12,000,000,000 that I I was giving you. And and I think, hopefully, that gets you there. But, I mean, we've been taking the actions that we need to take to to deliver on the targets, and that's our commitment. You know, it's been our commitment to the market. And when we went back last year, I think people were, I won't say skeptical, but certainly, was some doubts about the delivery. And I think we've managed to show over the last eighteen months that we're, you know, very focused on delivering the targets and delivering the numbers that we'd outlined at the time. Thanks. Many thanks. Okay. I'll do just a follow-up on Arthur's question on the numbers of transmission in Brazil. So EBITDA in transmission in Brazil, so in the first nine months, was BRL $276,000,000. So we expect to be, this year, clearly above €400,000,000 And as we said before, so we expect to complete all the three all the six lines by 2021. And by that time, we should reach this gross fee gross bill of about 700,000,000 reais. Okay? Maybe we can go go now to the to the questions in the in the web. We have here a question that comes from from mama from Bloomberg on how long do you think it will take for your Social Security dispute to be resolved? Will it be years before the final decision? So on the social tariff, I mean, typically, the European Commission is is relatively efficient in, in looking at, these type of cases, so I wouldn't expect it to be years. Hopefully, I can't give you an expected time. Just to be honest, it's, it's up to them, but, it's not, it's not years. Next question comes Next question comes also still from Mamadov. I think this we have already answered what is the size of asset protection gains you expect to book in the fourth quarter. So we have already referred to €200,000,000 Also, how do you expect the evolution of system debt in Portugal to evolve in the coming years? How may prolonged COVID-nineteen situation impact that? So also from from Mamadore from Bloomberg. Well, in relation to system debt, again, is important because it also impacts the sustainability of the system. We continue to see a long, you know, a sustained downward trend in terms of system debt. You know, we're expecting that it would converge to, well, probably zero or around zero by, let's say, 2025. So that would be our our best estimate at the moment. Obviously, COVID has delayed slightly this but that's already in the 2025 number that I'm giving you, but it's obviously delayed it slightly. But I would just point out that this year, well, there's a sustained decrease. So both this year and next year, we are expecting a decrease in system debt, so despite the COVID situation. In total, by the '21, we should be at around €3,000,000,000 of system debt. So that's sort the number we're working with. We have another question from Georgi Merens from GB Capital regarding the pace of asset rotation assets per year. If we feel comfortable that 0.5 gigawatts per year is something that we see as the long term potential of asset rotation in EDPR. In terms of asset rotations and so the volume or the amount that we do, I think that's very dependent also on the growth and on the number of megawatts we're developing and and building. So I prefer to treat that in a holistic way when we come back to the market at the beginning of next year because I think we'd like to show both sides of the the picture. So the number of megawatts we're expecting and the number of you know, the amount of asset rotations we're doing. We have another question from Philippe Portain from ODDO BHF on the on the our expectation regarding 2020 effective corporate tax rate? On the effective corporate tax rate, we're expecting, let's say, low 20s. And, and certainly for this year, that would be that would be what we would guide for. So the final list of questions from Georgi Maranj from GB Capital. Given the recent evaluation of Brazilian real, could you consider to increase, your Brazilian exposure? What type of opportunities would you be looking in Brazil? And also maybe putting together, could you consider to acquire energy networks in other LatAm countries? So in relation to to Brazil, Brazil, as you know, has or EDP Brazil has its buyback program in place. I mean, it's relatively limited size, I think, around 400,000,000 reais, which is ongoing. And yes, and so that's something that is already out there, and we announced that back in the September. In relation to additional opportunities in Brazil, we will always look at different opportunities, whether it's in Brazil or any other geography, You know, if it makes sense from a, you know, strategy point of view or from a certainly from a financial point of view, we'll look at it and and see if it's worth moving forward with the transaction there. So we're constantly analyzing. But as I say, it's not specific to Brazil. It's in the various geographies where we're in. Another question also from George is regarding synergies, in Viejo, if we have some updates on this. So in relation to the synergies on Viego, just to say that, well, first, you saw that we got the approval from the antitrust in Brussels, this week. So that's good news. It means we can move forward, or we'll be moving forward shortly to the closing, probably early December. And in terms of the synergies, so we are working on the and I've mentioned this before, but working on the one hundred day plan so that we can then start implementing as soon as we move in. I mean, the numbers are are still the same that we've provided guidance on in in the past, and and the result essentially from work that's been done from the sell side. So the the 20,000,000 to 50,000,000, depending on whether you're taking into account just operational synergies also factoring factoring in tax synergies. And the final question from the web is regarding pending regulatory change, if there is there is any other pending litigation which could risk turning into a loss like the €73,000,000 now booked? K. So this is an important question because just to be clear. So there are at least two, something that I can think of, that are pending a decision. So one is, well, both relating to competition authority, fines. One is around 25, I believe, 25 to 30,000,000, relating to EDP Sonae marketing campaign, which was done back in 02/2012, and that's not booked yet. We're waiting for the final decision on that. And also in relation to the ancillary services, which is around 48,000,000. So that's also something which is being which is currently in court. That fine resulted from the competition authority review, but we're obviously believe there's no wrongdoing, so we're we're taking that to court, and that's not provisioned in the numbers. We have one last question from the phone and before we finish. Alberto Gandolti from Goldman Sachs. Go ahead. Yeah. Apologies for I promise just one quick follow-up given nobody asked. Miguel, can I ask what is your opinion on developing solar on a merchant basis in Spain? Do you see it as a way to boost returns? Or do you see it as unnecessary risk and interest in pursuing that path as well? You. So as you know, philosophically, we don't like investing in merchant projects. We think it's important to have some sort of long term contract or visibility on the revenues for the let's say typically, we look at least for fifteen years. Ten, fifteen years, it could be that would be, let's say, the limit. But so what we would look at is either auctions or corporate PPAs or some type of mechanism, you know, CFD or some other that would be in place. But, you know, we we have no plans to invest on a purely merchant basis. So and certainly not in solar in Spain. Thank you. Okay. So I think with that, we conclude the presentation and the Q and A. Obviously, as you know, IR is also available to take any additional questions or follow-up on that. And if we don't speak before, I guess we'll see each other or talk to each other beginning of next year for the full year results. Thank you very much. Take care, everyone. Thank you. That will conclude today's conference call. 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