Earnings Call: Q1 2020

May 7, 2020

Good afternoon, ladies and gentlemen. Thank you for being with us today in the conference call on EDP's First Quarter twenty twenty Results. We'll begin with a brief introduction by our CEO, Antonio Mexia then our CFO, Miguel Stroud Andrade, will provide us with an overview of the results and the main developments of the period and then we'll come back to our CEO for a more detailed analysis of the status of our strategy execution, in particular focusing on the impacts from COVID-nineteen. Finally, we'll move to a Q and A session in which we'll be taking your questions both by phone and via our webpage. We expect this call will last no more than sixty minutes. I'll give now the floor to our CEO, Antonio Mexia. Thank you, Miguel. Good afternoon, Hope you are all well and safe as well as your families and friends. I know that we have been living difficult times, but once more is more value for the work that we have been doing. And so thank you very much for attending this results conference call. I think the key word at this moment is resilience. And I would like to start by providing this overview on our performance. And I believe that the start of 2020 was marked by the achievement of very important milestones and showed exactly this resilience that derives from our diversified portfolio and its high quality, which was crucial for the good performance in a volatile environment as well as some decisions that we have taken and are already in our DNA. EBITDA increased by 6% to €980,000,000 due to the combined effect of hydro recovery and strong results in our energy management activity in Iberia that more than offset the low wind resources in the period and the negative impact of the 13% devaluation of the Brazilian real. The net profit increased by 45% year on year to €146,000,000 benefiting from EBITDA contribution and the decrease in average cost of debt by 60 basis points. And excluding the nonrecurring costs on our hybrid bond buyback of EUR 45,000,000, recurring net profit rose 51% to EUR $252,000,000. Our net debt to EBITDA fell to 3.4x, adjusted for regulatory receivables and the temporary impact from the sale of tariff deficit, with our net debt decreasing by 8% to EUR 12,700,000,000.0, the lowest absolute level over the last thirteen years. Additionally, our financial liquidity is at historical maximum levels of EUR 6,900,000,000.0, which covers our refinancing needs beyond 2022. I think it's important to share this in these moments. Finally, our annual dividend of EUR $0.01 9 per share was approved by more than 99% of votes at our virtual AGM on the April 16, right in the middle of the lockdown period and the payment date will be next week, May 14. I will now pass the word as usual to Miguel Stuewell, our CFO, for a more detailed analysis of our results, and then I'll come back to provide an overview on our strategy execution. Thank you. Miguel? You, Antonio. So let's start on Slide five, talking about Hydro and Wind Resources, which is obviously a major driver of our results. So Hydro Resources had a very strong recovery this quarter compared with an extremely weak 2019, but it's still 9% below the average year. During this period, our reservoirs stood slightly above historical average, providing a pretty good indication for the 2020. And it's also worth mentioning that April was a pretty good month, 17% above average. So this year, we have, I think, good hydro resources in general. Regarding wind resources. So after a decrease of three percentage points year on year, this stood 10% short of the long term average in the quarter, and the production declined 8%, the major impact on the consolidation of our wind farms following last year's asset rotation deals. So if we disregarded this effect, production would have increased 2% year on year, and this is something which is quite detailed also in the EDPR presentation and results. So moving on to Slide six. An important message here is regarding our green position. Renewables, the weight of renewables in our production mix increased from 69% to 79% even though our wind capacity declined following last year's asset rotation deal. Our thermal production declined, and this was mostly driven or almost entirely driven by the coal production in Iberia, which has reduced very significantly. Another important message is our steady focus on growth in renewables. So during the last twelve months, we installed around 700 megawatts of wind and solar capacity, and we still have another 1.3 gigawatts under construction. However, you can see a decline in installed capacity year on year, but this is impacted by the asset rotation deals I mentioned totaling 1.3 gigawatts of gross capacity. I'd like to highlight that this number is strongly impacted by the one gigawatt gross capacity of the wind farm sold in Europe last July. So we had 51% in this portfolio. If you consider just net capacity, this decline would only be around 100 megawatts. Just moving on to Slide seven on the financials. So as Antonio mentioned, our EBITDA went up by 6% to €980,000,000 on the back of the strong recovery of the hydro in Iberia, adding €65,000,000 to EBITDA and also the good performance of the Client Solution Energy Management activity in Iberia, which had an €82,000,000 increase year on year. So these good results were offset slightly by the €47,000,000 decline in wind and solar activity and the hydro results in Brazil, which were weaker this quarter. I'll go into more detail on each of these platforms in the following slides. On Slide eight, starting with wind and solar. So EBITDA declined 12% to €340,000,000 mainly due to the reduction in the average installed capacity of 7%. And this, as I mentioned, is very much related to the deconsolidation of the wind assets sold last year. So this was around one gigawatt in Europe, 137 megawatts in Brazil and around 200 megawatts in The U. S. So the European platform was the most penalized by this effect. As I mentioned, the wind resource also worsened. And all in all, production fell 8% year on year. The average selling price remained broadly stable, obviously, very much driven by the fact that we have long term PPAs, tariffs, CFDs in the majority of the wind farms. So going on to Slide nine and talking about business. So here, the EBITDA from hydro rose 22% year on year to $2.00 €9,000,000 mostly in Iberia or partly driven by Iberia. So here in Iberia, improvement in resources led to an 87% increase in production. Despite the declining pool prices that we've observed over the last couple of months, the ultimate impact on the segment was immaterial because we basically forward contracted all of the sales for this period. So I think this is an extremely important point, and we'll probably come back to that later. Please bear in mind that EBITDA had an €18,000,000 impact rising from the clawback levy and the generation taxes in Spain, which had been suspended in the first quarter of last year, but we're still recognizing in the 2020. In Brazil, EBITDA fell 30 excluding ForEx effects due to the mostly, obviously, the unfavorable evolution of the PLD and the GSF versus our contracted positions, which required the acquisition of Energy through bilateral contracts, and that penalized the performance. So moving on to Slide 10 and