Earnings Call: H1 2019

Jul 26, 2019

Ladies and gentlemen, thank you for standing by, and welcome to the EDP First Half twenty nineteen Results Presentation. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. Question I must advise you the call is being recorded today, Friday, 07/26/2019. I would now like to hand the conference over to your first speaker today, Miguel Viana, Head of Investor Relations. Please go ahead, sir. Hi. Good morning, ladies and gentlemen. Thank you for attending this first half twenty nineteen results conference call of EDP. We'll start with a presentation by our CEO, Antonio Mexia and our CFO, Miguel Strolden Rad, followed by a Q and A session. Afterwards, you can at this Q and A session, you can use both questions by our website, www.edp.com, or through the phone line. And I'll pass now the floor to our CEO, Antonio Mexia. Thank you, Miguel. Good morning, everybody. Thanks for being present on this conference call. As usual, I will start with the highlights and key figures and key comments that we want to share with you about the results. So if you are following the presentation that you have on Slide three, I would like to start by providing this overview on the performance over the first six months. Our EBITDA increased by 11% to €1,900,000,000 with strong growth across our three business platforms. Let's see on the positive side. We had built out of 900 megawatts of renewables capacity over the last twelve months, mostly wind and also the execution of our asset rotation strategy with one deal in Europe already with a significant contribution to our first half results as you will see. Have reached basically we are close to one fourth of our EUR 1,000,000,000 target for twenty nineteen-twenty twenty two at valuation assumptions above our business plan expectation. Additionally, our networks platform showed also some growth. In Brazil, we saw significant demand growth in distribution, it's relevant, while in transmission we have commissioned our first line and we have three additional lines currently under construction. In Iberia, the evolution was basically marked by the EBITDA benefiting from an OpEx reduction of 5% year on year. On the negative side, our performance was significantly penalized by the weak hydro resources in Portugal, which in the first half of the year were 44% below average. In terms of net profit, we see an increase of 7% to $4.00 €5,000,000 benefiting from the 14% gross at EBIT supported also by significant efficiency improvements with OpEx decreasing by 1% year on year on a like for like basis. Our financial costs were penalized by 30 basis point increase that we have already seen in the last time we met. Why? Because we have an increasing rate of our debt in dollars and Brazilian real, and of course the relevant issuance of €1,000,000,000 hybrid green bond in January. Our net debt fell by 1% year on year to €14,000,000,000 in June 2019 or plus 4% versus the December. Following organic cash flow of 700,000,000.0, in which this in this first half, a 16% increase year on year. So the EUR700 million represents a significant increase on a year on year basis, supported by the expansion of our activities and working capital improvements. While net expansion investments more than doubled year on year, of which 85% were investments in renewables. Last but not least, something that everybody knows, May 15 we have paid the full amount of our annual dividend that amounts to €700,000,000 fully aligned with our commitment on a sustainable and stable dividend policy. So if we move to Slide four, as you can see our hydro production in Iberia fell by 50% year on year following very low, as I mentioned, resource in the 2019, 44% as I already stressed below historical average, which compared to 15% above average in first half of last year. Regarding wind resources, they were close to the long term average in the second quarter, but still 4% below average for the entire first half. So the first quarter was bad, the second on average but still on average below. Moving to Slide five, we see we explained the 11% increase of the EBITDA. So let's move first in Renewables. Renewables EBITDA increased by 9%. In wind and solar, the asset rotation transaction announced in April generated €200,000,000 gain, but I want to stress that excluding this impact, underlying EBITDA in wind and solar rose by 6% following a similar increase of installed capacity. A 5% recovery of average selling prices more than offsetting the effect of weak wind resources that I have just mentioned. On the negative side, in hydro, the low volumes in Iberia implied a minus €200,000,000 impact on EBITDA, partially compensated by higher average prices. Now our second platform, Networks. EBITDA increased by 12%. We see in Brazil growth driven by 4% increase of electricity demand in distribution and a positive impact from the tariff updates, while in transmission we benefit from the rollout of the lines that we have under construction. In Iberia, as I mentioned, EBITDA increased back by sound cost performance with a reduction of OpEx of 5%. Lastly in Client Solutions Energy Management, EBITDA was 24% up supported by the supply operations in Iberia following the normalization of the market and the regulatory context after the adverse conditions that we faced in 2018, and also important, a 73% increase in gas generation in Iberia. Let's move into costs on Slide six. We continue to see a strong performance on operating costs. OpEx on a like for like basis showed a decrease of 1%. In Iberia, OpEx fell by 1% in normal terms and 2% almost in real terms. In Brazil, OpEx increased in local currency 3% or almost minus 1% in real terms in a period of significant expansion of activity. So we are doing more with less. At EDPR, adjusted core OpEx per megawatt also, of course which includes ForEx impact and one offs, fell significantly by 2% year on year. Summing