Earnings Call: Q3 2019

Oct 31, 2019

and gentlemen, thank you for standing by, and welcome to the EDP's January to September twenty nineteen Results Conference Call. At this time, all participants are in a listen only mode. Later, we'll conduct a question and answer session. As a reminder, today's conference is being recorded. I would now like to turn the conference over to Mr. Miguel Vienna. Please go ahead, sir. Good morning, ladies and gentlemen. Thanks for being with us today for the conference call on EDP's twenty nineteen third quarter results. As usual, we will begin with the presentation by our CEO, Panim Scheer and our CFO, Georg Frodenrad, which will provide us an overview of the results and the main developments of the period. We'll move to a Q and A session in which we'll be taking your questions both by phone and via our webpage, www.edp.com. We expect this call to last no more than sixty minutes. I'll give now the floor to our CEO, Antonio Shiger. So good morning everybody. Thanks as usual for those that are attending in this results conference call. So the first slide that I want to share with you, the Slide three, basically we have the key highlights. The key highlights give us an overview of our performance over the past nine months. At EBITDA level, we see an increase by 10% to EUR 2,660,000,000.00 with a strong growth across all our three business platform. That's important. In renewables, over the last twelve months, we have commissioned 0.9 gigawatts of new wind capacity. At the same time, we have been delivering our assets rotation strategy. We closed in the August an important deal involving an attributable capacity of 500 megawatts of wind farms in Europe. And in late July, we have announced an additional assets rotation deal in Brazil, which is expected to be closed before the end of this year. In networks, we showed also a very sound growth, mainly in Brazil. In distribution, the recent regulatory review implied a significant growth of our regulated asset base providing good visibility on returns over the next three years. And in transmission, we have four lines under construction and one additional under development in which we are managing to anticipate again schedule and optimize funding conditions that will be added to our first line that is already operational since last December. On the other hand, our performance this year is strongly affected by the weak hydro resources in Portugal, which were 39% below long term average in the first nine months of the year. Today is raining. Our recurring net profit increased by 7% to EUR $585,000,000 reflecting operational performance, but also a temporary increase in financial costs, partially related to the €1,000,000,000 hybrid bond, important for our structure, issued last year, last January and higher rate of US dollars and Brazilian real. Why? Because it's where we are growing. That's justified the 4% average cost of debt in the period. Note that this average cost of debt does not yet reflect the recent significant decline of our refinancing costs. As it was shown by our seven year bonds issued in September at the record low yield of 40 basis points. We have a strong potential from benefiting from these low interest rate environment with EUR4 billion of bonds maturing until 2022 that have coupons in the region of four to 5%. Our reported net profit stood at EUR460 million negatively impacted by an EUR87 million provision related to Frito. This provision booked for prudency reasons refers mainly to invest amounts since 2008 in addition to the EUR $280,000,000 down payment following the preliminary awarding of this hydro project concession to EDP. After the 2016 government's decision to suspend the project for a three year period, the Portuguese government decided not to move forward with the process. So we now expect that the exact terms of a financial settlement should be now defined by an arbitrage process that as you know is the quicker system to have a result. Our net debt fell by 5% year on year to EUR 13,800,000,000.0 in September 2019 with expansion CapEx of around EUR 900,000,000 partially compensated by asset rotation proceeds of EUR 800,000,000 and benefiting as well from a good performance on organic cash flow, free cash flow which rose significantly to EUR1 billion. Now going into details, Slide four, as you can see our hydro production in Iberia fell as I mentioned by 47% year on year with low hydro resources which were 39 below or more than four terawatts hour below the average, the historical average, which compares to 20% above average in the 2019. So clearly, they are different years. As expected, due to seasonality, the third quarter had no material impact on these accumulated figures. Regarding wind resources, they were 4% below long term average in the nine months, which is exactly the same figure of the same period in the last year. Still, our wind production increased by 6% due to increased installed capacity and higher load factors in new wind farms. Moving to Slide five, EBITDA increased by 10% year on year. Going into detail, we now spread by business units. Firstly, from renewables, we have an increase by 7% with a major contribution from wind and solar where EBITDA boosted by 40% with assets rotation transaction in Europe generating a $226,000,000 gain. However, and that's important even excluding these gains and exchange rate effect, EBITDA from wind and solar increased by 11% year on year, backed on our installed capacity and higher average selling price. For negative side, we have the hydro. So the low impact the low volumes in Iberia implied a negative impact around EUR $250,000,000 on EBITDA partially compensated by higher average price. Moving to networks, EBITDA increased by 18% mainly supported by robust growth in Brazil. We entered into a new regulatory period for both of our distribution concession in this country with higher EBITDA coming from the recognition of a higher RAB, while the return on RAB is maintained at 