regulated networks. Here, the EBITDA from networks decreased 2% to €237,000,000 In Portugal, the results were penalized essentially by the decline 50 basis points on the return on wrap to 4.8%, which is very close to the regulatory floor of 4.75% and already reflects the low Portuguese bond yields since October to date. Obviously, the Portuguese bond yields have increased over the last two months, but before then, as you know, they were extremely low. This effect was just partially compensated by a 1% decline in OpEx in Iberia. In Brazil, there was a good solid growth of 11% in local currency. This was driven by the growth in the transmission activities with the execution of 63% of investment and the commissioning also of the Merignon transmission line. Distribution EBITDA declined 1%, penalized by a 5% decrease in distributed volumes in the period. So let's talk about the segment Client Solutions and Energy Management on Slide 11. Here, there was an increase in 74% to €200,000,000 There's a strong contribution from Energy Management in Iberia, and then Tony mentioned that right up in front. And this resulted from strategy and the strong volatility in the energy market in the quarter. And so that much more than compensated the 77% decline in the coal production. The supply business also grew 13,000,000 versus the 2019. This is a business that's been improving steadily over the last couple of quarters, including the impact from the 5% increase in the penetration of supply services. In Brazil, the EBITDA increase was supported by the improvement of thermal variable costs versus the PPA benchmark. And Slide 12, OpEx. OpEx in Iberia was up 1%. I think overall, though, this is a good achievement given that last year's quarter already had a 3% reduction year on year. So it was already a challenging comparison. In Brazil, the OpEx in local currency, excluding growth, was up 1% when inflation was close to 4% up. In EDPR, the adjusted core OpEx per megawatt was up 4% following the need to cope with the business plan growth and also the asset deconsolidation from last year's asset rotation. And again, this is something I know EDPR has already spoken about. So concluding on the OpEx. Excluding FX, it increased 3%, reflecting the growth activity, while on a like for like basis, it stood flat. We still expect over the next couple of quarters that the OpEx will come down on a like for like basis as we're seeing in the business plan. Slide 13, financial deleverage. So I think good news here. Our net debt declined 8%, mainly supported by the strong results in our operations, as I've already described, and this led to a 51 increase of our recurring organic cash flow. So also, our net expansion investments of €100,000,000 reflects, on one hand, expansion build out activity of around €400,000,000 and also the €300,000,000 of proceeds from last year's asset rotation deal in Brazil and also the tax equity partnerships in The U. S, both of which cashed in this quarter. The change in regulatory receivables and tariff deficit sales, they had a combined cash positive impact of around €05,000,000,000 in this quarter, mainly due to the sale through five bilateral transactions we did with banks of €825,000,000 And so that impacted a lot the 2020 tariff deficit in the quarter. Around €600,000,000 of which will be just a temporary positive effect that will then be diluted throughout rest of 2020. So it's important to bear in mind when doing the net debt EBITDA numbers that there is this temporary effect. Although positive in absolute terms, it will then be diluted. Finally, the depreciation of the Brazilian real versus the euro to date resulted in a positive impact of around €200,000,000 in the period. And so the overall net excluding regulatory receivables and the temporary effects from the sales of tariff deficit, went down to 3.4x. So Varian mentioned, a pretty low number certainly versus the last decade. So it would have been 3.2 without the tariff deficit adjustment, but as I say, you need to make that adjustment. Moving on to Slide 14. The total interest related costs declined 20%, euros 35,000,000 year on year, and this followed a 60 basis points decline in the average cost of debt. This excludes the €57,000,000 one off cost with the liability management at the beginning of the year and also some other smaller noninterest costs. Overall, this means a cost of 3.4%, which compares with the 3.9% at the end of last year and the target of 4% we had in the strategic update. So again, this is something I know we've talked about a lot over the last couple of months. We were expecting to see a decline in the interest costs, and we're clearly seeing it here in this first quarter. You can see on the right hand side of the slide the new debt issues, the top right hand side, done at cost significantly below average. And the bonds repurchased are maturing at the bottom right hand side of the slide. You can see they also had cost significantly above average. And this is a trend we expect also to continue going forward for the following quarters, and it's compatible, as I said, with what we've indicated in the past. On financial liquidity, Slide 15. So here, at the March, liquidity stood at around 6,900,000,000 covering our refinancing needs beyond 2022. The April, already during the COVID lockdown period, we issued a €750,000,000 green bond, the seven year maturity at 1.7% yield, and it had a lot of interest in the market. I mean it was massively oversubscribed, which I think was obviously positive news in the middle of all this. So this bond is currently trading at a premium in the secondary market. So this, combined with the hybrid and the tariff deficit sale we did earlier in the year, really positions us well, I think, to face the crisis that we're all living through. It's also worth mentioning that regarding the pending deals, so as we've always indicated, we expect the financial closing of the hydro disposal of the €2,200,000,000 to be done in the second half of twenty twenty. So again, very comfortable with our liquidity position. Finally, just moving on to the recurring net profit. This rose by 51% to €252,000,000 with the Hydro and Energy Management in Iberia playing a critical role here. Also important to stress, and this is something I've mentioned, the good performance of our financial results penalized by the one off costs with the hybrid bond buyback, but as you know, with a very positive economic effect. So I'll pass the word again to Antonio. Before I do that, just again to reiterate also what's been mentioned by Antonio earlier, I hope you're all doing well and safe. And that we'll come out of this stronger than we came into this crisis. Thank you. Thank you, Miguel, very much. So I will move now to address EDP's action under the current COVID-nineteen as well as an update on the execution of our strategy. We see on Slide 18, I think it was obvious that the strategy that we presented last year was clearly oriented by a wide derisking approach throughout all our strategic goals, those five pillars of our strategy. First, our growth has been focused on long term contracted renewables, wind and solar, at competitive prices as well as regulated networks. These are business which have little exposure to volatility in energy prices and demand. Indeed, on