up, OpEx year on year was below inflation in all key geographies leading to a significant reduction in expenses in real terms. Talking of net profit in Slide seven, we see a 7% increase to $4.00 5,000,000 as I mentioned, supported by Renewables and Networks. EDP Renewables net profit increased by 147% year on year, of course significantly impacted by the asset rotation. In Brazil, net profit increased 10% year on year in local currency propelled by strong growth in networks partially offset by lower results in Energy Management. In Spain, the lower net profit reflects the deterioration of dark spreads and the positive fiscal impact in last year. If it was not for this, basically we are good. Finally, operations in Portugal, I think it's relevant, posted the net loss of €18,000,000 in the traditional business continuing heavily penalized by taxes and regulatory costs such as the sales, the social tariffs only supported by generators, clawback Levi and also of course as we mentioned the low hydro resource in the first half. So all the platforms with exception of Portugal are going well. Slide eight, strategy execution. I think it's important that from here we do something detailed on this because we have just presented four months ago in London our strategic update. And I believe that a lot of things since that happened that consolidate the vision of this execution. So moving to Slide nine, first element that is relevant, it's the increase of renewables secured projects. So we are basically trying to talk about the key figures, the key elements that we are expecting us to deliver since we presented those targets in January. So in our strategic plan, we have set the targets of deployment of 7.2 gigas of new renewables capacity in the four years period and we have been focused on the delivery of projects that fulfill our investment criteria in terms of risk returns proposition. By June 2019, we had 1.3 gigas of renewables projects under construction and over the first half of the year, we have secured more 800 megawatts of PPAs for renewables projects to start operating before the 2022 across all our geographies. So we have an increase to 3.3 gigas, representing 46% of the target in terms of solar and wind built out for the four years period. So clearly, we are delivering on this front, almost half for the four years until 2022. Also in terms of Brazil, regarding on our six greenfield transmission projects, which represents a total investment of BRL3.8 billion, we have already reached 30% of execution of the total investment, of which 20% incurred in the 2019. In last December, as you remember, we delivered the first line with twenty months advance to the schedule and we have currently three lines under construction and two additional lines in permitting stage, one of which added to our portfolio in last May. And all of these will be delivered before time. We have also been working on the funding optimization of this project, as you know it's relevant in Brazil, which has also provided a significant improvement of our returns. Up to now, we have already raised BRL1.6 billion of infrastructure, or 50% of the expected funding needs for this portfolio. The second element of the execution on Slide 10, the establishment of a JV with Engie over 50%, 50%. I think it's relevant. Offshore will be an important element for our growth throughout the plant but also throughout the period out after 2022 and we expect to show significant growth over the next decade. With ENGIE we have created clearly a top five wind offshore player. We believe that this partnership will reinforce our competitiveness in this area, giving our complementary competence and I think it's complementary capabilities to achieve large scale of operations which are required to succeed in such a capital intensive business. This JV is also, I would like to stress this, a natural development for companies that have been partners in several wind projects since 2013, so we know each other well. The JV will have a dedicated team and the share control governance with the first CEO being proposed by ADP and the CEO and the Chairman by ENGIE followed by a rotation agreed after three years mandate. The JV has four wind offshore projects in construction stage, all with feed in tariffs already secured spread around four geographies and include fixed and floating offshore technology, representing a total capacity of 2.5 GHz. And on top of this, we have other projects under development amounting to three GHz with highlights to Moray East project in UK, where there will be a CFD auction this year and the Mayflower project in The U. S, which is eligible to the next PPA auctions in Massachusetts and Connecticut. Third element on Slide 11, assets rotation and disposals in Iberia. So very different asset rotation, something that is structural to our business, something that is recurrent and disposals, of course, in the question of rebalanced portfolio and also deleveraging. The assets rotation through the monetization of fully valued renewables projects to reinvest in new projects in development stages became, as I mentioned, a recurrent piece of our business, an important part of our strategy, not only of us but in our cases we are clear in this. In this front, since our strategic presentation, so just four months ago, have agreed one asset rotation in Europe which followed our first deal of this kind closed in U. S. Last December. This deal was agreed at implicit valuations above our business plan assumptions, benefiting from the current downward trend in long term interest rates and the strong market demand for quality assets, sustainable infrastructure assets of that quality. This transaction will provide €800,000,000 of cash proceeds over the second half of this year, representing roughly 20% of the €4,000,000,000 target in terms of assets rotation and we will have more. Second, another important commitment