8.1% until 2022 and until in Spirit Cento and 2023 in Sao Paulo. So good visibility until the end of our business plan. Additionally, EBITDA was also backed on the 3% increase in electricity demand and the positive impact from tariff updates. In transmission, we benefited from the rollout of the lines that we have In Iberia, EBITDA increased backed by sound cost performance, evolution with adjusted OpEx down by 4%. Lastly, in Client Solutions and Energy Management, EBITDA was 19% up, supported by operations in Iberia following the normalization of the operating margins in the supply business after the adverse conditions that we faced in 2018 as well as the good results from energy management and hedging through forward sales and 84% increase in gas generation, which more than compensated the strong decline in coal load factors, especially in the third quarter. On the other hand, EBITDA from these activities in Brazil declined by EUR 51,000,000 penalized by lower supply volumes and when we have impact in our coal plant in 2018 from the revision of contracted availability level. Moving to Slide six, OpEx. We continue to see a strong performance on operating costs. OpEx on a like for like basis showed a 1% nominal decline. In Iberia, OpEx was flat, but with 4% reduction in adjusted OpEx from networks in Portugal. In Brazil, OpEx in local currency increased 3% in nominal terms or almost minus 1% in real terms in a period of significant expansion of activity. At renewables, at EDPR, adjusted core OpEx per megawatt, which excludes ForEx impact and one offs, effect was flat year on year. Coming up, basically OpEx year on year evolution was slightly below inflation in all our key geographies translating into savings in real terms despite increasing activities. Moving to Slide seven and net profit. Our recurring net profit increased 7% year on year to EUR $585,000,000 strongly supported by EBITDA improvement mostly on renewables as we have seen and networks. And as I mentioned before, but partially penalized by higher financial costs and income taxes. Regarding our reported net profit, it increased by 55% year on year EUR $460,000,000 following a year on year reduction of negative non recurring items in Portugal, namely in the 2018, the provision on the CMEK Innovatory costs and in the 2019, the provision on some costs related to Frito as already referred. EDPR net profit increased 197% year on year, significantly impacted by gains from the asset rotation. In Brazil, net profit increased by 12% year on year in local currency propelled by strong growth in network, partially offset by lower results in energy management. In Spain, the lower net profit reflects the deterioration of gross margin from our coal plants as well as a positive fiscal impact in last year results. Finally, operations in Portugal posted an inlet loss of €33,000,000 penalized by the low hydro resources by the provision of Freedom Weather Project and the maintenance of heavy level of taxes and regulatory costs. We will talk about this later. Slide nine, we are delivering our growth targets. So in terms of update of our strategic plan, I would like to highlight that we have reached 70% of long term contracts agreed for our planned renewables addition up to 2022. I remember in March, we were at 40% when we talked in our strategic update. So we almost doubled since March our long term, with a total of 4.9 gigawatts secured out of the seven gigas of our target. So since December 18, we secured 2.4 of which 1.6 in North America, both in wind and solar, 0.6 in LatAm, including 500 of wind in Colombia, and 0.3 gigas in Europe. The last three months, last quarter have been very intensive in adding 1.8 gigas of new contracts with visibility on delivering and prices. Overall, in the presentation of the first half results, we had 4046% of our seven Gigawatts target and now three months later, we have 70%. So this clearly shows our strong focus on execution of our strategic plan and I believe gives visibility on our top first commitment in terms of the business plan. Still regarding wind offshore, we were informed yesterday that our Mayflower wind offshore project in U. S. Was awarded by Massachusetts states with a 800 megawatt PPA for twenty twenty five, twenty years PPA. We are waiting for the Connecticut results, which will be announced soon and the establishment of the JV with Engie for Wind Offshore is moving forward as expected. And of course, the recent evolution is good news. Moving to Slide 10. On networks in Brazil, it's worth to highlight the very relevant outcome from the recent regulatory reviews of EDP SPIRICENTU under EDP Sao Paulo. As I mentioned, providing visibility of returns, 8.1 return on RAB, the same as the previous regulatory period until August 2022 and October 2023. Additionally, our EBITDA was enhanced through high regulated asset base, which increased by 28% in Spiritsand and 45% in Sao Paulo with respect to the first year of the previous regulatory period, which was 2016 for Spirit Sand and 2015 for Sao Paulo. So clearly here 99 plus of the investment was recognized. I remember that a decade ago, we had the level was 85%, 86% and we are now passing glass in Brazil by far. So finally, we continue executing our growth in transmission, which represents now a total investment of EUR 3,900,000,000.0 in six projects. The first line is already operational for projects under construction and the most recent line in our portfolio permitting stage. All conditions are met for the execution of transmission once again and repeatedly ahead of schedule. Furthermore, better than expected funding conditions have also revealed as a clear driver of value enhancement. These drivers are expected to double our expected NPV from this project. Slide 11, so regarding the execution of assets rotation strategy, we have agreed on two relevant transaction this year, the sale of our 51% stake in nine ninety seven megawatts in Europe, which was closed in July, with EUR 800,000,000.0 