our investment decisions, we have followed not only a strict return criteria, but we are also selective in terms of risk with the new investment decisions having an average contract maturity of fifteen years and the contracted NPV above 60%, meaning, for example, that we have refrained ourselves from investing in merchant solar. On top of that, we have established a target of 6,000,000,000 of proceeds during the period of 2019 to 2022, which consists of $2,000,000,000 from disposal and $4,000,000,000 from asset rotation. These proceeds will be used to fuel our growth and to deleverage while reducing our merchant exposure. Regarding our balance sheet, we have defined an upfront financial deleverage target of reaching a net debt to EBITDA of 3.2x already in 2020. In parallel, we have retained a conservative policy on financial liquidity, covering close to twenty four months of financing needs, which some of you may have considered as too conservative some months ago, but that today give us additional comfort on the execution of our plan. Digitalization was also promoted to the core of our strategy, and we have committed to invest €800,000,000 on digital CapEx to increase asset intelligence, operation and process efficiency. And finally, we have maintained a sustainable dividend policy consisting of a target payout range of $0.75 to $0.85 with a dividend floor of $0.19 per share. ESG criteria are also embedded in the top priority of our strategy, namely through the clear decarbonization path until 2030 with a target to achieve 90% of renewables in our electricity mix, 90% reduction of CO2 emissions versus 2,005 levels and become completely coal free. Moving to Slide 19. The importance given to ESG standards in our strategy is also reflected in the strong commitment to all our stakeholders. In our view, ESG is not a trend. As I mentioned, it's in our DNA and it's part of our long long term strategy being key to build a resilient company. As such, now more than ever, we are called on to demonstrate our commitment to our stakeholders and we quickly respond. We have taken numerous initiatives and you will see in the next slide, providing a key positive contribution to our society and, of course, enhancing always our reputation. In Slide 20, let's start with our priority, safety of our people. As we promptly implemented specific measures in all geographies to ensure that. For instance, in Portugal, we have already had about 70% of our employees working from home two days before the declaration of state of emergency. Currently, overall in our group, more than 72% of our people are working remotely with approximately 100% of the office staff working here from home. Of course, this was only possible due to the strong digitalization effort in the last years. Indeed, EDP is a case study in Microsoft related to the rollout of Microsoft Teams, which allowed us to become more connected, collaborative and innovative, something that was crucial for our lockdown period. We have also promptly taken the necessary measures to minimize exposure of our employees, which are critical to ensure the continuity of supply and thus need to be in the field. The usual ones such as deliver personal protective equipment and the reinforcement of cleaning and disinfection. All in all, we were able to ensure business continuity without any disruption of services. And we are convinced that this is a new opportunity to take on the lessons learned and benefit from additional efficiency improvements, namely through these deferred digitalization, which may have important positive impacts in the future. Now moving to Slide 21. Aware of the unprecedented times we are currently living, we are also promptly active in taking initiatives contributes to mitigate the impact of COVID-nineteen in our communities. So far, we have donated more than EUR 11,000,000 to our main geographies through several initiatives across the most affected areas of society, public health, culture, education and the social sector. Also, and very important to support our suppliers and key the value chain working, namely small and medium companies, we have anticipated the payment of invoices during April and May. Overall, in April, we have already paid more than EUR30 million related to almost two months anticipations of invoices, and now we are making prompt payments of invoices up to €500,000 totaling up to €100,000,000 This is our way to cooperate with EndoSoft partners more than 1,200 in our value chain, providing liquidity to promote economic activity and employment. Regarding our clients in Page 22, we have also adapted our supply operations to meet their current needs. We have a distinct portfolio of clients in each geography. In Portugal, we have a higher rate of B2C, while in Spain, B2B is clearly the core of our supply activity. In both geographies, direct debit of B2C clients reaches considerable high levels, which could be a mitigator of payments delays in these turbulent times. In Brazil, we have a more balanced mix between B2B and B2C, as you know. Given the COVID context, we have mainly implemented three types of measures to support our clients. First, we enforced the visibility of digital channels to continue ensuring high quality of service while avoiding a physical contact. Second, we suspended the energy cuts, in most cases, clearly ahead of any regulatory decision to do so. And finally, we enforced the flexibility of determined payments methods, not charging any interest in an effort to help those clients that are facing particularly vulnerable situations. In parallel, we suspended a significant part of the commercial activities, and our field forces was reduced to focus only in urgent interventions. Also, we launched a discount tariff plan for health professional and supplied free energy to hotels that supported hospitals in the fight against this dynamic. In Slide 23, regarding demand evolution, we can see in the graph on the left that in Portugal, the decline during the lockdown period was concentrated in the nonresidential segment, particularly in small business, which represents 7% of total electricity demand. These steep reductions in electricity demand correspond to the lockdown period and are expected to be smoother in the year with the easing of confinement restrictions. During the period from January to April, Portugal demand declined slightly less than 3% year on year. In Spain, electricity demand decreased almost 7%. As here, the lockdown began earlier and there is a higher weight of industrial consumption. In Brazil, the 4% fall in demand in our concessions is related not only with lockdown measures as the impact of COVID was felt later in Brazil, but also due to specific issues such as adverse temperature effect and the strong decline in consumption from a single large industrial client in Spiritsen, which is a free market client and that has no impact on our over contracting position. Note that regarding the impact of changes in demand on regulated revenues in networks, the impact is zero in Spain, irrelevant in Portugal and somehow material only in our distribution business in Brazil. Moving to Slide 24, talking about hedging. We are fully hedged for 2020 with all our expected generation hedged at an average selling price close to 55 megawatt hour and an