in our strategy plan was the disposal involving assets in Iberia to be executed in a twelve to eighteen month period targeting to reduce the weight of the Iberian market in our portfolio and as an important contribution as I mentioned to reduce our leverage. Over these four months period, we have identified a portfolio of merchant generation assets in Portugal, representing an installed capacity of more than 1.5 giga for potential disposal. These assets have raised strong market interest from a large number of potential investors among which we have selected a restricted group of interest party to present nonbinding offers until next week. Moreover, in line with what we defined in our strategic plan, we have been developing other options regarding potential disposal in Iberia, which we may execute depending on the evolution of the current merchant process. So we have our plan A and plan B. So clearly, we are very focused on these figures that we have committed in January. Overall, we reaffirm our expectations of delivering our commitment in terms of asset disposals through attractive value crystallization to our shareholders within previously announced timeframe that would assure the full delivery of the disposal program before twenty twenty year end. So finally on Slide 12, I would say that the world is on track to deliver our targets of the strategic plan. So regarding the key elements, we are talking about visibility. Regarding our accelerated and focused growth ambitions, we have built growing quickly 900 megawatts and added 800 megawatts of long term contracted having secured 40 what I referred to 46% of the targets up to 2022. The JV on the top, the new transmission line and network, so clearly all of these items are in four months explain exactly why we feel comfortable on this growth. Second, continuous portfolio optimization. We have, as I mentioned, already crystallized $100,000,000 of assets in terms of assets rotation with valuations better than assumed in our plan. And also, we have clearly launched this process of in Iberia and the non binding proposals next week is a good sign of all the work done in the last four months. Thirdly, in terms of solid balance sheet commitments, have reinforced our credit metrics through the issuance of the green bond and we have securitized 1,100,000,000 of tariff deficits in Portugal, contributing to reach the €6,700,000,000 of financial liquidity by June, which covers refinancing needs beyond 2021. So clearly, we are in a very strong liquidity position. On efficiency and digitalization front, we have delivered in the first half a 1% reduction of OpEx, as I mentioned. On the digital front, I would highlight as an example the successful ongoing rollout of digital meters in Portugal, which in this first half provided a 40% increase in remote readings with a significant reduction in operating costs. We continue to commit to this attractive shareholder remuneration having delivered in last May dividend as foreseen. But finally, I would like to highlight that in terms of guidance for 2019, we maintain basically what we have stated in the first quarter twenty nineteen results conference call. First, we continue comfortable with the EBITDA consensus of 3.5%. Second, we consider it is still possible to achieve consensus net profit close to 800,000,000 depending of course naturally on hydro and wind conditions during the first quarter. So I will now pass to Miguel Stuehl for more detailed analysis and then I'll come back for the Q and A session. Thank you. Miguel? Thank you, Antonio. So now moving on to a more detailed analysis of the results, I would ask you to turn to Slide 14. So here in Slide 14 and as we've shown in previous quarters, we can see that the focus continues to be clearly on renewable energy with a 2% increase in the renewables installed capacity. And I'd also like to highlight that this represents a 6% increase in wind capacity. So with this, the renewable energy now weighs 74% of EDP's installed capacity and 68% of its generation mix despite very high first half in Iberia and also slightly weaker wind resources in some of our key geographies, although that was mostly in the first quarter. So overall, renewables production 16% lower than the first half due to lower renewable resources, but still over two thirds of our total production. If we turn to Slide 15, here we can see that the wind and solar EBITDA increased 40% year on year to €961,000,000 significantly impacted obviously by the €19,000,000 of asset rotation gain in Europe. Excluding this impact, the remaining underlying activity still grew by 6%, and I think this is extremely important. So excluding the asset rotation, even so the underlying business grew 6%, driven by obviously the increase in installed capacity mostly in The U. S, the higher average selling prices mostly in North America and Eastern Europe, which more than compensated to wind volumes 4% below long term average in the period. Let's move to Slide 16. Here we can see that the EBITDA decreased by 36% year on year to $3.00 €2,000,000 obviously strongly impacted by the very dry first half year in Iberia as Antonio has mentioned. And as he also mentioned, so the hydro coefficient was 44% below historical average. So if you compare this on a yearly basis, the hydro generation in Iberia declined 50% to 4.3 terawatt hours. This was partially compensated by a 15% increase in the average selling price, which prompted higher realized prices associated to these lower load factors generally in Iberia. In Brazil, EBITDA from hydro declined 10% in local currency and 12% in euros with the allocation of a higher percentage of our annual energy contracts to the second half of the year. Moving to Slide 17 and our Networks operations, here you can see the EBITDA increased 12% to €472,000,000 So in Brazil, the EBITDA increased 26% or 33% in local currency with the transmission