proceeds and the sale of EUR 137 in farm in Brazil, which is expected to be closed in the first quarter of this year. The implicit valuation of these deals were higher than initially assumed in our plan, reflecting the strong buyers' appetite for this kind of assets, providing the low interest rate context and current sustainable investment trend. These two deals represents EUR 1,100,000,000.0 of proceeds or more than 25% of our target of 4,000,000,000 assets rotation proceeds between 2019 and 2022. Regarding asset disposal, we are working on the execution of our more than EUR 2,000,000,000 proceeds target. We have a potential portfolio of about 1.7 gigas of merchant generation assets in Portugal on which there is an ongoing due diligence process by selected group of interest parties. Potential bidding offers are to be submitted by year end while full execution and closing is expected in 2020. So we are exactly on track with what we've committed in March and we repeat it just before summer. Moreover, in line with what we define in our strategic plan, we continue to develop other options regarding disposal of assets, which can be become complementary or as alternative to the ongoing process that I've just mentioned. Slide 12, Platman EDP was ranked as global leader within integrated utilities by the Dow Jones Sustainability Index, which is a clear recognition of our commitment to pursue a transparent strategy aligned with the energy transition. Also to highlight that we have achieved the highest score 100 in nine categories, namely climate strategy, water related risks and stakeholder engagement. I think basically it shows that we are competitive. So also in September, within the scope of the UN, we were one of the 87 global corporations that pledged to reduce emissions and ensure global warming does not exceed 1.5 after 2050 assuming as well a commitment with net zero emission final letter than 02/1950. We have already concrete targets to contribute to these achievements such as reduction of specific CO2 emissions by 90% by 2030 versus 2005 and more than 90% share of renewable generation in our portfolio as we announced in the strategic update. Overall, we reaffirm our strong engagement with decarbonization by pursuing the best practice, aligning our strategy with energy transition and with transparent disclosure of ESG metrics. We are well positioned for leading the energy transition, creating superior value for all our stakeholders. So moving to Slide 13. Now we have I've already mentioned that the main highlights of the last quarter. But I would like share with you our current expectation for 2019 full year, a period that will be obviously marked by the low hydro volumes in Iberia as we have seen in previous slides. We expect to reach 2019 EBITDA close to EUR 3,600,000,000.0, slightly above what we shared with you at the first half results conference call, mostly due to the referred positive regulatory developments in Brazil and assuming renewables production close to historical average in the last two months of the year. Regarding net profit, we expect to reach a figure close to 800,000,000 excluding non recurring items in line with our previous expectations. Finally, I would like to stress that over these first nine months we have gained very important steps to execute the full delivery of the strategic plan. So I think that one of the key highlights of today is that we have been focusing on delivering what we have committed in terms of sustainable growth and balanced business plan. Regarding accelerated and focused growth pillar, we have reached 4.9 gigas of long term contracts for renewables capacity additions, which represents 70% as I mentioned. So I think that we have been clearly performing very well in a moment where a lot of you and everybody asks, can you be competitive in a market where everybody now wants the same and is targeting the same areas? We have been proving that we are clearly, if anything, ahead of the curve very well. In Networks Brazil, we have now fully visibility on regulatory returns for the period of our plan following the recent 36% average increase on RAB. We continue to focus on delivering the new line ahead of schedule and of course below cost. Regarding our strategy of continuous portfolio optimization, we have our assets our assets rotation program as a clear driver of value through the monetization of fully valued renewables projects to reinvest in new projects in development stage. This has become a recurrent piece of our renewables business and an important part of our strategy. I think that allows to grow faster, it derisks, it gives you optionality. So I think it's clearly the best strategy. For this year, we have already crystallized EUR 1,100,000,000.0 of value at valuations as I mentioned better than assumed in our plan and representing one quarter of our targets up to 2022. Furthermore regarding asset disposal program, as I just mentioned, and I want to stress this again, we are fully on track to deliver the target proceeds of more than €2,000,000,000 before the 2020 with visibility until the end of this year. Regarding cost of debt, it was penalized in the period by the increasing rates of hybrid bonds and dollar and Brazilian real, like that they are bigger now than they were before. But our most recent refinancing seven years green bond that we issued in September at the record low, as I mentioned, is a good example of what are the current prospects regarding the refinancing of the €4,000,000,000 bond maturity that we have until 2022. Most of them are paying interest well above the 4%. On the efficiency and digitalization front, we have achieved a 1% reduction of OpEx. So as a result of several initiatives under developing in order to continue always to improve our efficiency. So I believe that the last quarter clearly shows in terms of growth, visibility of regulatory assets, in terms of efficiency, in terms of optionality, shows that we are clearly delivering, all our