average thermal spread at middle single digit with a good energy management position that should mitigate the impact of the adverse market context. For 2021, the expected reduction in electricity production is driven by the disposable six hydro plants in Portugal, and we have already hedged 60% of our expected production at the price close to €50 megawatt hour. Moreover, this 60% hedging does not include the 12 terawatt hours a year of consumption of our B2C clients, which, as you know, have a very low churn rate. Finally, we are also in a comfortable position regarding gas long term contracts, which should represent around 60% of our expected gas needs in 2021. Moreover, following the maturity of two contracts in 2020, gas sourcing costs will be more competitive in 2021, 50% of which with indexed of oil prices and close to 50% linked to ETF European gas spot price, which is have more higher correlation with Iberian electricity prices. Brazil. In this geography, we consider that we have a resilient business model well adapted to face the recent increase of volatility financial and energy market. The strong fluctuations of the currency is something that we have lived over our more than twenty five years of presence and experience in Brazil. And thus justifies our long term standing ring fence financing policy with all funding of Brazil operations in local currency. And we continue also to have a more conservative financial leverage in this country with a two times net debt to EBITDA ratio. Among the specific measures that we have adopted recently, I would highlight the reinforcement of financial liquidity with an additional billion through the anticipation of refinancing deals, short term cash flow enhancement measures, including tax management and the adjustment of the dividend policy already in 2020. Regarding our operations in the last years, expansion CapEx in Brazil has been devoted, as you know, to long term contracted activities, namely transmission, which have thirty years regulated revenues indexed to inflation and with no demand exposure. On operations that are more exposed to the current downward trend in demand and energy prices, namely hydro, supply and distribution, we expect to mitigate negative impact through our integrated management of energy markets risk in order to take advantage of the natural hedges between the different business segments in Brazil. Now moving to Slide 20. We continue executing successfully our portfolio operating optimization strategy, which will provide clear contributions to our deleverage targets. On hydro, we have announced, as everybody knows, in December, the sale of six hydro plants in Portugal for 2,200,000,000.0 Process is moving forward. The EEC approval was already granted. National regulatory requests were already submitted and the financial closing is expected to the second half of this year, eventually in the third quarter. Those teams have been working on this on both sides. In line with what we have stated in 2019 results presentation, we continue also to consider other complementary options of the optimization of our portfolio, both in Iberia and in Brazil. On asset rotation, the JV with Engie for the offshore wind was already granted the EC approval, and we are working now to complete the process of transfer of assets by each partner to the new company. Moreover, as we have stated before, for 2020, we are working on two deals of asset rotation, totaling 0.7 gigawatts of net capacity. Growth process have now moved to a second stage in order to receive binding offers by December. Regarding renewables in Slide 20 '7. We continue developing our pipeline with 1.3 gigawatts under construction, while expecting to add 1.6 gigawatts of capacity this year, mostly in The U. S. As usual, the majority of the plants are planned to be commissioned in the first quarter. We have seen occasional construction restriction due to COVID, mainly related to the lockdown and with supply chain disruption, which can lead to some delays. However, this is not expected to have any material impact on projects fundamentally. Furthermore, we continue executing new PPAs, 500 megawatts year to date, and even during the lockdown period when we have announced three PPAs in three different markets: Spain, Mexico and The U. S. On the next Slide, 28, I'd like to share the vision that we see the Green Deal as an opportunity to develop a new model of prosperity, building a more resilient society. It's true that the world is facing not only a public health challenge, but also an economics challenge. It's critical that political decision makers and designing the plans for an economic rebound post COVID look at the energy transition as key for preferred priority model. As such, in the last month, we have joined forces with other 179 individuals, including ministers, members of European Parliament, other CEOs of several sectors to reinforce our availability to jointly implement greenfield ambition. We have a large pipeline of projects that will promote economic stimulus, job creation and accelerate the energy transition by replacing generation from fossil fuels with renewable generation. And the timing is right. Renewables are already more competitive than conventional generation as we have seen in the several renewables auction that have been taking place around the world, and we are witnessing a broad support of the society to green alternatives in all activities sector. Economic growth in green investments are no longer a trade off. They go end end and together, they can build a more resilient society based on a new model of prosperity where everybody wins, nobody is left behind. Moving to last slide. I think that we can say that we are entering into this COVID period in a quite comfortable position regarding the execution of our business plan, which places us in a much more resilient position to cope with the challenges posed by this crisis. First, regarding our growth. We have already secured 83% of the planned seven gigas of wind and solar additions between 2019 and 2022. On transmission, we have already executed 63% of BRL 3,900,000,000.0 CapEx plan. Second, on portfolio optimization. We have already closed and agreed more than half of the €6,000,000,000 proceeds related to disposals and asset rotation. Third, we have already we have also reinforced our balance sheet upfront, being at 3.4x in March and with good visibility in reaching 3.2 times by the year end. In parallel, we have a liquidity position of EUR 6,900,000,000.0, as stressed again by Miguel, covering financing needs at least beyond 2022. On cost, we have done well in first quarter of this year. And our internal vision is that we should have a very strong performance throughout the year with the current environment having a net positive impact at this point. Also with no doubt, the current context provides an opportunity for accelerated digitalization and associated operational efficiency improvements that were not foreseen before this period. On shareholder remuneration, next week, will pay our $20.19 dividend of €0.19 per share as expected and approved, which represents an 81% payout ratio, totally in line with our sustainable dividend policy. We continue to take important steps forward regarding an earlier than expected lever of the