activity contributing €18,000,000 already as the first line became operational in December 2018. And in distribution, the improvement in results was mainly driven by 4% demand growth in our concession areas, mostly in the area of Speedy Sense and positive impacts also rising from tariff updates. In Portugal, EBITDA increased by 6% despite the decline of return on RAB by 17 basis points to 5.26% in line also with a slight reduction in interest rate. And in Spain, 16% EBITDA growth includes the unwinding of some previous year's costs. Finally, OpEx in Iberia fell by 5% in the Networks business, reflecting significant efficiency improvements, which Antonio also mentioned earlier on. Slide 18, so Slide 18 touches on the Client Solutions and Energy Management business, which includes also the thermal generation. The EBITDA from these operations increased 24% year on year to $2.00 €8,000,000 Regarding supply in Iberia specifically, EBITDA resulted from the normalization of operating margins on a particularly adverse first half twenty eighteen and also the increasing penetration of new services in our client base. So in the strategic update, there have been some doubts as to how this business would evolve to the targets that we've shown, I think these results this year show that clearly there's a very strong improvement in the supply business. Iberian generation also benefited from improvement of market conditions in gas with the CCGT productions increasing by 73%. In Brazil, EBITDA from these activities declined mainly due to lower volumes in the liberalized supply market. In Passain, the slight decline in results was mostly due to an extraordinary positive effect in the 2018 as a result of the downward revision of the reference availability level, which obviously happened last year, but it's not happening again this year. So let's move to Slide 19 and talk a little bit about net debt. So net debt stands currently at €14,000,000,000 a 4% increase versus December 2018. And this reflects a 16% increase of recurring organic cash flow to €700,000,000 so that's positive mostly due to the expansion of activities and also a big improvement of working capital. We more than doubled the net expansion investment to €1,200,000,000 with a significant weight around 85% of investment in renewables. The payment in May 2019 of the annual dividend of €700,000,000 and finally, a positive €500,000,000 impact from the 50% equity content of the hybrids we issued in January. There's also a positive €200,000,000 impact, mostly related to regulatory receivables. So overall, Gieda's net debt to recurring EBITDA stands at 4x. Let's move to Slide 20 and talk about financial liquidity and the debt maturity profile. So here, the total available liquidity is currently at €6,700,000,000 including €1,500,000,000 of cash and equivalents and €5,200,000,000 of available credit lines. So this covers clearly our refinancing needs beyond 2021. As we've stressed before, we have obviously reinforced our balance sheet with the hybrid. And another important contribution was the securitization of €1,100,000,000 of the Portuguese tariff deficits, which we sold during the second quarter of this year. And that obviously has an impact. Talking about financial results on Slide 21. Here, the net financial cost stood at €371,000,000 in the first half, so increasing from €277,000,000 in the 2018. So this looks like a big increase. Obviously, are some significant nonrecurring items and others are recurring. But excluding volatile items, directly related to interest costs, in the 2018, so we did have the IFRS adjustment of EUR 60,000,000. We had a SOES bad will impact of EUR15 million, and we had an asset rotation gain of EUR19 million. So that was just the 2018, and those are impacts which we then don't have in 2019. Impacts in both 2018 and 2019, so the results from net ForEx and derivatives mark to market with negative year on year impact of €15,000,000 So adjusted financial costs rose by just 3% or €11,000,000 justified by the 30 basis points increase on average cost of debt to 4%. I'll just remind you that at the 2018, this was already at 3.8%. It's now moved to 4%, but it's in line with what we indicated in the strategic update where we would be. Also, think it's important to highlight that with the recent significant decline of medium and long term interest rates, both in dollars, euros and in the Brazilian real, we believe we will be able to gradually refinance our debt at rates significantly below the ones that we are currently paying in our debt, which is maturing in the short term. So this should have a positive impact on the evolution of our average cost of debt, although more materially post-twenty nineteen because refinancing, which will be done now towards the second half, will obviously have more impact in the following years. So this increase in the cost of debt is obviously justified partially by the hybrid, but also in a great part by the higher weight of dollars in Brazilian real in our consolidated net debt because that's the currencies that we are investing in. And so that goes on gaining higher weight as time moves forward. Let's move to Slide 22, last slide. So here, we have the 11% growth in our EBITDA. Our EBIT goes up by 14% to €1,168,000,000 Financial results and associates go down by €85,000,000 due to the previously referred adverse year on year comparison of the noninterest related items. The effective tax rate is stable at 17% in the first half versus 16% in the first half twenty eighteen. Again, I remember there was some concern in the first quarter results regarding the average tax rate. So as you can see, it's now below the 20% that we guided towards. Obviously, in the medium term, this will converge to above 20%, to the mid-20s we talked about. Also to highlight, the results of the first half continued to be penalized by the booking of the full annual amount of the