commitments. Now I will pass to Miguel for a detailed analysis, and then we can go back to the Q and A. Thank you. Thank you, Antonio. Let's move on to Slide 15. And here on Slide 15, you can see that during the last twelve months, we've built over 900 megawatts of wind farms, about twothree of these additions coming through in North America. On the other hand, though, we've sold 1.4 gigawatts of wind capacity, of which 400 megawatts in North America related to the deal we announced in December 2018 and one gigawatt in Europe, of which we had 51%, so just point five gigawatts net of minorities, the deal that Antonio has already mentioned. So additionally, we also sold around point two gigawatts of small hydro plants in the 2018 in Portugal and Brazil. So obviously, that explains this movement that you can see here on the graph on the left hand side. So altogether, September 2019, we had 26.3 gigawatts of installed capacity, which 73% related to renewable sources. Concerning generation mix, so on the right hand side, so the main highlight goes to the six terawatt hour reduction year on year on hydro generation, mostly due to the weak hydro resources in Portugal, which we've talked about and which were at 39% below the long term average. On the other hand, our generation from wind and solar increased one terawatt hour, backed by the 3% increase in average capacity and the higher load factors from new additions. But it's also important to highlight that in this period, thermal generation declined one terawatt hour, with gas generation almost doubling year on year from a low base, and finally, replacing coal generation given that there's been an increase in CO2 prices and lower gas prices. So altogether, in the first nine months of 2019, we had 48 terawatt hours of electricity, with 64% from renewable sources, which is I think which is very penalized by hydro scarcity in Portugal and doesn't reflect an ongoing basis. Moving on to Slide 16. So here, wind and solar EBITDA increases 40% year on year to 1,200,000,000 so significantly impacted by the €226,000,000 asset rotation gain in Europe. You can see here. Even excluding this impact, EBITDA would have grown by 14%. I think it's important to highlight, so it would have grown excluding this impact, driven by the increase in average installed capacity of 3%, mainly in The U. S. And Brazil, and also the higher average selling price by 6%, mainly in Brazil, but also benefiting from a 6% depreciation of the U. S. Dollar versus the euro and also benefiting from a 6% increase in electricity production Despite stable deviation of wind resources versus the historical average on a year on year basis, the new wind farms have higher load factors than existing portfolio. So that explains basically the deviation or the movements on the EBITDA in wind and solar. Moving on to Slide 17 and the EBITDA from hydro. So here, you can see it's decreased 34% year on year to €443,000,000 mostly explained by the weak hydro resources in Portugal. As I mentioned, the hydro coefficient is 39% below historical average. So as a result, the hydro generation in Iberia this year was almost half of the previous year at 5.9 terawatt hours. So this impact was slightly mitigated by a 3% increase in the average selling price, reflecting the hydro increased opportunity costs as well as due to our forward sales hedging strategy. Furthermore, pumping volume also rose 10% year on year, optimizing production from the low reserves with stable pumping margins in the region of €15 per megawatt hour. In Brazil, Brazil EBITDA from hydro declined 14% year on year due to several factors. So first, 8% decline of installed capacity due to the disposal of the mini hydro plants by the 2018 secondly, lower average selling price and third, our hedging strategy, which allocated a higher percentage of our annual energy contracts for the second half of the year. Moving on to Slide 18 and regulated networks. So regarding our network activities, EBITDA increased 18% to €749,000,000 In Brazil, EBITDA increased 59%, propelled by both Distribution and Transmission operations, and we already discussed that both Antonio mentioned that. So in Distribution, the start of this new regulatory period implied a significant revision of the regulated asset base recognized by Enel, implying a €59,000,000 increase on the update of the present value of our distribution concession residual asset value. But the results of the distribution operations also benefited from the annual tariff updates and the percent increase year on year on electricity demand, mostly in disputed potential states. In transmission, 2019 is the first year of material EBITDA contribution following the entrance into operation of our first line in December 2018 as well as progressing construction work in the other four lines. In Iberia network, EBITDA performance was mainly supported by a 4% decline in OpEx, which EBITDA was also impacted by Portugal's declining rate of return, which is obviously connected to the evolution of Portugal's ten year bond yield. Moving on to Slide 19, so Client Solutions and Energy Management. So this includes the supply, energy management and thermal generation. EBITDA from these operations increased 19% year on year to €284,000,000 In relation to supply in Iberia, EBITDA improvement resulted from the normalization of operating margins starting from a particularly difficult twenty eighteen, something we've talked about already in the strategic update back in March. And also increasing penetration of new services. So we had an increase of overall €64,000,000 Regarding thermal and energy management in Iberia, we have better results from energy management and forward hedging operations. We have more than offset the deterioration of the coal load factors, which can go from 80% in the 2018 to 22% in the 2019. In Brazil, EBITDA from these activities declined mainly due to lower volumes in supply and weaker results from the hedging strategy. For thermal, last year's results