capitalization targets too, as we can see by our first quarter twenty twenty figures, but also considering the expectation for the next quarter. I would say that overall, in all metrics, we are close to achieving or surpassing two thirds of our targets up to 2022, which, as I said before, places us in a very comfortable position to face the new challenges ahead. If I have to pick keywords, I would pick energy management, very successful second, capital markets management, including liability management third, deal execution, both at asset rotation and asset free shipping Fourth, investment execution with unprecedented development of the pipeline. So these four elements prove that we have been really doing what we should. So for 2020, we feel comfortable with the consensus at EBITDA level, at the net profit, at the debt level. We are ahead of our plans. The business plan was designed to be resilient, and EDP is well positioned for this green recovery. So thank you very much, and let's move to the Q and A. Miguel? At this time, we will take our first question. And our first question is coming from Stefano Bazato from Credit Suisse. Three questions. Hi, good evening. Three questions from me tonight. First, on the farm downs. Can you give us a bit of color if you have seen any change in the level of interest from potential bidders before and after the COVID-nineteen outbreak? The second question still related to the COVID-nineteen outbreak is on working capital. What is the worst case scenario you have in terms of impact on working capital from delayed bill payments and all other negative impacts we can have because of the current crisis? And how quickly do you think you can recover that? And my last question is on the on your hedging strategy. You're showing a €5 per megawatt hour decline in power price achieved from 2020 to 2021. Is there any chance you can recover part of this decline through higher supply retail margins? So Stephane, thank you. Calm downs. Calm downs were really, as you know, it's part of our business model today, part of our recurrent activities. And it was important to have the perception of the market post COVID. And frankly, I just want to confirm the following. We have received the non binding proposals and the values are exactly at what we expected before the crisis. So I believe that the scarcity effect and the look for yield of quality, including these renewables scenario, I think it has proven to be very resilient. And if anything, we had more people bidding for this than I expected before at the beginning of the process. So as we see, we will reach clearly the figures above €200,000,000 that was expected in terms of capital gains for the farm downs for the year, and we feel really comfortable with the markets after COVID. And what concerns the hedging strategy, I believe that our figures, we are talking about prices before any supply margins and before ancillary services. And I think that they're having already hedged this close to 50% for next year, around 60% is good. We will, of course, keep closing. And as you know, the second half of the year will be important for this, for the rest and, of course, depending also on the price of CO2. In terms of higher supply margin, it depends very much, and I think it's a little bit early to say that in what concerns 2021, we feel that we are already in a rather safe positioning, especially with our long retail positioning in Portugal that, of course, is less sensitive to any price movement. So clearly, we feel comfortable with what we have. And we at this stage, we would not be hedging in the rush. We don't need it. Miguel, for the COVID working capital? Stefano. So clearly, in terms of working capital, the measures approved both in Portugal and Spain should have some temporary effect on the working capital and net debt, but we expect to be progressively recovered as of the third quarter twenty twenty onwards. So really, we should probably expect some sort of peak around May, June. The impact on the 2020 net debt will depend on the obviously, the length of this lockdown period and the recovery afterwards. But in any case, it's important to bear in mind that 62 of our customers in Portugal have electronic billing and almost 100% sustain. And so we think this is something which is very manageable. We've gone through previous crises in the past, and I don't think this would be a major issue. So we now go to the question for by the Internet. And the first question comes from Jose Ruiz. Are you comfortable with the net profit consensus forecast for 2020? Thank you, Jose. For 2020, we are comfortable with current net profit consensus around €800,000,000 It makes sense with information that we have today. Note that this net profit market consensus assumes energy tax as a recurring cost. This number does not include non recurring gains. And probably as you know, as we are doing a lot of deals in 2020, we will have some figures coming from there. And so first, the main uncertainty, as we already know, is how will the recovery take place and will there be a second wave of the COVID. In any case, we feel comfortable. And the key variables that we need to follow to the rest of the year is basically in Brazil, basically business wise and also FX wise. Of course, we have been seeing a rather normal year, even if up to March, it was slightly below a normal year, much better than last year. In April, we are already in a normal year, well above April was above. It depends on the last quarter. But we have already 46% of an idle normal year. So then Energy Management results are supposed to be strong. And so we feel totally comfortable with the consensus. Gal? Next question that we have, especially regarding it comes from Andre Pietro from Royal Bank of Canada. Could you comment about Portuguese tariff deficit? And what are your expectations for 2020? Okay. So on the tariff deficits, obviously, there it's been coming down progressively over the last couple of years, as you know, and I think that's been one of the positive messages coming out of the Portuguese electricity system. Obviously, we think that this year, it will be impacted by the lower pool prices and lower consumption. And so what I could probably say on this is that we expect that probably the end of the year number would be higher than the 2019 end of year number. So that we could see an increase in the tariff deficit this year, which we then expect to be reabsorbed by the system in the following years. So that's basically it. In terms of numbers, I think it's still a little early to tell, but it's something we'll clearly monitor over the next twelve months. And going now to another question from the web from Georges Guillemaraes, GB Capital. What is expected run rate of Iberia Thermal and Energy Management for the next quarters? Thank you, Georges. Energy Management was very good in the first quarter. Of course, it's difficult to anticipate for the rest of the year. I would say that the start of the second quarter of this year is going well, but we prefer to maintain a cautious approach. And I would like you to note there is some hedging between supply and energy management and thermal. So I think that it was a good year because, as you know, EDP, our strategy is like volatility. In the first quarter, we had that