extraordinary energy tax of €67,000,000 which we have excluded from our recurring net profit. Regarding non controlling interests, they increased slightly by €10,000,000 reflecting the increase of the EDPR net profit. So overall, our net profit rose 7% to $4.00 €5,000,000 while our recurring net profit grew 8% to EUR $470,000,000. So with that, I'll conclude my presentation and turn it over to Q and A. I'll just pass the ball to Miguel Vianney. Thanks. Thank you very much. Maybe we'll start with the questions from the phone. Thank you very much. The first question we have today comes from the line of Stefano Bizzato from Credit Suisse. Please go ahead. Yes, hi. Good morning. It's Stefano Bizzato from Credit Suisse. Two questions for me. The first one in relation to the asset disposals, assuming that the sale of the 1.5 gigawatt of merchant capacity in Portugal goes ahead as planned. After that, do you still see the need to reduce exposure to Iberia further maybe in light of political regulatory risk? And the second question is on the strong performance of the Iberian supply in H1. Can you elaborate on the key drivers, how much is regulation, how much is new products and how do you expect this division to evolve over the next quarters? Thank you. Thank you, Stefano. I think that what we have been focused, as you know, on the disposals in Iberia and we are talking basically more about Portugal, we have been focused now in merchant assets, probably a package of hydro that makes sense. We have a huge market share in Portugal. If we reach these targets, we feel comfortable. It means that we will comply with our commitments. So this €2,000,000,000 will be matched. As I mentioned, we have other plans if anything doesn't pleases us or if anything is on the way. The targets will probably not move a lot. So we want this. Of course, in what concerns thermal, as you know, we have been very frank in the sense that of course we want we would love to reduce even more there, but it relates also to a question of supply and demand and the question of the time spent of those assets and clear the value. We are not ready to leave value on the table for nothing just for the sake of a nice conversation. So clearly, we will be looking for value crystallization again at the same time as we deleverage and derisk. In what concerns the strong performance of Iberian supply, the improvement I would like to highlight two things. It was basically both in Portugal and in Spain, so almost half half. And the improvement in the first half is in line with our guidance in the strategic update, but cannot be extrapolated for the full year. So if we are talking low 40s in the first half, we will be reaching the end of the year in the 60s. So it's not the 80s, it will be the 60s, okay? It will not double, but it will be more or less of the half of what we have shown in the first quarter or in the first half. We can go to the next question, please. Thank you very much. The next question on the line today comes from Javier Garida from JPMorgan. Please go ahead. Good morning. I would like to know if you could provide a bit more detail on your asset rotation. You mentioned predominantly hydro. You could give some indication about the mix, whether it's run of the river, pump storage, reservoir. I mean, details you can provide about the mix earnings or the output contribution, that will be very helpful. And also thinking of this disposal, would you be open to sign a contract where you would sell the asset, where you would keep the operation of the assets, you would continue to provide some O and M services in the long run? And also finally, if you are selling hydro, Could you comment on what could be the implications for those assets of any decision in the future, if ever, from the European Commission on the concession suspension in Portugal and the formal process through which that concession extension was done? That was the first block of questions. And then the second question would be on asset rotation. Would you be open to include any of the joint venture components into future asset rotations? Or now that you have created a joint venture with ENGIE, you feel comfortable with the attributable stakes you have in offshore? Thank you, Javier. Let's start with the question of the hydro. Of course, we have built a mix that makes sense geographically that people that would keep those assets credible players will be of course also able to run something that makes sense in terms of integration of those assets, in terms of operations. So our base case clearly is not to keep the operation. If it's needed, it's okay, but depending very much on the buyer. So the base case is not that one. So we did a mix with both run of the river, storage, everything that, of course, will allow somebody that with these assets to be more balanced in the market. So we have clearly identified this and we have shared this with the key people that are really serious about this. And as I've mentioned, we expect already nonbindings at the end of next week. So it means that we have been doing all these technical stuff. Now as concerns question of Brussels, I think that, of course, extension of concession is, by the way, not a Portuguese issue. It's an issue that involves a very large number of countries that for different reasons of those of Portugal because they did it later. Portugal did it in a totally legal sound basis, so, with no questions until recently. So, the issue is that if anything if anybody is worried about, having more players, more competition, whatever, this is a path, of course, to reach in a in a quicker way the target. So I I think that the incentives are aligned between everybody, and so, we expect this to to to go through. Of course, it's the reason why we never know in terms of timing, whatever. The reason why we're also preparing, as I mentioned, b and c, our plan because clearly what we will be doing, I