were positively impacted by a €25,000,000 gain due to the downward revision of the contracted availability level. Excluding this effect, thermal EBITDA was stable year on year. Moving on to Slide 20 and talking about the Portuguese electricity system debt. So I think the keynote here is that regulator released a proposal for the electricity tariffs in Portugal for 2020 back on the October 15. The final proposal will be out on the December 15. So it's clear from this proposal that the Portuguese electricity system is following a sustainable path downwards with a continuous reduction in electricity system debt, which is forecasted to reduce by €600,000,000 to €2,900,000,000 by 2020. So this is you can see this has come a long way since the the peak a couple of years ago. So it's expected that the tariff deficit debt will continue to be gradually reducing until being paid fully down by before 2025, so that's in line with with our expectations. In parallel, the regulator defined tariffs for the last resort consumers, so proposing a decline of 0.4%, again demonstrating the financial sustainability of electricity system in Portugal. For our distribution operations, the rate of return on RAD is expected to be the same as in 2019, so at 5.16%, will be then adjusted afterwards according to the Portuguese ten year bond yield. Regarding the Fed, the extraordinary energy tax, the amounts referring to 2020 should be defined by the annual state budget. The first government proposal should be presented to the parliament by December 15. Typically, this is done on October 15 given however, given we had elections now at the October, it's deferred by two months. So to conclude on this section, I'd just like to remind that the results of the recent Portuguese solar auction also with 1.3 gigawatts awarded at an average tariff of €21 per megawatt hour, I think it's also sign of the potential gains to the system, electricity system, from the new renewal addition. So clearly, we're talking about a sustainable system. So I think some of the concerns we had a few years ago are fairly open. Slide 20 '1, net debt. Net debt at €13,800,000,000 in September 2019, so 2% rise versus December, but it's a 1% decline year on year. So the main impacts on net debt are, first, recurring organic cash flow, which is almost €1,000,000,000 which is a 1% increase year on year despite the weak results from hydro, and they're offset by gains from the asset rotation. Secondly, the net expansion investment amounts to €2,900,000,000 as a combination of net expansion investments, but with a significant weight devoted to renewables and transmission. And then also on the other side, €1,000,000,000 proceeds from asset rotation deals. Obviously, there's also the payments in May of the annual dividend amounting to around €700,000,000 And then there's also the positive €500,000,000 from the 50% equity content of the hybrid bond issued in January. And then there's some other effects relating to exchange rates and regulatory receivables. So overall, adjusted net debt to recurring EBITDA reduced to 3.8x, down from before. Slide 22 and talking about financial results. So here, net financial costs stood at €545,000,000 in the nine months of 2019, so this is an increase of 23% in relation to the same period of last year. But this figure is highly impacted by some particular volatile items not relating to interest costs. So just to remind, in the nine months of 02/2018, the last year, the one offs were so there's an IFRS 16 adjustment of €25,000,000 There's a Selesc bad will impact of €15,000,000 There's a capital gains of €19,000,000 mostly related with the Maurice project that we sold down last year. Then also in both 2018 and 'nineteen, are the results of net ForEx and derivatives mark to market, which totaled a negative year on year impact of €24,000,000 So stripping that out as a result of the interest related costs rose by 4%, €17,000,000 basically justified on one hand by a 20 basis point increase in the average cost of debt of 4%. And there's also a difference in the mix because there's a higher weight of U. S. Dollars and Brazilian real in our overall consolidated net debt, which is where we're doing most of our investments. And then there's also an impact of the U. S. Dollar. So if we look also at Slide 10, you see, we've included a slide just to show that, I mean, EDP five year yields in euro are near zero territory. I mean they've fallen 115 basis points since last September. Our U. S. Dollar and Brazilian yields have also fallen at close to two hundred and three hundred basis points, respectively. So this significant decline in our medium and long term yields improves expectations regarding refinancing in the following years. So note that we have €4,000,000,000 of bonds, both euros and U. S, maturing until 2022, namely several bonds with coupon rates in the region of 45%, as you can see here on Slide 63. This number does not include the €750,000,000 hybrid with a 5.375% coupon rate for the first call option in September 2021. So we also have almost €1,000,000,000 of debt in Brazilian reals, which will mature by 2022 and which will also bring a significant opportunity of interest cost savings given where the financing costs in reals has gone for the last couple of months. So we have we expect to get some material savings in the near future due to this low interest rate environment, which means that our overall 4% rate that we assumed in our business plan now means we think we can beat that going forward. To conclude, I'd just like to mention that we still have around €7,700,000,000 in liquidity, which 5,900,000,000.0 relating to available credit lines covers our refinancing needs beyond 2022, protecting us from any volatility in the credit markets and also enabling us to manage, basically, the refinancing and some of the transactions that we expect over the next twelve months. So Slide 24, last slide. So here, you can see sort of the breakdown of the net profit waterfall. Our