volatility that we like. In what concerns your second question about our peers said that they were delaying negotiations with clients for 2022 sales, waiting for better market conditions. We can follow a similar strategy. The answer is yes. Our contracting season, as I mentioned, is normally more concentrated in the first quarter. So we see no material change on that dynamic. The third question from you, Georges, was if we plan to have some hedging to protect against FEC losses in the devaluation of Brazil versus the euro. As you know, we have a ring fencing strategy. Miguel can, of course, enhance on my answer. But clearly, the market is not liquid enough. It would be too expensive. It's part of the business to have those exposure at the EBITDA level. We have been basically ring fencing. That's a critical element. Maybe we can go now to another question on the web. If you could elaborate on your gas position, and it comes from Santander Bank of Canada. And if you could elaborate on your gas position and contracts versus gas customers and expected seasonality output. Could you comment as well on your gas contracts per twist? Okay. Fernando, thank you. As you know, as of today, we have 80% of our twenty twenty gas oil linked. This is the production for the contracted at negligible spread. Note that oil prices have come down and this will reflect in cheaper oil linked gas production for the 2020. For 2021, long term gas contracts represent 60% of our expected gas needs, 50% Brent indexed gas, sourcing costs, which should be more competitive given the recent decline in oil price and 50% ETF indexed gas source is highly correlated with Iberia and gold price. So a bit part of our gas sourcing cost will be TTF, a significant one, has a high correlation, and we see this as a positive. So our strategy is to link this more, and it's what we have been doing, so we feel more comfortable today. We can go now to the phone. Questions, please? At this time, we'll take our next question from Harry Wyburd from Bank of America. Go ahead, sir. Three questions from me, please. So firstly, I wondered if you could go into a bit more detail on LatAm and give us Latin America can give us a bit more color on what's happening in Brazil. One thing that's cropped up on a few calls the last few days has been the notion of some kind of regulatory relief. So I'd be interested to know your thoughts on that and then what effect that could have both on earnings but also on working capital and debt? And then the second one, on the hydro sale. So I'm assuming that you'll be able to fully reiterate that, that sale is definitely going to go ahead. But a couple of sub questions on it. So firstly, how do you adjust for the water actually in the reservoirs? Obviously, reservoir levels are very high at the moment. So is there any chance of a positive adjustment on the sale price to reflect the higher reservoir levels? And then on interest costs, you're going get £2,200,000,000 in the door. And looking on Page 14, you've got a 35,000,000 year on year quarterly run rate improvement in interest costs just from bond refinancing versus last year. If you just look at the disposal of €2,200,000,000 and if you're retiring bonds at 4.5%, would I be correct to assume that that's about a 25,000,000 quarterly run rate improvement in your interest costs just from the asset sale, which should kick in from the fourth quarter of this year? So just interested if you can confirm the numbers and thinking on that. And then the final one, just on the dividend. Interest to know your view on what the government stance in Portugal is on dividends. Obviously, it's a very important topic for a lot of companies at the moment. So have you had any viewpoint from the government on that? And I guess some people were predicting that 2021 or 2022 might be the year when the dividend increases. Is that something that we can still envisage even in the post crisis landscape? Thank you. Thank you. I will start with dividends and then the hydro sale and I will then pass Miguel to comment also on Brazil. In terms of dividend policy, we feel very comfortable with our dividend policy in this target range between 7585% in this floor. The information that we have today, I want to be clear, we see the current dividend policy as totally sustainable. It's true that we are living in exceptional and uncertain times. Nobody is immune totally. But I think that we will always do the best in terms of medium and long term for the shareholders. In our view, our dividend policy, it's the right balance between sustainable shareholder remuneration, reinvestment and controlled leverage. We are today in a much stronger position versus any previous moment, difficult moment because of the liquidity. So we have decided, as you've seen, to keep the proposal that we are fully supported by Supervisory Board and by 99% almost 99.9 of the shareholders because dividend in 2019 represents a 50% payout on our cash flow generated before expansion in a year when we were able to reduce net financial debt over EBITDA to 3.6 from four. And in terms of environment, we have seen clearly support for this balanced approach that we have been explaining. We have followed all the CMVM in terms of providing information to shareholders, proving that liquidity was there, that the long term sustainability of the business and continuity is supported. So we have run all that was supposed to be checked by, namely by European market authorities as just a recommendation, not because it's the only thing that they can do. And what we have seen is a rather normal reaction to what is normal current of affairs. We have all the Portuguese companies relevant that have the conditions, the proceeds with dividends and they paid what they were expected to do. We don't expect any major change. Of course, we don't see what will be if you have a major second wave of pricing, what will be reaction. But as we speak today, if anything, we see twenty twenty as being a year where we deliver fully deliver. So I don't see why any reason why we would not propose and why shareholders would not vote what we have as current dividend policy. So we are comfortable with this. I would like to also in terms of hydro, all the revenues of the hydro are fully ours until closing. And so as we see towards the end of the year, we will keep the normal running of the business. And by the way, that I would say that small amount compared to €200,000,000 But anyway, the revenues are ours until then. The interest cost, it's true that it's a mixture. As you know, in our business plan, we had already included €2,000,000,000 debt reduction proceeds from the sales. And so it was already incorporated, but I think and I will pass to Miguel to check your 25,000,000 impact on interest cost and Miguel, and plus regulatory relief in Brazil. So in terms of as Antonio mentioned, this is already built into the business plan. So what you need to look at is the overall debt level and how that evolves. And so we're expecting it to be around the 12% or below 12% excluding regulatory receivables on that basis. Obviously, we have a large CapEx program, and so that's why it's important not to just look at the isolated impact of the hydro sale, but look at it in the context of the overall net debt and investment