can assure you, Javier, is that we want to give visibility until the end of the year and we want to execute throughout 2020. So that's clear commitment and we will not change it. Including of JV offshore assets in terms of assets rotation, as you know, this is built mainly we had already done this. By the way, in projects, we have already where we are already with ENGIE. So the key issue is that now we will be together we will be stronger and we will have more power to be the leader of consortiums together. As you know, nobody consolidates in these big projects. People basically want the leader. And together, we will have more chances to be the leader of any consortium for any new bid. So this is more driven to do new stuff than just to lower what we have today. So the key focus it does not mean that we cannot do it. We don't have any taboo. But the key issue is that we want we have now pulled teams together that are focused on this leadership of new projects in Europe, in U. S. And also in Asia, including new markets in Asia. Okay. Thank you. We can go now to the next question on the phone, please. Thank you very much. The next question today comes from the line of Alberto Gandolfi from Goldman Sachs. Please go ahead. Hi. Good morning, and thank you for taking my questions. I have three on on my side. The first one is on Brazil. We have been reading about this ability of Epstein, you know, assets injected in Energia Brazil, you becoming a minority shareholder there. I was trying to see what would be the attractiveness for your shareholders to do that. How is there any ground to it? And how would you create value for EDP holders in that scenario? The second question is about capital allocation and EDPR in particular. Now let's say you carry out €2,000,000,000 of disposals at least announced before year end. That is clearly done to improve and strengthen the balance sheet. But could you have incremental disposals of something that you deem as, you know, growing much less or noncore and, as a result, upgrade investments in growth areas. You just mentioned the JV in offshore. And and as part of all this discussion, where does in your priority seat the full integration of EDPR? Because I think you're now sharing, you know, about 17% of your growth from your core business with minorities and very limited liquidity there. Why not bring it in and enjoying full growth from it? So apologies. Two part question. Last one, very briefly. You seem to have more projects than balance sheets to carry out to carry them out. So the question would be, do you think you can stay independent on a three year basis? Would you be open to consolidation? How is going to this whole renewable development impact your long term strategy? It seems to become more and more and more a scale really type of business where size matters a lot. And so if you can share any thoughts, be fantastic. Thank you. Thank you, Alberto, for your ambitious questions and and covering very interesting topics. I think that speculation in Brazil in this moment is not worth spending a lot of time, but I wanted to be clear in several items. First, Brazil plays a relevant role in our business and that has been value accretive for EDP. Of course, we continuously evaluate any option to the extent it's aligned with our equity story and creates value for shareholders. I don't want to be vague, but in life the key issue is to keep your principles and what the lines that we will not cross. So we will not do any evolution on Brazil platform that will not make sense for EDP. Of course, you need to respect minorities, but especially we will not move in any direction that does not fulfill the interest of EDP shareholders, that does not deliver the full value of what we believe is the full value of Brazil. So we are ready to do whatever. We have been flexible as in the past to do whatever we have to do when we think it's relevant and it's a non regret, but we will not be on a wishy washy situation. If it's what worries you, we will not accept any wishy washy middle of the road solution. The second is capital allocation and the question of EDPR. That's a recurrent question. I would like to say that we will not be integrating anything in cash, so it's out of the question. It's also not a priority. I don't say that it does not make sense. It could make sense, but of course, it has to make sense in all terms for ADP shareholders. Clearly, we don't move just for the sake of something that is make it simpler. Of course, making it simpler, it's nice, but of course it makes it needs to make sense very wise. But in any case, we will never buy minorities in cash. That's obvious. Whatever are the proceeds of any asset reallocation, we will not do it. In terms of projects, bigger projects and balance sheets, consolidation three years. I think that your question, I think it's relevant for a lot of people in in the the in the scene. I really believe that our plan shows that we are focused. One of the critical elements that of companies of our size is is you need to be focused. You need you need to lead. But at the same time, it's true that size matters, especially, for example, in the offshore. That's clear. But for there are other items where eventually some moves have been done by very, small players and sometimes not really creating a lot of value. So, what we have been doing is let's keep focus. Let's create optionality, namely everything that relates to client relation, new downstream that will be important to integrate on this leadership of energy transition. But I believe that we have a story that makes sense and stand by on its own, on its own feet without any need of integration in the future. We can and we will be delivering as it was the case until now. If you see the past, in the last decade, we have delivered more value to our shareholders than the sector. So I think that the story still makes sense. But of