EBIT rose by 36% following the 10% rise in EBITDA. There's a reduction in the amount of provisions given that last year, we had the EUR $285,000,000 of extraordinary provision relating to the alleged Knecht overcompensation. Financial results and associates went down by €97,000,000 due to the previously referred adverse year on year comparison of noninterest related items and also a 20 basis point increase in the average cost of debt. Income tax expense increases by €95,000,000 year on year with an effective tax rate of 15% on the nine months of 'nineteen, so it's still a fairly low effective tax rate. And regarding noncontrolling interest, this includes €158,000,000 relating to EDP renewables and €114,000,000 relating to EDP Brazil. The total amount increases by €35,000,000 to closely reflect the increase of the NPR net profit and the public profit tariff. Overall, profit rose 7% to €460,000,000,000 while our recurring net profit grew 55%, $585,000,000. So that concludes my section of the presentation. Now I'll turn it over to Miguel Piena to lead the Q and A. Thanks. Thank you, Miguel. So we'll start here with some questions from the web, then we'll pass through to the phone. So the first question that we have from the web is from Andrew Mulder from Credit Suisse. Essentially on the wake effect that was discussed in the last couple of days on the calls of Arstad and Iberdrola and how do we see that in terms of our investment decisions. So thank you, Miguel. Clearly, I believe that we have presented our load factor expectations to investors based on twenty five years of wind resource and predictive models between 2018 and since 1994. And the conclusion is that ADP has been experienced stable wind resources with very low volatility and this was again explained yesterday by EDP Renewables. Finally, believe that our internalization activity brings more value into the equation. So it means that we have know how, example of calibrating models. But overall, what I would like to say is that we have been advanced well in the learning curve. We have suffered some of these problems, of course, but it was in 02/2007, 02/2008, so at the beginning our development. So we have learned a lot of things in the last decade. So we are now very sure, very confident about what we have been showing and commitment that by the way proved by the recent figures. Still in renewables, we have questions from Jorge Alonso from SocXien and also from Kristine Maladrov from Bloomberg regarding the mainflower project that we have won yesterday if we get some more details on the next steps. So clearly, this is very good news. As you know, we were leaders in onshore in U. S. We have been successful in Europe in offshore, namely in U. K. And France. But clearly, we wanted to have our footprint and we did it through in a process that we have now consolidate our leadership positioning and with returns that are respecting everything that has been shared with you. We are talking about 1.5 times return equity returns with double digit even before any strategy of sell down. So this twenty years PPA, first now in Massachusetts with 800 megawatts and now we expect to even enhance this if with the connected results shows that we have been very, very well, doing a very good job in the last year to be prepared to win this with very interesting returns. In a state where the commitments about doing more offshore wind and the investment in ports has been very significant. So the potential in that area is big. And it shows that when we last December, we auctioned for the the site, we did it well. And then the team is they forced to be congratulated with a fantastic job that is good. Very important for ADP. In wind offshore, but now on floating, we have a different question also from Elik Mamado from in terms of South Korean partnership and how do we see this evolution of floating technology? So first of all, Korea. This is Wind Power Korea Access Solutions and EDPR, this consortium. We had ambition to develop an initial 500 megawatts floating. And why it's important? First, because the South Korean government calls for 13 gigawatts of offshore wind installed by 02/1930, so the potential is huge. And so we believe that we are adding value by combining established industry leaders in renewables and offshore project development alongside with the local market and basically the industry expertise provide by the wind power career. And I would like to highlight that the wind flow that we are developing, the oil plant technology that we have been developing throughout the last, I would say, mainly five years with the new project in Portugal with five twenty five megawatts with turbines of 8.5, the biggest in this technology, with the floating technology. The learning curve on our side has been very relevant and will show that we are in the forefront of these new opportunity in floating offshore. And of course, this plus the rest that we have just mentioned in U. S, it means that now we are clearly already in the top five in the world of offshore, and we want to go up in that ranking. Now a question also from Jorge Alonso regarding special energy tax in Portugal, if we have some expectation here, some development. Thank you. That question is relevant. As you know, probably only in the 2020 public budgets we will have visibility over this. But it's very relevant to mention that the system debt deleveraging is progressing and clearly indicates room for reduction already in 2020. So this is important. As you know, budget proposal will be released by before Christmas. And two relevant commitments were assumed last year is that and it was already included in the budget last year to reduce the energy tax as a system deleverage and it's okay. And to allocate two thirds of the revenues from energy and tax to electricity. So I believe that we have everything to expect that reduction because the both criteria are supposed to be met. Just mentioning the system debt, the system debt declined by