program that we have. In any case, what we've said is that certainly versus our business plan, we are doing better than expected in terms of the interest costs. So we highlighted last year that we're expecting around 4% cost of debt, and we're well below that. As you saw in the quarter, we're at around 3.4%. And in terms of absolute numbers, I think we were guiding to close to or but below €100,000,000 overall interest savings over this period. In terms of LatAm and some detail on Brazil and regulatory relief in particular. So I think the key points on LatAm from a business perspective in Brazil is the over contracting on the distribution, so to the extent that they don't have an unbundled system. Also issues around obviously the payments of receivables from the customers. I think the good news is that ANEEL, the regulator, is trying to be as helpful as possible and so is helping finance and distribution companies and also pay for the low income customers. And so to that extent, is certainly providing a positive uplift from that. On the major structural issues, and even though we're less impacted by that maybe than some others, on the GSF, which is obviously a key issue for the profitability of the system in Brazil, There is currently, I think, some legislation that is being discussed in Congress and which would provide also a positive uplift on the business there. In any case, that is something which is still being discussed at the level of the Congress. And so we'll provide further details as soon as I think they become available. But as of today, it's still a draft proposal. We can go now to, I think, the last question from the have two from the phone. So let's go for the phone for the next question, please. At this time, we will take our next question from Alberto Gandolfi from Goldman Sachs. And I extend to all of you my wishes as well. Thank you for your kind words. So the three questions are in terms of the Client Solutions and the Energy Management, would you mind to dig in just a little bit more into the main drivers? I'm trying to discern here what may be a few months and what may be actually a bit more structural as long as this current depressed demand and volume situation persists. So can you maybe tell us if you had an open position, if you managed to be much more flexible in actually procuring from perhaps the spot market? I'm just trying to understand a little bit. I mean you already did like half of my full year forecast. And so I'm just trying to understand if April also started quite well, trying to gauge a little bit more on the division. The second one is, today, EDPR talked about and you mentioned, Antonio, actually some potential delays. And I agree, I mean, six month delays on tax wouldn't change much the value given the thirty years of future cash flows. However, can you maybe be more specific about it looks like almost 85% of your capacity is secured. Can you maybe talk a little bit more about the potential risks? And I guess those would be if you can quantify those, and I guess they've probably already been offset by the Q1 performance in Client Solutions, but just curious to see if you think this is a fair observation or not. And the third one is talking about the opportunities from the green deal, potentially stimulating, relaunching the economy. Question is, you've lowered your financial leverage to 3.4x and the higher the disposal is about to come through. But the question is, is your leverage and or your portfolio structure suited now to capture all the potential opportunities from the green deal? Or should you maybe strengthen the leverage or do something else? I mean I still think you'd be sharing quite a lot of the future growth with the minorities in EDPR if you didn't fully own it. So maybe if you can elaborate on those dynamics would be great. Thank you, Alberto. I've seen that by the third question that at the end of the third question that you like the topic of the COVID-nineteen, the question. So the first question is, if I could share with you is the following. Energy management, as I mentioned, in our cases, because our positioning in terms of being long allows us to do what? When you close a position and you are hedged, you can set generating, you can buy because of our scale, you can you are big enough but not too big to be able to go into the market and buy and then sell to the clients with higher margin than fuel generating, basically. So it's the reason why we like volatility due to this positioning. And so it's the reason why it contributed to a very strong energy management at the beginning. Of course, Client Solutions clients after the March and beginning of the dynamic situation are less in a rush to have meetings because they cannot have whatever optimization. So everything that relates to services is probably slower, but it's very small compared to what are the gains that you do on this energy management. That was done in a very smart way by our teams. We cannot anticipate because it depends very much on the evolution of the pool price and on that volatility to allow to repeat this. But in any case, we feel already very comfortable for the year and in terms of hedging for next year. EDPR potential risk. I would like to be clear in the sense that and if you have seen the question of especially some delays in CapEx and commissioning, all sectors, mainly in The U. S, have been affected by along the value the old value chain. Almost of all our suppliers in those cases have evolved force majeure. So but clearly, what we have here, as you know, we can still qualify to receive 100% of the PTCs. That's a good question. Value wise, two, three, four months, it's not meaningful. The question is, if you go from November, December into January, February, I think that we still can qualify to receive 100% of the PTCs of this year because the law includes clauses of an excusable event. And I think if you don't have an excuse with this COVID, I don't know when do you have an excuse for continuous efforts. So we are moving from safe harbor into this scenario. And if the company approves that it continues to work on the project, although it was not finished until the year end, I think that EDP Renewables also shared this, I think, with everybody. The tax equity markets in U. S. Remains very robust. And it's very important to state we have closed we have allowed our intention with a big institution of all tax equity investments for all the twenty twenty projects. So and in the middle of the COVID crisis. So I think that we are on that front, we are we feel very comfortable. And as we have seen, we have been able to tackle different markets besides U. S. Which represents our growth engine. But in European markets and also in South America, we have been able to tackle those markets. The green deal, if I understand your question is, I don't think that our leverage, portfolio structure, even less our portfolio structure is a constraint to take advantage of the Green Deal. What I believe the Green Deal gives us is a more stable it's supposed to give a more stable framework and so less temptations to fool around with the incentives that you need to give to investment. And I think it's good news for everybody. But people understanding that you need to give visibility, mainly, for example, through