course, you need to be focused. You cannot have middle of the road solutions. You need to be ambitious. And I think that our strategic plan shows that we have this in mind. Thank We can go to the next question, please. Thank you very much. The next question over the phone today comes from the line of Jorge Guimaraes from GB Capital. Please go ahead. Hi, good morning. Thank you very much for taking my questions. I have three. First, on the soft guidance that you gave us, you said it includes gains from asset rotation. Should we assume it also includes the gains from hydro assets sales in Portugal? Secondly, the OpEx evolution in Spanish Networks division was very good in first half of the year, maybe as some recoveries of past costs, but what should we assume for the second half of the year? And finally, a question on your generation mix. You are still producing a lot of electricity from coal. Should we assume that your plants still are still competitive against CCGT plants, namely the Sinus plant in Portugal? Thank you very much. Thank you, Georges. Let's be clear. The guidance for the net profit, as I mentioned, we still possible to achieve. That does not include any gain on any of the disaster disposal in Iberia. First, because probably even if you are able to show something or sign anything, probably the deal will be any deal will be closed only in 2020. By the way, we are not doing this because of capital gains. We are mining this for we are looking for asset reallocation and deleveraging. We are not looking to do capital gains here. If they are perfect, but it's not the driver. The driver is really deleveraging and lowering our exposure because we have also invested a lot in last decade in Portugal. So we it's a question of rebalancing that portfolio. But then no inclusion. By the way, in terms of assets rotation, we are working on new deals on the renewables front. Just to give an idea, when you see the figures and people try to look into the end of the year, it also relates to other questions that we have been we have received on the web is that you when we guided the capital gains, we have talked about between 150,000,000 to 100,000,000 with a downward trend towards the end of the 2022 plan, where we would be reaching only 100 So the reality is slightly different for good reasons. In 2019, we will be above the €200,000,000 But I wanted to be very clear, not because we sell more megawatts, but because we get more euros per megawatt than expected. So that's the reason why we think it's still possible to achieve the figure. And this figure does not include any hydro or whatever disposal in Iberia. The OpEx, it's a trend. We have been very focused on this. Just an example, it's a detail, but we are doing our business everywhere in all the company. We're pushing OpEx in terms of all the items. So this minus is to go on and we can basically, we will anticipate what we have committed in our OpEx program that we are currently doing. In terms of generation mix, I would like to stress the following. Our coal power plants, those in Portugal and Spain are among the most competitive. In Iberia, Sinis and Abonio are clearly on the first quartile due to location, due to the fact that Sine is one of the most recent by the way. It's in the 70s, but it's a recent one and designed to be so we still believe that it's competitive and it still plays a role in both markets, both in Portugal and also in the North Of Spain. They are very relevant still for the equilibrium, the balancing of the system. So they still play a role. We don't see this role as we have already mentioned for going to up 02/1930, but we see clearly in the next years them to be competitive and needed in system. Unless the rules of the game change and if they change and if they are not there, of course, we will take all the decisions. Have good coal fired plants even if we are focused on just only investing in wind. By the way, as you know, one of those thermal plants in the North uses Sydrissey gas. So we are always looking even when they ask, oh, you are a green company. Yes. We are a green company, but we always try to find a solution that protects the assets and that also makes anything that is brown greener if it's possible using, better fuels. So I don't want it to to take long, but, we have been very cautious with this. So we still have time for one more question from the phone and then maybe one or two from the web. Let's go for the last phone question. Thank you very much. The next question on the phone today comes from the line of Manuel Palomo from Exane. Please go ahead. Yes, hello. Good morning, everyone. Thanks for taking my questions. I've got one follow-up one question and one clarification, if I may. Follow-up is on the short term guidance. You have just ruled out the capital gains coming from hydro asset divestments being part of this €800,000,000 But I didn't get it very clear. Could or should we expect more asset rotation deals also helping the company to achieve this full year target? Then the question which is on maybe for Miguel, on the free cash flow statement, I see that maintenance CapEx has increased versus last year and I wonder why. And the last one is a clarification is on the net debt figure, I see that this 14.04 net debt calculation, I wonder my understanding is that you are not including the impact from the IFRS 16. Am I right? Thank you. So just to be clear, taking perhaps the last one first. In terms of the IFRS, we are not including that. So it is clearly identified in the handouts and in the information, but we are being consistent in terms of what we gave in terms of targets at the strategic updates and the way we are presenting the numbers here. But in any case, the information regarding the IFRS impact is clearly in the identified in the handout. In terms of the free cash flow and maintenance, We have our normal ongoing maintenance, which is obviously