in the first nine months by 160,000,000 since December 2018 to €3,700,000,000 CLEO accelerating in the first quarter. I remember that EDP share is 10%, only 10% of the total system at the September. For the full year, it will decline by typically by EUR3.3 billion with a negative impact from weaker demand, partially due to mild temperature. But it means that EDP regulatory receivables are expected to be broadly stable. And it's important to mention the 2020 debt proposal signals a decline again of €600,000,000 in the debt. So it means that we will be well below the 2012 level. So all the conditions for the sales changing are there. We have now a question from Arthur Setbond from Morgan Stanley. The guidance on 2019 EBITDA has increased, but the recurring net profit outlook remains in line with what had been mentioned in the first half results conference call. Could you walk us through the moving parts below EBITDA level in the P and L, if any of these items is more negative than expected? So this is clearly the fact that what is growing in our company, areas where we have minorities. So renewables, Brazil, so whenever you go from up there to down there, you have the impact of this where the growth is. As you know, typically the negative impact is in Iberia. It was the hydro and regulatory issues in Portugal. The first of course below average, the second already included in our vision. And of course, below the line, you have financial costs in 2019, the fact the hybrid, the fact that we have increased the share of dollars and reals. But I would like to stress this. We will see the benefits of lower rates because of the fact that we have a big refinancing program relatively to the others. And by the way, the average maturity was considered eventually a problem one or two years ago. Now it's an opportunity. So it's always like this in life. So we have an opportunity to have throughout the period in 2022 the impact of lower financial cost. Question also from Giorgio Alonso, SocGen, regarding net debt guidance for the end of the year. So I don't know, Miguel, if you want to share the same. I mean, I think for net debt end of the year, we'll be looking roughly in line with close of last year. I mean, obviously, this year, the leverage space was slightly slower than expected just because there was also much weaker than average hydro conditions, but we should be close to €13,500,000,000. That's what we're aiming for. I think there was also a part of this question, which was the tax impact for the free loan provision. I mean, this will be tax deductible, and so the bottom line impact the €87,000,000 is around €50,000,000 Filipopartian from Modo and Eileen Lamadotte from Bloomberg. They ask for an update in terms of the proposal plan in Iberia. So the process, as I mentioned and I would like to stress again, because I know that it's relevant after growth, after asset rotation in renewables, of course, the disposal is probably one of the top three issues that we want to give full visibility. The process is progressing with no changes from what we stated before. As we speak, hydro assets in Iberia is the most likely option. We have alternative complementary disposals in Iberia are also being considered. If it's the case, it's always important to have plan B. So it means that we will keep the necessary flexibility eyeing on a reduction of exposure to the market. We will make sure that the process results in a clear benefit for business plan execution and shareholder value. And finally, we remain confident of full execution before 2020 end, and we expect to give visibility until the end of this year or maximum beginning of early, early twenty twenty. So we as you know, the fundamentals are there. We have a very high market share in generation in Portugal, so it makes sense to everybody being aligned on this process. So it's to generation players in Portugal and the process is going as everything that relates to Portuguese government and anything that relates to Brussels is going as normal. So we expect this process to be as we announced in March exactly keeping the pace. We have a question also from from Malada from Bloomberg. Load factors of coal fired power plants in Iberia have deteriorated sharply. Do you plan to book coal asset impairments anytime soon? So as you know, every year, we revisit the issue, typically in the last year end. By then we always incorporate expectations for commodity prices as well as the remaining life of assets as it's normal in order to access potentially permits. So we know coal plants have been working much fewer hours this year, which will certainly be factored in. We had a with expectation for future role in the daily and ancillary markets. High CO2 prices and lower gas prices have reduced coal plant headroom. So clearly, we have been already doing some moves in the recent years, and we will repeat the exercise every year to give transparency to our expectations in what concerns this call. You know, we are leaders in commitment of decarbonization. But of course, it means a transition, and we need to evaluate exactly what does it mean in terms of the impact. So in any case, noncash, we will be having the exercise as usual. And we have a final question on the web before we move to the couple of questions on the phone. So it's regarding hydro EBITDA in terms of the positive impacts from hedging in these first nine months of the year. So what we have here essentially is that our average selling price shows an increase of 3% as we show in our results release. This compared to the 10% decline of power prices. Obviously, there is here a positive impact from hedging, which we estimate in the region of EUR 70,000,000. Obviously, you have other impacts, namely the increase of realized premium versus base loads given that the load factors of hydro were lower than average. So finalizing here the answer of questions through the web, we'll move now to the phone where we have a couple of questions. We will now take our