auctions, and the Portuguese market is an example. They will launch a new auction for renewables just before summer. And so people understand that visibility is a critical element, and the Green Deal reinforces not this commitment with the investability on the sector. So but I will not just do more for more. And frankly, it's not the moment to leverage more. We don't know what will be the second half of the year. We feel very comfortable with the actual positioning, but we are really committed with the deleveraging and to go to the 3.2 times, and we are not going to change this. And this includes, of course, using cash to buy minorities. Here, we tend to be rather stable, not to spend too much cash in buying minorities. Thank you. Alberto. Can go now We to the last question on the have some more questions on the web that we'll follow-up from the IR level given the timing in terms of closing the call. We'll now take our final question from Javier Guerrero from JPMorgan. First, well, actually two questions on Portuguese regulation. What are your up to date thoughts about the profile of reduction in the special energy tax, particularly now that you can anticipate different profile for the reduction in trade deficit? And also, you could update us on the recalculation of the clawback. Where are we in that process? Second question would be on the cost of debt. Well, to be very specific question to Miguel, is there any reason at all why you could see an increase versus the current 3.4% that you have reported for the first quarter? And then the final question, a more generic question. You have mentioned a few times that you have different strategic options in Brazil without entering into which could be your favorite, simply would you mind to lay out what is what are in your view, those strategic options that you have in Brazil? Thank you, Javier. First of all, I would also start by the fact that the regulatory risk in Portugal. The one year extension, we have not mentioned, but I would like to highlight this in distribution that is supposed come. It gives additional visibility. I think it would be good. In terms of the profiling energy tax, the sales, as you know, is supposed to evolve and to be reduced according to the tariff deficit evolution. The tariff deficit last year decreased. This year, we were expecting initially a €600 then a €400 but the final calculations of the tariff deficit probably with the COVID situation, we will see rather an increase. But in any case, I would like to state two things. The commitment in terms of verbal commitment and execution committee by the government has not changed relating to the variable that is supposed to follow, the sales. But I would like to tell two things. First is this reduction that if everything pre COVID was probably the amount of up to EUR 10,000,000. So it's really not a game changer in our account. So I think it's more the fact that people respect the principal than the fact that they were calculated at eight million or nine million or ten million reduction. So that's the most important thing for me. The second so let's see how it will evolve and the governments will take a decision towards the summer. But of course, the COVID situation will probably have an impact. But in any case, I would like to stress that the figures that we have presented in this quarter already includes the full payment of sales for 2020. So it was specialized in terms of timing. So always, we pay at the beginning of the year the full amount. And then if anything, we will not have that upside that was supposed to have were supposed to have pre COVID. In terms of clawback, the rules the law is clear. The Secretary of State did the dispatch. And now we probably it's just a question of implementing. And so we see really the clawback as a netting off measure of the 7% paid in Spain and the taxes that are paid in Portugal are not in Spain. So we don't we see clawback as we as finally as it should be as a netting off measure that doesn't allow EDP to have the benefit of the 7%, but taking into account both sides of the border. Strategic options in Brazil. Of course, yes, but then I'll pass to Miguel to the specific question of the €3,400,000,000 that we shared the answer. But anyway, strategic options in Brazil. As you know, we prefer visibility. We prefer transmission and distribution. If anything, we were more flexible on generation. By the way, in this moment, the fact that we have both allowed us to edge a little bit because, as you know, distribution in Brazil is very volume driven, much more than in Europe. Anyway, we are not in a rush in terms of you don't want to crystallize value in Brazil, in reals, you are not in a rush. Eventually, you can do swaps, you can adjust your portfolio, but we are not in a rush to do anything in Brazil. In Brazil, the key element was to protect cash, cash, cash, cash liquidity, and we have been very focused on this, including the dividend policy out of EDP Brasil that, by the way, is because of Brazil. And so we have protected the company and take the measures that we needed for this. In terms of strategic options and the things that we are pursuing is basically, as we have presented on the strategic business plan, focusing on delivering the deals that we have already presented, but also working on optionalities on reducing merchant risk or reducing exposure to the market, on lowering exposure to markets where eventually we consider that we are already to expose. So that's the trend that we will follow. Miguel? So, Javier, on the 3,400,000,000.0 I mean, there are essentially three variables which impact the cost of interest rate and cost of debt. Basically, rates, the mix of the different currencies, the three currencies, dollars, euros and reals, and then any FX impact that are yes, mean, obviously, the dominant factor here is the rate, and that came down substantially over the last couple of months, and it's been coming down over the last year. So we expect that over the full year, the rate would be at 3.4% or even slightly below. And that will be as a result of this impact of the lower interest rates refinancing that we go on doing of different bonds that are still outstanding. As I showed on the slide in the presentation, we still have quite a few bonds, for example, even maturing this year, one in June and another one in September, which are well above 4%. I mean, 4.14.9% are the two ones that are outstanding. So that as those mature, obviously, they will be replaced by cheaper financing, and so the overall debt cost is expected to come down. You very much. Thank you. I'm receiving a signal from Miguel Vieira that we should stop. So I just want to thank you again for your presence and the patience we are in a difficult moment. Keep you safe, keep you healthy. Just to stress, we were ahead of the events. Nobody could anticipate this, but we were prepared to tough times. So we were ahead of the events. We are ahead of our plans. We resist, but clearly, we are committed to all our targets. And as you will see, we are we tend to be stubborn. That relates to being sometimes boring in the sector. And the next weeks will, I believe, improve and the next times will prove what we have been doing. So thank you very much. Let's go for it. Keep yourself safe and see you soon.