goes on increasing also as a result of the renewables business as it goes on growing. There's a certain amount that is being accelerated relating to the Networks business. And there's also components associated with the payables to fixed asset suppliers. And so that has come through also in the first half. And so that basically explains the difference between the first half of this year and the first half of last year. And finally, short term guidance, as I mentioned, does not include any results from any sale in Iberia. It relates only with gains of the assets rotation as normal business of on the renewables platform means wind and solar. And the answer is yes. We are looking into more assets rotation. It's not the question of needing it or not. It's we have as you know, we have targeted for the four years. We know exactly what are the assets that we consider for that farming down. And so we are just implementing this. And what we see today, it's great opportunities in the market because of the quality of the assets, because of the situation of the interest rates. And we like to take advantage of these, I would say, suppliers' markets of good assets. And so it's true. So there I wanted to be very clear, we expect to be slightly to be above the €200,000,000 this year, so above the average of the period. Thank you. We can now move to the questions of the web. We have here from Fernando Garcia, Royal Bank of Canada and Jorge Alonso from Socchian some clarification on the impact of the hydro impact in Iberia in the first half twenty nineteen. So what was the impact in terms of volume and in terms of price? Your questions were mixed. Thank you, Fernando and Georges. Let's see about the hydro. As I mentioned, the hydro impact was around EUR 200,000,000 of EBITDA and this includes two things. First, the minus four terawatt hours generated, it's a huge difference because of the hydro resource clearly below the average, more or less half. That also includes the positive of 15% increase in realized price versus a pool increase of 3%. Why? Because, of course, hydro, due to the flexibility on the system, on technology, you can pick better moments, so your realized price is better than the average price of the system. So this overall explains the 200,000,000. You know what concerns the tariff deficits? It was we have been very clear about this figure. It was 3.79 in June with a reduction, smaller than expected in the staff because of light received CO2 revenues and also because of lower demand as by very mild weather in this winter in in Portugal and in Spain. The demand was minus 1.9% despite the economic growth, so it's clearly weather saying. But we want to be very clear, we continue to see the system debt reducing this year close to 5,000,000,000 this year. So it's the same trend. The trend is clear over the last years. The reasons that explain this trend are the same. Eventually, you have basically just timing issues here of revenues or weather seasonal. So no change on these type systems. So then there was a question also about the the hedging. The hedging is we talk typically about the hedging in 2019. We are clearly above 90%. We want to we were clear in what concerns having so that 58 that compares to last year of 55. If you it it also relates to if you compare pools, 52 to 50. So it means that relatively we are in a good position and the spreads are have improved. So and I also like to include the mentioning to the gas as I think that's more or less everybody did. We had a positive impact on the gas of €10,000,000 mainly on the 2019. Due to these hedging positions, we expect additionally €30,000,000 so it means €40,000,000 for the full year. So I think it's relevant for the figures. I've seen also a question about Brazil, the strategy. In the first half, we have allocated only 46% of our resource, so it means in the second half, we will be allocating the 54%. So it was already foreseen. We have a question about sales from George. So the says we we will have we have a commitment towards the system, not towards us, but to everybody that says will evolve with the reduction of the tariff deficits. The tariff deficit has been reduced. So we expect for the next years a progressive reduction of the sales. And as you know, at the end of the plan, still in 2022, we still consider the sales to be there at 40% level. So we expect this. You have also asked about Brazil and Chinese interest I think that we have already talked about this. We have been very clear. We are focused on our shareholders. So I think that we have answered all your questions. So I think with this, we have answered all the questions, even the small pending ones. We'll follow-up on the IR level. And I will pass now for the conclusion of the call to again to the CEO. Once again, thank you, Miguel. I wanted to share you the feeling that after meeting, probably most of you and at least some of you in January and having already, but basically four months less than five months after that meeting, we, we feel very comfortable with the strategic commitments. We have been very focused on that delivery. We have been doing all the homework. Some is already visible. The figures are already there. The money is already in. The others are clear. So we want to give that word of visibility of delivery. Of course, it was a first half where we missed rain in Portugal and in Spain, so we all missed rain. But I think that we have clearly adjusted our strategy to this. And we have if anything, we have been over delivering everything that depends on us, on crystallizing value, on reducing costs, on capturing opportunities to grow. So I think that in what depends on us, things are clear. And, and so the guidance is also there. So see you in, soon, and, and thank you for your presence. Bye bye. Thank you very much. That does conclude the conference for today. Thank you for participating. You may all disconnect.