first question from Alberto Gandoli from Goldman Sachs. Please go ahead. Thank you and good afternoon everyone. The first question please I have is on the hydro disposals. And as we are getting close to, hopefully, the conclusion of this, I was wondering if you're still sticking to your idea of, in fact, dedicating all of the proceeds to paying down debt or if you see room sometime towards the end of the plan perhaps to accelerate investments in maybe, I don't know, domestic renewables given the trends we're seeing in merchant solar or to grow dividends perhaps? The second question is and if you can't answer this, I'm happy to take it offline. But is there an easy way to think about the non cash items included in the EBITDA with all the new IFRS changes? I'm trying to figure out the cash conversion of EBITDA and if not, happy to take it offline. The third one is on European consolidation. I mean, recently, the CFO of a company that is in the industry market cap to yours says that he expects lots of M and A in the next few years in utilities as companies try to reposition for the next ten, twenty, thirty years. You seem to own lots of assets that people would want for the next ten, twenty, thirty years. So I'm wondering if proactively you think there could be value for shareholders from consolidation if you were to merge with someone else. What would be the advantages? Why would that be the case? And what's the value of scale, I guess, in developing renewables is the question? Thank you. Thank you, Alberto. Typically, the second question will probably need to be alive answers and they should not be on over the phone, but it's of course a very interesting, but of course not obvious at all. But let's start with the first and then let's move to the second proceed. As you know, we have tried very clearly in this call to highlight that before, okay, you can have more rain, a little bit less rain, you can have some hurdles in terms of no cash provision, but we wanted clear to give the visibility about commitment delivering the key pillars of the business plan. Visibility on growth, I think that's better than anybody could expect in huge impact of new PPA signed in a very competitive market and entering new markets that are exciting and with very attractive returns. So I'm talking about U. S, I'm talking about Colombia. Then the second pillar is about the asset rotation at better prices than we expected, taking advantage of course of the market condition. But finally, this the idea of proceeds of and reducing exposure to Iberia market was always focused on the deleveraging and keeping that balance. So if anything, we the first commitment is put the balance sheet in the place where we have committed. And of course, this allow us to have additional flexibility if it's the case to do some more. But we have not missed any opportunity because of lack of financial strength. We have been delivering everything that we need. And we have always been able to find business structure, business models and financial structures that will deliver that growth and sharing that growth with our shareholders. I think that even the assets rotation, it's a good I think that we are a good bet in what concerns the different valuations between public and private markets and EDP. I think it's bridging very well the difference between those both markets. So let's do what we have been doing that I think it's clearly value enhancing for the shareholders and adjust the speed of growth, but it will be of course just doing more as we have been doing until now. European consolidation. I remember again, when I we started long ago in this industry that I was told by a lot of people that we would only have four utilities. It was 2006 or 2007 that we would only have four utilities in Europe. It was written by somebody that I will not, it's not you. But the question is, do I see room for people trying to improve their positioning in management position? Clearly, yes. But what I would like also to answer is we have defined a strategy that allows ourselves to control our destiny. So it means that we know what we want. We have anticipated the trends. So typically, we have done the partnerships that we need mainly. We are building the partnerships that we need in offshore. We have been clearly being able to prove that we are able to grow now soundly in solar. So I think that we control our destiny. And frankly, a lot of people probably need more out what we have, and I need less what they have. So, frankly, I I'm not overexcited about that story. We are reaching the just one hour of the call. So I will just move to the final remarks by the CEO, and we'll follow-up any more technical questions through the IR team. So after this is my last comment that shows that, of course, the industry is an exciting industry over the Alberto question is, it's going to be an exciting world because everything has been changing as you know, business models, economics, marginal cost of the adding technologies, the importance of the client. I think that as a final remark, I know that we have sometimes in EDP relative to our size, we have a lot of moving parts of small items provisions below the lines, whatever, so details, especially in Iberia, not to say, to mention Portugal. But I think that the big picture is we know exactly what we want to do. We have been able clearly to deliver in very competitive markets with very either in solar, either now recently in offshore and new markets and also regulatory basis like challenging like in Brazil, we have been clearly best in class in what drives our growth. And we have been humble enough to know that we need to keep our sound balance sheet and not going out of tune just because we have specific macro situation. So I think that we feel responsible on that balanced approach and keeping control of our story as leading the energy transition. So thank you for your time and see you soon. This concludes today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.